2007 (8) TMI 241 - HC - Income Tax

Investment allowance given can t be challenged by AO mere for mistake of transfer of allowance to partner s capital account if said credit has never been utilized for any other purpose other than purchase of plant and machinery.

Summary

Issues:
1. Interpretation of section 155(4A) of the Income-tax Act, 1961 regarding withdrawal of investment allowance.
2. Correct application of investment allowance by the assessee-firm.
3. Discrepancy in transferring investment allowance to partners' capital account.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the withdrawal of investment allowance wrongly allowed to the assessee-firm under clause (c) of section 155(4A) of the Act. The Assessing Officer had withdrawn the investment allowance of Rs. 2,52,143 from the assessee-firm's account, alleging it was transferred to the partners' capital account in the assessment year 1986-87. The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer's decision and allowed the appeal, leading to the Department filing a second appeal before the Income-tax Appellate Tribunal at Patna.

The Tribunal, after considering the facts, affirmed the Commissioner's decision, stating that the investment allowance was mistakenly transferred to the partners' capital account, but the amount was not utilized for any other purpose. The Tribunal noted that the amount was eventually used to purchase plant and machinery during the assessment year 1989-90. Citing a relevant case law, the Tribunal held that since the credit balance in the partners' capital account was maintained and the amount was utilized for the intended purpose, the investment allowance reserve was not misused.

The Tribunal's findings highlighted that the dispute mainly revolved around the presentation of the investment allowance and its subsequent utilization for purchasing plant and machinery. The Tribunal concluded that based on the facts and circumstances, there was no need to interfere with the decisions of the lower authorities. Consequently, the High Court found no reason to answer the reference, as the findings of the Commissioner of Income-tax (Appeals) and the Tribunal rendered the answer inconsequential in the context of the case.

In summary, the judgment focused on the correct application of the investment allowance by the assessee-firm, the discrepancy in transferring the allowance to the partners' capital account, and the ultimate utilization of the amount for the intended purpose of purchasing plant and machinery. The decision emphasized adherence to the statutory provisions and the factual findings of the lower authorities, ultimately disposing of the reference in light of the established facts and legal interpretations.