1 These appeals are preferred against the order dated 24-3-1982 of the Commissioner, passed under Section 263 of the Income-tax Act, 1961 ('the Act'), directing the ITO to withdraw the investment allowance allowed amounting to Rs. 6,66,666 and Rs. 1,06,348 for the assessment years 1979-80 and 1980-81 respectively.
2. The assessee is a contractor.During these years it has undertaken (1) construction work of additional water conductor system, (2) constructing tunnels and (3) construction of exit channels. In respect of the machinery and plant installed after 31-3-1976, theassessee claimed investment allowance amounting to Rs. 6,66,666 and Rs. 1,06,348 under Section 32A of the Act for the assessment'years 1979-80 and 1980-81respectively. The ITO allowed the investment allowance claimed.
The Commissioner issued notice under Section 263 proposing to withdraw the investment allowance allowed by the ITO in these two years as he was of the view that the orders of the ITO are erroneous and prejudicial to the interests of revenue. The assessee filed a written explanation objecting to the proposed action under Section 263. After considering the objections, the Commissioner held that the assessee carries on the business of construction only which cannot be called 'an industrial undertaking'. The items manufactured are used only for the purpose of construction which is the business of the assessee. Themere fact that certain articles are made for the business of the assessee, which is the construction work, does not entitle the assessee to the benefit of investment allowance. The orders of the ITO for these two years allowing investment allowance are erroneous. Thus, he directed the ITO to withdraw the investment allowance allowed in these years.
Against the same, the present appeals are filed.
3. The learned counsel for the assessee strongly urged that the assessee is an industrial undertaking. It carries on the business of construction. It does not manufacture or produce any article or thing specified in the Eleventh Schedule, The assessee satisfies the conditions prescribed under Section 32A and sothe assesseeisentitledfortheinvestment allowance. In support of his contention, he relied upon the decisions in the case of CIT v. N.C.Budharaja & Co.  121 ITR 212 (Ori.), V. Venugopala Varma Rajah v.CIT  76 ITR 460 (SC) and CIT v. Geoffrey Manners & Co. Ltd.  109 ITR 172 (Bom.). He also referred to the decisions in AIR 1970 SC 1407 and AIR 1970 AC 548. He also relied upon an order of the Tribunal of the Madras Bench in Abcoy v. Second ITO  12 TTJ 356.
He further submitted thatthe reasons given in the notice and those found in the order of the Commissioner are different and so, on that ground itself the order of the Commissioner has to be cancelled.
Further, the Commissioner has not discharged the burden as to whether the order of the ITO is erroneous.The Commissioner was also not justified in setting aside the assessment orders as a whole.
4. The learned departmental representative strongly supported the order of the Commissioner. He submitted that there should be an article or thing which is ultimately manufactured or produced in these years for getting the relief under Section 32A. In the instant case that has not been satisfied as the assessee has not constructed the entire dam or any other work and there is no end-product. It is not the construction of dam that is done but it is only the construction of channel. Hence, the assessee is not entitled to the relief under Section 32A. He distinguished the decisions relied upon by the learned counsel for the assessee.
32A. (1) In respect of a ship or an aircraft or machinery or plant specified in Sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed as a deduction in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee : Provided that no deduction shall be allowed under this section in respect of - (a) any machinery of plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house ; (c) any ship, machinery or plant in respect of which the deduction byway of development rebate is allowable under Section 33 ; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under thehead 'Profits and gains of business or profession' of any one previous year.
(2) The ship or aircraft or machinery orplant referred to in Sub-section (1) shall be the following namely :- (b) any new machinery or plant installed after the 31st day of March, 1976- (i) for the purposes of business of generationor distribution of electricity or any other form of power ; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.
It is Sub-clause (iii) of Sub-section (2)(b) that is relevant for our purpose. Under the above provision, any new machinery or plant installed after 31-3-1976 in any industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, shall be eligible for the investment allowance under Section 32A. There is no dispute that the assessee does not fall under any of the items prescribed in the list in the Eleventh Schedule. As already pointed out, the assessee has undertaken (1) construction of additional water conductor system, (2) constructing tunnel and (3) construction of exit channel. In order to carry out the above construction work the assessee required machinery and plant which has been installed after 31-3-1976. For the purpose of the above work the assessee has to manufacture fabricated materials, prepare steel-structures, do concrete-lining, blasting and various other types of work. In Sub-clause (iii) of Sub-section (2)(b) of Section 32A the words used are 'any article or thing'. The word 'thing' is of wider concept. It is true that construction by itself would not qualify for investment allowance. The construction should be of an article or thing not specified in the Eleventh Schedule. The above construction activity of the assessee in constructing water conductor system, tunnel and exit channel would amount to construction of thing within the meaning of the above clause and can be considered as an industrial undertaking. Thus, the assessee has satisfied the conditions under Section 32A and is entitled to the investment allowance.
