1994 (1) TMI 126 - AT - Income Tax

Issues Involved:
1. Entitlement to investment allowance under Section 32A of the IT Act, 1961.
2. Classification of the assessee as an industrial undertaking.
3. Alleged mistake apparent on record in the Tribunal's order.
4. Impact of subsequent Supreme Court decisions on the Tribunal's judgment.

Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A of the IT Act, 1961:

The assessee, an engineering construction company, claimed investment allowance for the assessment years 1982-83 and 1983-84. For 1982-83, the assessee purchased machinery worth Rs. 11,95,18,733 for a project in Iraq and Rs. 1,85,42,528 for work in India, claiming an investment allowance of Rs. 3,22,79,957. For 1983-84, machinery worth Rs. 3,18,38,260 was purchased for Iraq and Rs. 1,22,44,037 for India, with an investment allowance claimed at Rs. 1,09,99,748. The conditions for creating the necessary reserve were complied with for both years.

The Assessing Officer denied the claim based on various High Court decisions, asserting that a construction company cannot be classified as an industrial company. However, the CIT(A) allowed the claim, considering the Tribunal's earlier favorable decision for the assessee and the Orissa High Court's judgment in CIT vs. N.C. Budharaja & Co. The Tribunal upheld the CIT(A)'s decision, referencing the Kerala High Court's ruling in the assessee's favor, which the Supreme Court later dismissed.

2. Classification of the Assessee as an Industrial Undertaking:

The core issue was whether the assessee could be considered an industrial undertaking eligible for investment allowance. The Tribunal followed the Kerala High Court's decision, which affirmed the assessee's status as an industrial undertaking engaged in systematic construction activities, manufacturing, and processing various materials. The High Court noted that the assessee used plant and machinery in ancillary activities to enhance efficiency and economy in construction, thus qualifying for relief under Section 32A.

3. Alleged Mistake Apparent on Record in the Tribunal's Order:

The Revenue filed a Miscellaneous Petition, arguing that the Tribunal's order contained a mistake apparent on record, especially in light of the Supreme Court's subsequent decision in CIT vs. Shankar Construction Co., which held that construction activities do not qualify for investment allowance. The Tribunal examined whether the Supreme Court's decision created a mistake in its earlier order favoring the assessee.

4. Impact of Subsequent Supreme Court Decisions on the Tribunal's Judgment:

The Tribunal noted that at the time of its decision on 21st May 1993, the law was as laid down by the Kerala High Court in the assessee's case. The Supreme Court's later decision in a different case could not retroactively create a mistake in the Tribunal's order. The Tribunal emphasized that the Supreme Court in Shankar Construction Co.'s case did not address whether a construction company is an industrial undertaking, leaving the issue open. Moreover, the Tribunal highlighted that the Revenue's appeal did not challenge the assessee's status as an industrial undertaking but focused on the investment allowance grant.

Conclusion:

The Tribunal concluded that there was no mistake apparent from the record in its order dated 21st May 1993, which followed the Kerala High Court's decision in the assessee's favor. The Tribunal dismissed the Miscellaneous Petition, affirming the assessee's entitlement to investment allowance under Section 32A of the IT Act, 1961.

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