ORAL JUDGMENT S. H. KAPADIA, J. :- Being aggrieved by the decision of the Tribunal, the department has come by way of Appeal under section 260-A of the Income-tax Act, in all raising 7 questions. The Appeal concerned Assessment Years 1988-89. FACTS: 2. The assessee is engaged in the business of manufacture and sale of data processing cards, ribbons and mini micro-based systems. It also develops computer software and it also provides technical consultancy service in India and abroad. It also carries on data processing activity with Data Processing Machines installed at its Data Centre. The assessee is also a dealer in computer software and computer hardware. The assessee also receives goods manufactured by other Concerns and before those goods could be used, their suitability is tested by the assessee. 3. For the sake of convenience, we prefer to answer this Appeal Question- wise. 4. Question No.1 reads as follows: Question No.1: 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the CIT (Appeals) in directing the Assessing Officer to allow the claim of the assessee under section 32AB of the Income Tax Act 1961 in spite of the fact that the assessee had failed to furnish the prescribed particulars of machineries and also the audit account under section 32AB(5) in support of its claim? 5. The argument advanced on behalf of the department on the above question was that under section 32AB(5) deduction was not admissible unless the assessee furnishes, along with his Return of income, the Audit Report in the prescribed form, duly signed and verified by the Accountant. It was argued that in this case, the audit Report was not submitted along with the Return of income and, therefore, the assessee was not entitled to deduction under section 32AB. There is no merit in this argument. Firstly, this argument is not there in the above quoted question. Secondly, in this case, the assessee had claimed deduction of Rs. 19,58,043.00 under section 32AB of the Act on the basis of the Audit Report under section 32AB(5). This claim has been partly allowed by the AO on merits. There is no finding of the AO rejecting the claim of the assessee on the ground that the Audit Report was not annexed with the Return. 19,58,043.00 under section 32AB of the Act on the basis of the Audit Report under section 32AB(5). This claim has been partly allowed by the AO on merits. There is no finding of the AO rejecting the claim of the assessee on the ground that the Audit Report was not annexed with the Return. In the interest of justice we also perused the Rand P which indicates that the Audit Report is there on the file of the AO. There is no finding recorded by the AO that this Report came on the file during the assessment proceedings and that the Report was not there along with the Return. Therefore, the argument of the department is rejected. Lastly, it was urged that in any event, the assessee did not furnish prescribed particulars of machinery and in the circumstances, the assessee was not entitled to deduction under section 32AB. Here also, there is no finding of fact recorded by the AO. On the contrary, the Commissioner of Income-tax has come to the conclusion that the matter should be remanded for better particulars. To call for better particulars indicates that the assessee had supplied the prescribed particulars of machinery. In the circumstances, Question No.1 is answered in the affirmative i.e. in favour of the assessee and against the department. Question No.2 .- 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the findings of the CIT (A) that capitalization of certain machineries amounted to purchase of machineries and hence the same were eligible for deduction under section 32AB of the Income Tax Act, 1961? 6. Section 32AB, inter alia, states that where an assessee whose total income includes income chargeable to tax under the Head "Profits and Gains of Business", has out of such income, utilised any amount during the previous year for purchase of any new machinery or plant, would be entitled to deduction under section 32AB(1)(b). In this case, the Audit Report filed by the assessee shows that the assessee had utilised a sum of Rs. 24,23,230.00 inclusive of an amount of Rs. 5,49,632.00 being the value of the machinery assembled by the assessee and capitalised. On this basis, the assessee claimed a deduction. However, the AO took the view that the amount of Rs. 5,49,632.00 represented capitalised cost of plant and machinery and, therefore, it represented internal capitalisation. 24,23,230.00 inclusive of an amount of Rs. 5,49,632.00 being the value of the machinery assembled by the assessee and capitalised. On this basis, the assessee claimed a deduction. However, the AO took the view that the amount of Rs. 5,49,632.00 represented capitalised cost of plant and machinery and, therefore, it represented internal capitalisation. According to the AO such internal capitalisation would not attract the relief under section 32AB because, according to the AO, section 32AB(1)(b) contemplates purchase of new machinery of plant. Therefore, the AO rejected the relief under section 32AB to the assessee. According to the AO, the assessee should have purchased the machinery. According to the AO, the assessee did not purchase the machinery. According to the AO, the machinery was assembled by the assessee itself. Therefore, the AO denied the relief to the assessee. We do not find any merit in the argument of the department. If an assessee manufactures a machine itself and transfers the same at cost to its business of manufacture and claims that it has purchased the machinery, it is certainly entitled to relief under section 32AB(1)(b). If an assessee, by making necessary arrangements for purchase from outside, is entitled to claim deduction under section 32AB, then one fails to understand why an assessee who manufactures the machine itself and transfers the same at cost to its business of manufacture cannot claim the same relief. In the circumstances, we answer Question No.2 in the affirmative i.e. in favour of the assessee and against the department. Question No.3: 3. Whether on the facts and in the circumstances of the case and in law and without prejudice to the above, the Tribunal erred in confirming the Order of CIT(A) in directing the Assessing Officer to allow deduction under section 32AB on amounts capitalised under the head plant and machinery out of work in progress of earlier years? 