6. In Abcoy v. Second ITO (supra) to which one of us (the learned Accountant Member) was a party had considered the provisions of Section 32A. In para 5 it was held as under : ...We are of the view that the word 'construction' cannot be limited in such a way as to qualify only ships or boilers or such other things. 'Thing' is a word which is very wide in its meaning. No doubt, the learned departmental representative has confronted us with a decision of this Tribunal in justification of the narrow view. However, we cannot follow the said decision, after the said decision of the Orissa High Court in CIT v. N.C. Budharaja & Co.
(supra), where the construction of an irrigation project was held to be an industrial undertaking, which manufactured or produced articles within the meaning of Section 80HH in a backward area. In that case, the activity of the assessee involved construction of a dam and excavation, displacement of certain materials and bringing in other materials to the site and performance of various engineering process involving activities, which can be called 'manufacture'. It was pointed out that the word 'article' need not be only movable property. We do not find that the words under Section 32A are even wider as 'construction' has also be:n included.
Besides 'articles', there is an additional word 'thing'. Hence, there is absolutely no material for denying investment allowance in assessee's case....(p. 358) 7. In Budharaja & Co. (supra) it was held that the business of a contractorwho has undertaken construction of irrigation project would be anindustrial undertaking whichmanufactured or produced articles within the meaning of Section 80HH in backward area.In that case the activity of the assessee involved construction of dam,and for that purpose, the assessee had to bring big boulders, break them into small ones and engage in a variety of engineering activities. The above ratio squarely applies to the instant case.
8. In CIT v. M.R. Gopal  58 ITR 598, the Madras High Court held that process employed by the assessee in converting the boulders into small stones with the aid of machinery is a manufacturing process and the undertaking of the assessee is an industrial undertaking.
9. In CIT v. Pressure Piling Co. (India) (P.) Ltd.  126 ITR 333, the Bombay High Court held that the end-product of the piling process which had independent existence isan article for thepurpose of Section 84(2)(iii) of the Act.
10. In National Projects Construction Corporation Ltd. v. CWT  74 ITR 465, the assessee was engaged in the construction of dams, barrages, etc. The assessee had large workshops at work-sites for processing of steel, crushing stones and manufacturing lime and brick-dust, etc., for the execution of the works undertaken by it. The assessee claimed exemption from wealth-tax under Section 45(d) of the Wealth-tax Act, 1957.
Explanation : For the purposes of Clause (d), 'industrial undertaking' means an undertaking engaged in the manufacture, production or processing of goods or articles or in mining or in the generation or distribution of electricity or any other form of power : (e) any company solely engaged in the business of transporting goods or passengers by ships ; (f) any company registered under Section 25 of the Companies Act, 1956 (1 of 1956); (h) any company incorporated outside India whichhas no place of business in India.
After considering the above Explanation, it was held that it is not necessary that the goods should be produced for sale. An undertaking engaged in the manufacture of goods for its own use may, therefore, equally qualify for the exemption. It was further held that Section 45(d) of the 1957 Act, does not require that the undertaking should be engaged in the manufacture of goods for being sent to market or be solely engaged in the manufacture. It could have purchased the goods and articles from the market and constructed dams and barrages. Instead of that it decided to manufacture them. From a business point of view it cannot be said that the assessee is not engaged in manufacturing or processing of goods. Thus, it was held that the assessee was engaged in the manufacture, production or processing of goods or articles within the Explanation to Section 45(d) and, therefore, qualified for the exemption.
11. The ratio laid down in the above case squarelyapplies to the instant case. In the instant case, the construction of tunnel, exit channel and additional water conductor system would amount to construction of a thing for the purpose of Clause (iii) of Sub-section (2)(b) of Section 32A. Merely, because the items manufactured by the assessee are used in its own business, the claim cannot be disallowed as there is no such restriction prescribed in Section 32A.The ratio laid down in National Projects (supra) applies.
12. Thus, the assessee is an industrial undertaking and the investment allowance under Section 32A is allowable on the machinery or plant installed after 31-3-1976. Thus, the ITO was justified in allowing the investment allowance.The Commissioner was wrong in invoking the provisions of Section 263 and directing the ITO to withdraw the investment allowance granted in these two years.
13. In the view we have taken on the main point, the other contentions raised by the learned counsel for the assessee need not be considered.