1986 (4) TMI 16 - HC - Income Tax

Summary

Issues:
Assessment of profits from the sale of old machinery, inclusion of sale proceeds in income tax assessment, rectification of assessment order, application of section 254 for rectification, raising new grounds before the Tribunal, interpretation of section 41(2) of the Income-tax Act, 1961.

Analysis:
The case involved the assessment of an assessee for the assessment year 1971-72 regarding the sale of old machinery for Rs. 5,28,390. The assessee recorded the amount under "Adjustment of capital reserve on account of machinery sold." The Income-tax Officer included this amount as profits from the sale, noting the unascertainable written down value of the machinery. The assessee did not challenge this inclusion in the appeal to the Appellate Assistant Commissioner. However, in a subsequent appeal to the Tribunal, the assessee contended that the sale proceeds should not be treated as profits due to the absence of the written down value, requesting it to be considered as the written down value itself.

The Tribunal initially overlooked this ground but rectified its mistake upon the assessee's application, considering the facts already on record. The Revenue objected to the rectification, citing that the ground was not raised earlier and relied on a Supreme Court decision. However, the Tribunal accepted the assessee's argument, distinguishing the Supreme Court decision based on the evidence already on record. The Tribunal also referred to its earlier decision in a similar case involving the assessee where profit from machinery sale was not brought to assessment based on a circular. Consequently, the Tribunal directed the deletion of the addition of Rs. 5,28,390.

Upon a reference to the High Court, two questions were raised: whether the Tribunal could entertain a ground not raised before lower authorities, and the correctness of the interpretation of section 41(2) of the Income-tax Act, 1961. The High Court affirmed the Tribunal's discretion in allowing the ground and answered the first question in favor of the assessee. For the second question, the High Court referred to a judgment in a related case involving the same assessee and remanded the matter to the Tribunal for further clarification on the written down value of the machinery, if necessary.

In conclusion, the High Court upheld the Tribunal's decision to consider the ground raised by the assessee and directed a reevaluation of the written down value of the machinery, based on the related judgment.