COMMISSIONER OF INCOME TAX Vs. NARAYAN GLASS WORKS

JUDGEMENT

(1.) The Tribunal, Delhi Bench "A", New Delhi, has referred the following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as the 'Act'), for opinion to this Court: Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim investment allowance under Section 32A on an expenditure amounting to Rs. 2,23,415 as held by the Tribunal?

(2.) The reference relates to the asst. yr. 1978-79. Briefly stated the facts giving rise to the present reference are as under: The assessee is a registered firm carrying on a business of manufacture of glassware. It claimed that it remodeled its existing furnace by dismantling it and built a new one thereon at a cost of Rs.2,23,415 and claimed investment allowance thereon under Section 32A of the Act. The ITO did not allow the claim as in his opinion this amounted to replacement of an old furnace by a new furnace and that the asset, which was brought into existence, could not be said to be a new asset. The ITO, however, granted normal depreciation and extra-shift allowance on this sum. The assessee then appealed to the CIT(A) but unsuccessfully. In the further appeal filed before the Tribunal, it was contended that the view taken by the authorities below was incorrect and that the assessee was entitled to the investment allowance. It was pointed out that when the Department allowed depreciation and extra-shift allowance on the cost of the new furnace, the Department could not say that no new furnace was brought in existence and this finding was inconsistent. It was also pointed out that the CIT(A) mentioned in his order that the expenditure incurred by the assessee represented only repairs and renovation and thus, the assessee was not entitled to investment allowance. If his finding was that what was spent by the assessee was only repairs, then the entire amount should have been allowed as an expenditure by withdrawing the depreciation allowed as well as the extra-shift allowance and not having done that, another inconsistency was committed. It was then pointed out that the assessee actually constructed a new furnace at a concessional cost and that should have been treated (as) a new asset and investment allowance should have been allowed thereon in the light of the decision of the Bombay High Court reported in CIT v. Tata Hydro Electric Power Supply. Company [1980]122 ITR288 (Bom). In the alternative, he submitted that on the finding of the CIT(A), the entire amount should be allowed as revenue expenditure. The Department opposed these contentions.

(3.) The Tribunal after considering the arguments for and against the assessee and the record came to the conclusion that a new furnace was erected in place of old one at a cost of Rs.2,23,415. The Tribunal found support for the view that the assessee was entitled to the investment allowance from the judgment of the Bombay High Court reported in [1980]122 ITR288 (Bom) (supra). Relying upon the ratio of that decision, the Tribunal held that by incurring this expenditure the assessee brought into existence a furnace of an improved version with proven life, which was made possible by structural alterations. The Tribunal noticed that the assessee incurred a loss of about Rs. 1,54,000 in the demolition and that amount was claimed as a loss, which according to the Tribunal proved that the old furnace was totally demolished and what was built in its place was only a new furnace. The Tribunal therefore, allowed the claim of the assessee on the language of Sub-section (2) of Section 32A of the Act.