7. As stated above, the assessee claimed a deduction of Rs. 19,58,043.00 under section 32AB. The assessee claimed to have utilised Rs. 24,23,230.00 inclusive of an amount of Rs. 5,49,632.00 being the value of the machinery assembled by the company and capitalised. One of the reasons for rejecting the relief under section 32AB to the assessee, as given by the AO, was that the assessee had not purchased the machinery out of the taxable profits of the business during the year under consideration. 5,49,632.00 being the value of the machinery assembled by the company and capitalised. One of the reasons for rejecting the relief under section 32AB to the assessee, as given by the AO, was that the assessee had not purchased the machinery out of the taxable profits of the business during the year under consideration. According to the AO, assessee was not entitled to the relief on amounts capitalised under the Head "Plant and Machinery" out of the work in progress of earlier year. According to the AO, the asset should have been generated from the current years profits and not from the profits of the past years if the assessee wanted relief under section 32AB. According to the AO, under section 32AB, the expenditure should have been incurred from income which was chargeable to tax and, therefore, in this case, the assessee was not entitled to deduction under section 32AB because the assessee had capitalised the amount under the Head "Plant and Machinery" out of work in progress of earlier years. We do not find any merit in the stand adopted by the department for two reasons. Firstly, the assessee had succeeded on this very point for the earlier years. The department has not come by way of a Referencel Application to this Court. Therefore, the department has accepted the view of the Tribunal for the earlier years, which view was in favour of the assessee. Secondly, as held by us, it was not necessary for the assessee to purchase the new machinery from the market in order to get the deduction under section 32AB. That the assessee was entitled to deduction under section 32AB even if the assessee had manufactured the machine itself and had transferred the same at cost to its bu~iness of manufacture. Therefore, if the assessee, by capitalizing machinery manufactured by itself, transfers the same at cost to its business of manufacture, then the assessee would be entitled to relief under section 32AB(l)(b). Further, under section 32AB we do not find any restriction to the effect that the amount should be spent only from current years profit. Section 32AB only stipulates that the amount should be spent out of income which is chargeable to tax. In the circumstances, Question No. 3 is answered in the affirmative i.e. in. favour of the assessee and against the department. Question No.4: 4. Section 32AB only stipulates that the amount should be spent out of income which is chargeable to tax. In the circumstances, Question No. 3 is answered in the affirmative i.e. in. favour of the assessee and against the department. Question No.4: 4. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner (Appeals) in holding that deduction under section 801 will be available to the assessee in spite of the fact that the unit started manufacturing prior to 1-4-19887 8. In this case, we are concerned with Assessment Year 1988-89. Section 801 falls in Chapter VIA, which deals with deductions in respect of certain incomes. Section 801(1), inter alia, lays down that where the gross total income of an assessee includes profits derived from an Industrial undertaking, there shall be allowed in computing the total income of the assessee, a deduction of 20%. Under section 801(2), it is, inter alia, laid down that section 80l( 1) shall apply to Industrial undertakings which fulfill 4 stipulated conditions. One of such conditions is mentioned in section 801(2)(iii) which states that if an Industrial undertaking manufactures articles specified in the XIth Schedule, then such Industrial undertaking shall not be allowed the benefit of deduction under section 801. In this connection, the department has relied upon item No. 22 of the XIth Schedule, which is quoted hereinbelow. Item 22 : "22. Office machines and apparatus such as typewriters, calculating machines, cash registering machines, cheque writing machines, intercom machines and teleprinters. Explanation : The expression "office machines and apparatus" includes all machines and apparatus used in offices, shops, factories, workshops, educational institutions, railway stations, hotels and restaurants for doing office work (and for data processing not being computers within the meaning of section 32AB)." A bare reading of item 22 shows that Office machines and apparatus such as calculators, cash writing machines, cheque writing machines, intercoms, teleprinters etc. do not qualify for deduction. However, a bare reading of item 22 with the explanation indicates that "computers", within the meaning of section 32AB would not fall within the ambit of item 22. In other words, "computers" stand