1. The assessee is an individual. The assessee during the previous year purchased colour photo developing machine from India Photographic Co.
Ltd., Bombay, through State Bank of India, Park Circus Branch, Calcutta. The assessee was allowed the investment allowance under Section 32A of the Income-tax Act, 1961 ('the Act') at Rs. 82,433. The Commissioner after the completion of the assessment found that the assessee should not have been allowed the investment allowance for the assessment year 1980-81 and, therefore, the order passed by the ITO to that effect was erroneous insofar as it was prejudicial to the interest of the revenue. He took action under Section 263 of the Act and issued a show-cause notice to the assessee. The assessee pleaded before the Commissioner that the investment allowance under Section 32A was rightlyallowed to the assessee. A written submission was made by the assessee. It was indicated before the Commissioner that the assessee had been treated as a small-scale industries unit for which it registered with the Directorate of Cottage and Small-scale Industries, the Government of West Bengal. It was indicated that if the provisions of Section 32A are considered along with the operation of the assessee, it is clear that the assessee was manufacturing an article within the meaning of Section 32A, and therefore, the investment allowance was rightly allowed by the ITO. The Commissioner did not accept the same.
He directed the ITO to recompute the total income of the assessee by withdrawing the investment allowance which was allowed in the assessment order. The Commissioner in giving the above direction, adopted the following reasoning : 3. I have given careful consideration what has been stated by the ITO in his report placed in file, as well as the arguments of the authorised representatives on behalf of the assessee, as carefully stated above. In regard to the granting of investment allowance under Section 32A of the Income-tax Act, 1961, the primary condition that has to be satisfied is that the new machinery or plant installed after the 31st day of March, 1976 is to be engaged for the purposes of business of manufacture or production of any goods or article, which, thereby implies that a process of change, with reference to the input and output, is definitely necessitated. In this case the asset in question belonging to the assessee, on which investment allowance has been claimed, is a computer pertaining to photographic equipments, which cannot be stated to be engaged in manufacture or production of any new article or thing as envisaged for the purpose of granting of investment allowance. It, thus, automatically follows that there must be some process of manufacture involved with raw materials coming in for processing or manufacturing, and finished goods coming out. What has to be borne in mind is the concept of 'manufacture', which is a process resulting in any alteration or change of the goods subjected to such manufacture. In this case, there is no such processing involved, which alone would entitle the assessee to the granting of investment allowance under Section 32A of the Income-tax Act, 1961 and, in the circumstances, I hold that the assessee-firm's claim for investment allowance on the assets in question should not be considered at the time of making the income-tax assessment. This is, therefore, a case where the original assessment, wherein investment allowance under Section 32A of the Income-tax Act, 1961 has been wrongly granted, is erroneous being prejudicial to the interests of the revenue, thereby attracting the provisions under Section 263 of the Income-tax Act, 1961 2. Shri Bhattacharjee, the counsel, of the assessee, explained the working of the assessee. He filed the literature of the Durst Machine which was purchased by the assessee and also filed the paper and negative which arc given in the machine for printing the final product.
The final product was given by the assesses in the sample as well as the assessee produced the picture rolls printed by the machine to indicate that the machine which was installed by the assessee, was manufacturing an article within the meaning of Section 32A. Shri Bhattacharjee indicated that plain paper and negative are inserted in the machine and the machine prints colourful picture. It also develops in various sizes, cuts papers to sizes and also prints. On these facts, Shri Bhattacharjee urged that the machine which was purchased by the assessee during the year under appeal was manufacturing an article and, therefore, the order passed by the ITO on this issue was neither erroneous nor prejudicial to the interest of the revenue. Shri Bhattacharjee in this connection referred to the decision in CIT v. A jay Printery (P.) Ltd.  58 ITR 811 (Guj.).
3. Shri Dasgupta, the departmental representative, on the other hand, very strongly supported the order of the Commissioner and urged that even after considering the operation and working of the machine, the assessee is not manufacturing any article within the meaning of Section 32A and, therefore, the order passed by the ITO on this issue is erroneous and prejudicial to the interest of the revenue.
4. The assessee during the year under appeal has purchased a machine which is known as 'Durst Machine' manufactured by Durst (UK) Ltd. The machine is used like mini laboratory. The machine accepts negatives, cuts paper into different sizes and after applying chemical and other things, delivers 960 pieces of a particular size in an hour. It prints in colourful design from the negative. The assessee has filed a sample of printing on the machine along with the negative and the paper.
However, the assessee in the course of the arguments also produced the various rolls of papers printed on the machine to show that it was manufacturing an article within the meaning of Section 32A. Investment allowance under Section 32A is available to a small-scale industrial undertaking, which is established for the manufacture or production of any article or thing. The assessee has filed a certificate from which it is clear that the assessee was registered as a small-scale industry with the Directorate of Cottage and Small-scale Industries, Government of West Bengal. The assessee was printing and developing various articles from the negative inserted in the imported machine. The assessee was only inserting the negatives and the plain paper as required for the object. The final product was something different from the negative or the white paper which was inserted in the machine.
Moreover, it was coming in different sizes. It was developing also in different sizes and the printing was done automatically in colour.
Therefore, if the operation of the machine is taken into consideration along with the final product, it is clear that the assessee was manufacturing an article with the machine. The word 'manufacture' had come for consideration before the Courts and in Ajay Printery (P.) Lid's case (supra). The Hon'ble High Court held that the business of printing balance sheet, profit and loss accounts, dividend warrants, pamphlets, share certificates, etc., required by a company is a business which consists wholly of 'manufacture of goods' within the meaning of Clause (ii) of Explanation 2 to Section 23A of the Indian Income-tax Act, 1922. The word 'manufacture' appearing in Section 32A has not been defined in a different manner. Therefore, the meaning of the words 'manufacture of any article or thing' will be given the natural meaning. If the printing of the balance sheet, profit and loss account, dividend warrants, etc., could be taken as the business of manufacture of an article or thing, the printing done by the assessee with the machine is definitely an act of manufacture of an article.
Therefore, the ITO was right in allowing the investment allowance to the assessee. The order passed by the ITO on this issue could not be taken as erroneous and prejudicial to the interest of the revenue.
Moreover, the assessee's counsel in the course of the hearing indicated that the Tribunal has allowed investment allowance on X-ray machine.
The assessee cited the decisions of the Tribunal in First ITO v. Dr. P.Vittal Bhat  6 ITD 560 (Bang.) (SB) and Fourth ITO v. Dr. E.U.Mane  1 ITD 648 (Nag.).
If these decisions of the Tribunal ate also taken along with the facts of the case, it is clear that the investment allowance was correctly allowed by the ITO and the order of the ITO on this issue was neither erroneous nor prejudicial to the interest of the revenue. The order of the Commissioner is, therefore, set aside.