2017 (11) TMI 1303 - HC - Income Tax

Denying benefit of investment allowance/development rebate - assessee has not stated and is not able to establish and show that the machinery had continued to be in use for a period of eight years - Held that - There is no evidence or material on record and it is not even the claim of the appellant-assessee that Raja Singh had continued to use the said machinery for the balance period to satisfy the mandate of Section 35A of the Act. In fact, no such contention or claim was made before the Assessing Officer and the appellate authorities. This being the position, we do not even know whether or not the machinery had remained in the custody and use of Raja Singh for the period of years as per requirements of Section 35A of the Act. In the absence of even a claim or assertion to the said effect, the appellant-assessee cannot succeed. Assessing Officer had rightly withdrawn benefit of the investment allowance/development rebate by passing an order under Section 155(4A) of the Act, once he came to know that machinery of value of ₹ 5,20,838/- on which the investment allowance/development rebate of ₹ 1,30,210/- was claimed and allowed was transferred . In the absence of even oral assertion that Raja Singh had continued using and operating the machinery, the appeal must fail. - Decided against assessee.

Summary

Issues involved:
1. Interpretation of Section 2(47) of the Income Tax Act and applicability of Sections 32A(5) and 34(3)(b).
2. Determination of whether transferring assets to a partner upon retirement is analogous to a partner leaving a partnership firm with certain assets.

Analysis:

Issue 1:
The appeals under Section 260A of the Income Tax Act, 1961 were filed by a partnership firm regarding Assessment Years 1986-87 and 1987-88, raising questions on the interpretation of Section 2(47) and the applicability of Sections 32A(5) and 34(3)(b). The partnership firm had initially claimed development rebate/investment allowance under these sections for various assets.

Issue 2:
During the relevant period, a plant and machinery were transferred to one of the partners upon his retirement. The appellant argued that the partner had a right to the machinery as a partner and referred to relevant Supreme Court decisions. The Revenue contended that the machinery was a partnership asset and was transferred upon the partner's retirement, severing his connection with the firm. The court found that there was no evidence or claim that the partner continued to use the machinery as per the requirements of the Act. As a result, the benefit of investment allowance/development rebate was rightly withdrawn by the Assessing Officer under Section 155(4A) of the Act.

Conclusion:
The court held that the appellant failed to establish that the machinery remained in use for the required period, leading to the dismissal of the appeals. The decision was based on the lack of evidence supporting the continued use of the machinery by the retiring partner. The court emphasized the importance of meeting the statutory requirements for claiming investment allowance/development rebate under the Income Tax Act.