excluded from the XIth Schedule. The AO accepts this position. However, it is argued on behalf of the AO that the above exclusion of computers came on the statute book only from 1st April 1988. In other words, "computers" stand excluded from the XIth Schedule. The AO accepts this position. However, it is argued on behalf of the AO that the above exclusion of computers came on the statute book only from 1st April 1988. The AO took the view that computers manufactured after 1st April, 1988 would certainly fall outside the XIth Schedule. However, the AO found that this exclusion will not apply to computers manufactured prior to 1st April, 1988. We do not find any merit in this argument. The XIth Schedule was on the statute right from 1st April, 1978. The provision of section 801(2)(iii) contemplates that deduction under section 801 shall not be available if the assessee is engaged in manufacture of an article specified in the XIth Schedule. The explanation to item 22 is not a substantive provision. It has to be read with item 22. The XIth Schedule lists out certain articles which are luxury items. Therefore, the Parliament, in its wisdom, thought that deduction under section 801 should not be granted for manufacture of these items. Computers, therefore, cannot be equated to Office appliances or luxury items. The purpose of giving an explanation to item 22 is only to clarify ambiguities in item 22. Even without the specific exclusion, computers could not have formed part of Office machines and apparatus. One cannot compare computers with typewriters, calculating machines, intercoms, teleprinters etc. In the circumstances, the assessee was entitled to deduction under section 801 even though it started manufacturing prior to 1st April 1988. Accordingly, Question No.4 is answered in the affirmative i.e. in favour of the assessee and against the department. Question No.5. 5. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the CIT(A) holding that the benefit under the amendment to XI Schedule will be applicable to both the old as well as the new units which commence production after 1-4- 1988 for the first time? 9. For the reasons given herein above, we hold that the benefit of amendment to the XIth Schedule excluding Computers and Data Processing machines would be applicable to both, old and new Units, which commence production after 1st April, 1988. 9. For the reasons given herein above, we hold that the benefit of amendment to the XIth Schedule excluding Computers and Data Processing machines would be applicable to both, old and new Units, which commence production after 1st April, 1988. Secondly, if one reads item 22 along with the explanation, it is clear that in view of the nature of Data Processing Machines and Computers and the functions which they perform, it is difficult to compare Data Processing Machines and Computers to typewriters, calculating machines etc. and, therefore, the words "Office machines and apparatus" as used in item 22 stand associated only with typewriters, calculating machines etc. and not with Data Processing Machines and Computers. Lastly, we may point out that even in the earlier years the Tribunal had taken the same view in favour of the assessee and that decision of the Tribunal has not been challenged by the department. For the afore stated reasons, we answer Question No.5 in the affirmative i.e. in favour of the assessee and against the department. Question No.6: 6. Whether on the facts and in the circumstances of the case and in law and without prejudice to the above, the assessee is not entitled to deduction under section 801 on merits as the assessees income from service charges, maintenance revenue and lease rent cannot be treated as income derived from industrial undertaking within the meaning of section 80I ? 10. Under section 801(1), special deduction is given in respect of profits and gains derived from industrial undertaking. According to the AO, receipts by way of service and maintenance charges have been included in profits derived from manufacturing operations. That these receipt cannot form part of profits derived from Industrial undertaking. Therefore, the AO excluded receipt of service charges and maintenance charges from the eligible profits. In this case, the assessee is engaged in the business of manufacture and state of Data Processing cards, ribbons and mini micro-based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribunal in its Orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between the impugned receipts and the main business activity of the assessee. This finding is also recorded by the Tribunal in its Orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between the impugned receipts and the main business activity of the assessee. This is a finding of fact also recorded by the Tribunal. We do not see any reason to interfere with this finding of fact. Accordingly, we answer the Question in the affirmative i.e. in favour of the assessee and against the department. Question No. 7" 7. Whether on the facts and in the circumstances of the case the Tribunal was right in law in deleting the addition of Rs. 45,2171- made by the Assessing Officer to the total income of the assessee on account of unutilized Modvat Credit? 11. Mr. Desai learned senior counsel appearing on behalf of the department fairly states that the issue under Question No. 7 is squarely covered by the judgment of the Bombay High Court in the case of Commissioner of Income-tax vs. Indo Nippon Chemical Co. Ltd., reported in 245 ITR Page 384. Accordingly, we answer the said Question in the affirmative i.e. in favour of the assessee and against the department. 12. Accordingly, the appeal is dismissed with no order as to costs. Appeal dismissed.