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2011 (2) TMI 1247 - HC - Income TaxWhether ITAT was justified in holding that the amount paid as advance for purchase of machinery during the year under consideration was the amount utilized for the purchase of machinery within the meaning of Section 32AB of the Income Tax Act Held that - Finance Act 1986 introduced section 32AB relating to investment deposit account. The provisions apply in relation to the assessment year 1987-88 and subsequent years. Under these provisions an assessee is entitled to a deduction of an amount up to 20 per cent of the profits of eligible business or profession if the said amount is either deposited with the Development Bank within the period up to six months from the end of the previous year or before furnishing the return whichever is earlier or is utilised during the previous year for the purchase of a new ship new aircraft or new machinery or plant ITAT was justified in holding that the amount paid as advance for purchase of machinery during the year under consideration was the amount utilized for the purchase of machinery within the meaning of Section 32AB of the Income Tax Act
Issues Involved:
1. Whether the amount paid as an advance for the purchase of machinery qualifies as an amount utilized for the purchase of machinery under Section 32AB of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Qualification of Advance Payment under Section 32AB: The primary issue is whether the advance payment of Rs. 15,55,875/- for the purchase of machinery qualifies as an amount utilized for the purchase of machinery within the meaning of Section 32AB of the Income Tax Act. The Income Tax Appellate Tribunal (ITAT) had held that such an advance payment does qualify, and this judgment was referred to the High Court for opinion. Arguments from Revenue: The counsel for the revenue argued that since the machinery was not acquired by the assessee in the assessment year 1989-90, the assessee was not entitled to the investment allowance. They emphasized that under Section 32AB, the machinery must be acquired or installed in the premises of the assessee to qualify for the allowance. Arguments from Assessee: On the contrary, the counsel for the assessee argued that Section 32AB, introduced with effect from 1.4.1987, allows for deduction if the amount is deposited as earnest money or advance for the purchase of machinery. They supported their argument with judgments from the Bombay High Court (Commissioner of Income Tax vs. Antifriction Bearings Corporation Ltd.), Calcutta High Court (Commissioner of Income Tax vs. Tribeni Tissues Ltd.), and Allahabad High Court (Commissioner of Income Tax, Lucknow vs. U.P. Asbestos Ltd.), along with Circulars from the Central Board of Direct Taxes (CBDT). Factual Position: The assessee, a public limited company engaged in manufacturing and selling telephone cables, claimed a deduction of Rs. 1,61,62,646/- under Section 32AB for the purchase of machinery, which included the disputed advance payment of Rs. 15,55,875/-. The assessing officer disallowed this amount, but the CIT (Appeal) and ITAT both upheld the assessee's claim, leading to the referral of the question to the High Court. Relevant Provisions: Section 32AB(1) allows a deduction for amounts deposited or utilized for the purchase of new machinery. The provision was compared with the earlier Section 32A, which required the machinery to be acquired, installed, or put to use within the year. Judicial Precedents: The High Court referred to the Bombay High Court's interpretation, which stated that an advance payment for machinery qualifies as utilization for purchase under Section 32AB. Similarly, the Calcutta High Court held that it is not necessary for the machinery to be installed in the same year. The Allahabad High Court also supported this view, emphasizing the nexus between the advance payment and the income of the current year. CBDT Circulars: The CBDT Circulars dated 9.7.1986 and 22.9.1987 clarified that deposits or advance payments for machinery qualify for deductions under Section 32AB, even if the machinery is not acquired within the same year. Conclusion: The High Court concluded that the ITAT was justified in holding that the advance payment of Rs. 15,55,875/- for the purchase of machinery qualifies as an amount utilized for the purchase of machinery under Section 32AB. This interpretation aligns with the legislative intent to allow deductions for such advance payments, differing from the earlier provision under Section 32A. Final Judgment: The question referred by the ITAT was answered in favor of the assessee, affirming that the advance payment qualifies for the deduction under Section 32AB. The ITAT was informed accordingly.
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