1991 (12) TMI 78 - AT - Income Tax

Summary

Issues:
1. Withdrawal of investment allowance under section 155(4A) of the Act based on subsequent adjustments made by the assessee.
2. Interpretation of section 155(4A) regarding the circumstances in which investment allowance can be withdrawn.
3. Application of case law precedent in determining the validity of withdrawing investment allowance.
4. Consideration of utilisation of reserve for the purchase of new machinery in deciding on the withdrawal of investment allowance.

Analysis:
The judgment by the Appellate Tribunal ITAT Ahmedabad pertains to the withdrawal of investment allowance under section 155(4A) of the Act based on adjustments made by the assessee in the reserve accounts. The Income Tax Officer (ITO) had withdrawn the investment allowance of Rs. 10,557, citing that the reserve amount had been transferred to the capital account, indicating a mistake by the assessee. The Deputy CIT(A) upheld the ITO's decision without detailed discussion, leading the assessee to appeal before the Tribunal.

Upon hearing the parties, the Tribunal analyzed the provisions of section 155(4A) and emphasized that the withdrawal of investment allowance is warranted only under specific circumstances, such as non-utilization of the reserve for acquiring new machinery. In this case, the Tribunal noted that the reserve had indeed been utilized for purchasing new machinery in the subsequent year, amounting to Rs. 1,96,096. Therefore, the Tribunal concluded that the withdrawal of investment allowance by the ITO was unjustified as the reserve had been appropriately utilized for the intended purpose.

The Tribunal further referred to a decision by the Allahabad High Court, highlighting that the transfer of reserves to the capital account does not automatically justify the withdrawal of investment allowance if the amount is utilized for the designated purpose. The Tribunal also pointed out that the provisions of section 155(4A) do not encompass the transfer to the capital account as a ground for withdrawal, especially when the amount has been utilized for business purposes, such as the purchase of new machinery.

Moreover, the Tribunal considered the previous orders and actions taken by the ITO for the assessment years 1982-83, where the investment allowance was allowed upon the utilization of the amount for new machinery. Based on these findings and legal interpretations, the Tribunal set aside the ITO's order and allowed the appeal filed by the assessee, thereby reinstating the investment allowance.

In conclusion, the judgment underscores the importance of adhering to statutory provisions and utilizing reserves for the intended business purposes to maintain the validity of investment allowances granted to taxpayers.