1978 (12) TMI 92 - AT - Income Tax

Summary

Issues:
1. Validity of the orders passed by the ITO under section 144 of the IT Act, 1961.
2. Withdrawal of development rebate allowed in original assessments.
3. Conversion of individual business into a partnership business.
4. Interpretation of section 155(5) regarding re-computation of income.
5. Timeliness of passing orders under section 155(5).
6. Justification of cancellation of orders by the AAC.
7. Consideration of cross objections by the assessee.

Detailed Analysis:
The judgment by the Appellate Tribunal ITAT MADRAS-A involved appeals by the Department and cross objections by the assessee against the order of the AAC of Income-tax, A Range, Coimbatore. The AAC had cancelled the orders passed by the ITO under section 144 of the IT Act, 1961, withdrawing the development rebate allowed in the original assessments for the assessment years 1968-69, 1969-70, and 1970-71. The issue arose due to the conversion of the assessee's individual business into a partnership business, leading the ITO to withdraw the development rebate on the grounds of transfer of machinery to the partnership.

The assessee, engaged in the manufacture and sale of centrifugal pumps, converted the business into a partnership by taking his sons as partners. The ITO withdrew the development rebate, determining the total income for the respective years. The assessee appealed to the AAC, arguing that there was no transfer of machinery due to the conversion and that the orders were passed beyond the prescribed period under section 155(5). The AAC rejected the first contention but accepted the second, leading to the cancellation of the orders.

Section 155(5) allows the ITO to recompute the total income if machinery for which development rebate was allowed is transferred before the prescribed period. In this case, the transfer was deemed to have occurred when the business was converted into a partnership. The ITO's orders, passed after the prescribed period, were considered invalid. The AAC's decision to cancel the orders was deemed justified based on the timeliness issue.

The Tribunal found it unnecessary to consider the cross objections raised by the assessee regarding the transfer of plant and machinery due to the cancellation of the orders by the AAC. Consequently, the appeals by the Department and the cross objections by the assessee were dismissed as infructuous, upholding the AAC's decision to cancel the orders due to the untimely re-computation of income under section 155(5).