ORDER
Shri B. L. Chhibber, A.M.
1. The only ground raised in this appeal by the Revenue is that the learned CIT(A) is not justified in allowing deduction under section 80HHA when the assessee-company has ceased to be a small scale industrial undertaking.
2. The assessee, a private limited company, is engaged in the business of cutting and polishing of rough diamonds. The assessee claimed deduction under section 80HHA but the claim of the assessee was rejected by the Assessing Officer on the ground that the value of assessee’s plant & machinery exceeded the sum of Rs. 35,00,000 and so the assessee ceased to be a small scale industrial undertaking. While working out the value of the assessee’s plant and machinery, the learned Assessing Officer included the value of vehicles, air conditioners, computer system, CCTV system, office equipment and EPBX system etc. for the purpose of business of the assessee’s industrial undertaking. During the course of assessment proceedings, it was submitted before the Assessing Officer that actual cost of plant & machinery which was used by the assessee on the last date of the accounting year was Rs. 52,10,000. It was further submitted that items like air conditioners, office equipments, vehicles, computer system and water filter plant were installed in the office premises and therefore, these items do not form part of plant and machinery installed in the industrial undertaking. As regards vehicles, the cost of which was Rs. 9,98,200 it was contended before the Assessing Officer that these were never installed and so these should not be considered for the purpose of calculating Rs. 35 lakhs. The Assessing Officer was not satisfied with the explanation furnished. Holding that the assessee-company was no longer a small scale industrial undertaking, he denied deduction under section 80HHA.
3. The assessee appealed before the CIT(A) who held that the items like vehicles, computer system, CCTV system, office equipments, EPBX system and air-conditioners etc. cannot be said to be installed for the purpose of the industrial undertaking business of cutting and polishing of diamonds and so their value has to be excluded while calculating Rs. 35 lakhs as per Explanation (b) to section 80HHA. The learned CIT(A) further observed that in case of the value of vehicles, computer system and other items which are not connected with the profession of the industrial undertaking were to be included in the value of plant and machinery under Explanation (b) to section 80HHA the Legislature would not have used the words “Installed for the purpose of business of the undertaking” in Explanation (b) to section 80HHA. The learned CIT(A) accordingly concluded that the assessee’s industrial undertaking was a small scale industrial undertaking within the meaning of section 80HHA r.w. Explanation (b) to section 80HHA and accordingly the assessee was entitled to deduction under section 80HHA.
4. The Revenue is in appeal before us against the above finding of the CIT(A). Shri G. M. Brahmbhatt, the learned D.R. submitted that the assessee’s total investment in plant and machinery including vehicles and office appliances) used for the purpose of business exceeded the limit prescribed under section 80HHA(b) of Rs. 35 lakhs. Accordingly to the learned D.R. the plant & machinery used for the purpose of business, including vehicles and office appliances are all covered by section 43(3) of the Act. According to him as per Explanation (b) of section 80HHA, the only item excluded from the purview of Plant & Machinery are tools, Jigs, dies & moulds. Therefore the investment made in machineries other than these including vehicles and office appliances, used for the purpose of business, are rightly considered in working out the aggregate value of investment in plant & machinery at Rs. 52,10,302. He drew our attention to the commentary of Palkiwala 8th edition at page 543 where interpretation of the expression plant installed is given which states that it includes not only an assets which by its very nature is capable of being fixed in position but also other assets incapable of being so fixed such as buses, and office appliances which are introduced in the business. He therefore concluded that on the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have upheld the order of the Assessing Officer Shri Ramesh Shah, the learned counsel for the assessee strongly supported the order of the learned CIT(A). He submitted that for the purpose of calculating the limit of Rs. 35 lakhs as per Explanation (b) to section 80HHA, only the plant and machinery which are connected with the production or manufacturing of article or thing of industrial undertaking should only be considered. According to the learned counsel out of the plant and machinery of Rs. 52,10,302 that are used for the purpose of overall business as on last day of accounting year, only the plant and machinery of Rs. 27,56,288 were connected with the production activity. No air conditioner has been installed in the factory. The main office building of the assessee is having the central air-conditioning system. Other items like EPBX, CCTV, office equipments, vehicles, computers, safe deposit vault etc. are not directly related to the production. In support of his contention the learned counsel relied on the decision of CIT v. Machinery Mfg. Corpn. Ltd. [1992] 198 ITR 559 (Cal.) where it was held that irrespective of nature of business one has to retain fire extinguisher and time office equipment, and these are not therefore plants installed for the purpose of business of the construction, manufacture or production of any article or thing so as to be eligible to investment allowance under section 32A. He further submitted that the assessee has never claimed investment allowance on the above items which the assessee claimed for exclusion from the purview of Explanation (b) to section 80HHA. He also placed reliance on the decision of the Tribunals in the case of Indian Communication Network Ltd. v. IAC [1994] 50 ITD 411 (Delhi) and Dy. CIT v. Central Hatcheries (P.) Ltd. [1997] 59 TTJ (Jab.) 587.
5. We have considered the rival submissions and perused the facts on record. As per Explanation (b) to section 80HHA the industrial undertaking shall be deemed to be small scale industrial undertaking if the aggregate value of the machinery and plant installed as on the last day of previous year for the purpose of the business of the undertaking does not exceed Rs. 35 lakhs. In our view, the words “installed for the purpose of the industrial undertaking” used in Explanation (b) to section 80HHA are not superfluous or unnecessary but of vital importance. In case of the value of the vehicles, computer system and other items which are not connected with the production of industrial undertaking were to be included in the value of plant and machinery under Explanation (b) to section 8HHA, the Legislature in its wisdom would not have used the words “installed for the purpose of the business of the undertaking” in Explanation (b) to section 80HHA. We find that out of the plant and machinery of Rs. 52,10,302 which are used for the purpose of overall business on the last date of the accounting year, only the plant and machinery of Rs. 27,56,288 were connected with the production activity and that items like EPBX, CCTV, office equipments, vehicles, computers, safe deposit vault etc. being not directly relating to production have to be excluded while working out the value of plant and machinery installed in the industrial undertaking. We accordingly concur with the finding of the CIT(A) that the assessee’s industrial undertaking is a small scale undertaking within the meaning of section 80HHA read with Explanation (b) to section 80HHA and accordingly the assessee is entitled to deduction under section 80HHA.
6. In the result, the appeal is dismissed.