1997 (1) TMI 126 - AT - Income Tax

Appellate Authority, Assessing Officer, Assessment Year, Investment Allowance, Plant And Machinery, Previous Year

Summary

Issues Involved:
1. Validity of the withdrawal of investment allowance under Section 155(4A) read with Section 32A(5) of the Income-tax Act, 1961.
2. Interpretation of "transfer" in the context of leasing out plant and machinery.
3. Applicability of the limitation period for rectification under Section 154.

Detailed Analysis:

1. Validity of the Withdrawal of Investment Allowance:

The primary issue in these appeals was whether the Assessing Officer (AO) was justified in withdrawing the investment allowance previously granted to the assessee. The AO had observed that the assessee purchased plant and machinery for business purposes and subsequently leased it out. Since the machinery was transferred before the expiry of eight years, the AO relied on Section 155(4A) read with Section 32A(5) to withdraw the investment allowance. The DCIT(A) had held that leasing out machinery does not constitute a transfer and, hence, the withdrawal was not justified. The revenue, however, argued that the AO's decision was valid, citing the Supreme Court judgment in CIT v. Narang Dairy Product, which held that leasing out machinery constitutes a transfer.

2. Interpretation of "Transfer":

The revenue relied on the Supreme Court judgment in CIT v. Narang Dairy Product, which stated that machinery not used by the assessee for the specified period and let out to others is considered 'otherwise transferred.' The provisions of Section 34(3)(b) were cited as similar to Section 32A(5). The revenue also cited the Gujarat High Court judgment in Kalindi Investment (P.) Ltd. v. CIT and the Calcutta High Court judgment in CIT v. East India Cold Storage (P.) Ltd., which supported the AO's view that leasing out constitutes a transfer. On the other hand, the assessee argued that the term "transfer" should not include leasing and cited previous Tribunal orders and various High Court judgments to support their stance.

3. Applicability of the Limitation Period:

The assessee contended that the order passed by the AO was beyond the limitation period prescribed under Section 155(4A)(i). The AO's order was passed on 20th January 1992, while the machinery was first leased out on 1st August 1986. According to the assessee, the limitation period of four years expired on 31st March 1991. The revenue argued that the lease agreement dated 1st April 1987 was a fresh lease, and the limitation period should be reckoned from this date. The Tribunal accepted the assessee's application under Rule 10 of ITAT Rules, 1963, which provided evidence that the machinery was first leased out on 1st August 1986. Therefore, the Tribunal concluded that the limitation period expired on 31st March 1991, making the AO's order barred by time.

Conclusion:

The Tribunal ultimately dismissed the appeals, agreeing with the DCIT(A) that the AO's order was barred by limitation. However, the Tribunal did not agree with the DCIT(A)'s finding that leasing out machinery does not constitute a transfer. The Tribunal held that leasing out machinery does amount to a transfer within the meaning of Section 32A(5) and Section 155(4A), but the AO's order was invalid due to being passed beyond the prescribed time limit.