TMI Blog2001 (11) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... company purchased a ship known as 'M.V. Tamil Periyar' on 30-9-1986 at a cost of Rs. 39,63,80,428 and 'M.V. Tamil Kamaraj' at a cost of Rs. 40,00,26,286 in March, 1987 as per the details given below : 1. 'M.V. Tamil Periyar' cost Rs. 39,63,80,428 2. 'M.V. Tamil Kamaraj'cost Rs. 40,00,26,286 ---------------- Total Rs. 79,64,06,714 Add: Addition to cost because of exchange fluctuation Rs. 6,32,43,353 ---------------- Rs. 85,96,50,067 ---------------- The total investment allowance to which the assessee-company was entitled to in respect of the above two ships was Rs. 21,49,12,516. In addition to the aforesaid three ships the assessee-company purchased Dredger on 20-8-1990 for a sum of Rs. 87,98,435. 3.1 The appellant company debited to the profit and loss account and credited to the investment allowance reserve account the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement under the Act that the amount of reserve as created should be kept separately or apart. The creation of a reserve does not necessarily involve the earmarking of the funds separately. Even where a reserve is created, the funds can be utilised arid the funds need not identified separately. The requirement of law is only that subsequent to the year in which the investment allowance is granted or the assessee is entitled to the investment allowance consequent on the acquisition of a new asset, the assessee should obtain any other specified asset of an amount equal in value to the extent of the reserve. The principles of accountancy is thus clear and does not require an identity, between the amount transferred to reserve and funds utilised to acquire the new asset. The requirement of law is only that the assessee should acquire an asset on any date subsequent to the acquisition of the asset in respect of the investment allowance is claimed and the value of the asset so acquired should be equal to or in excess of the amount of reserve that the assessee is required to create under section 32A. Applying the above position it can be seen that the assessee has acquired four vesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the reserve the assessee should require new assets. This requirement is also satisfied in the instant case. Kind attention is invited to the following decisions of the Supreme Court where the court has held that it beneficial provision should be interpreted in a liberal manner. 6.6 The decision of the Supreme Court in Garden Silk Wvg. Factory v. CIT[1991] 189 ITR 512; CIT v. Mangalore Chemicals Fertilizers Ltd. [1991]191 ITR 156 (Kar.) and Bajaj Tempo Ltd. v. CIT[1992] 196 ITR 188;. In the above cases the Supreme Court categorically held that a provision granting incentive should be liberally considered. 6.7 In view of the above legal and factual position it is submitted that the withdrawal of the investment allowance for the aforesaid three assessment years is not justified. 7. On the other hand, the learned departmental representative Shri A.K. Nigam, Commissioner of Income-tax (ITAT), strongly supported the orders of the Revenue authorities and contended, to say in brief, that: The Assessing Officer, in his revision orders dated 27-3-2000 (for the assessment years 1986-87 and 1987-88) has brought out the details of investment allowance reserve created by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulated in clauses (a), (b) and (c) of section 32A(5) do not have to take place. Occurrence, of any one of the situations shall disentitle the assessee from the benefit of deduction and shall thereby warrant withdrawal of deduction. This perception is further reinforced by the provisions of section 155(4A)(b). The benefit of deduction which flows from the statute could be derived only by a strict adherence to the conditions stipulated in the provisions. As the appellant in the instant case failed to fulfil the requisite conditions prescribed in this behalf the withdrawal of investment allowance was absolutely justified. The orders of the lower authorities on the issue, therefore, need to be upheld. 9. We have heard the rival submissions and considered the facts and the materials on record including the impugned orders and the case laws relied upon by the learned counsel for the assessee. On a careful perusal of the facts and the materials in the light of the rival submissions, it can be seen that the crux of the issue awaiting our adjudication is whether the investment allowance reserve created much later to the date of acquisition of new ship (other than the original ship in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which the investment allowance is claimed and the value of the asset so acquired (new ship) should be equal to or in excess of the amount of reserve that the assessee is required to create under section 32A (with respect to the original ship). However, we are unable to accept this argument of the learned counsel for the assessee for the simple reason that in section 32A itself it is stated under sub-section (4)(a) as follows "Investment allowance reserve account to be utilised - for the purpose of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or new machinery or plant (other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to subsection (1) for the purposes of the business of the undertaking." Even though section 32Apermits creation of reserve in subsequent years due to insufficiency of profit for creation of reserve, it is nowhere stated in the section that the reserve can be created in respect of original ship, subsequent to the acquisition of the new ships in satisfaction of tile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fted section 32(4)(a) and section 155(4A) in the statute book. 10.2 In this case on hand the assessee has not purchased a new ship after, the creation of the reserve in respect of the ship originally purchased. On the other hand, even before the creation of the reserve in respect of the original ship purchased has been completed (spread over the various assessment years), the assessee company has acquired new ships and is trying to link those purchases to the subsequent creation of the reserve (in respect of the old ship). 10.3. The learned first appellate authority in the appellate order dated 31-1-2001 for the assessment year 1986-87 at page 3 has observed as under-: "In this connection a reference is invited to page 1157 of IT Law by Chaturvedi and Pithisaria (Vol. I 1991 edition) where the conditions regarding the investment allowance reserve are discussed as under : "The amount in such reserve (investment allowance reserve) must be utilised for the purpose of acquiring within the next following ten years, a new eligible asset for the purpose of business of the undertaking itself."[Section 32A(4)(ii)]. From the above it is clear that the amount from the investment all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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