Income Tax Appellate Tribunal - Ahmedabad
Pradeepkumar Chelaram Arora vs Income-Tax Officer on 26 December, 1991
Equivalent citations: [1992]43ITD50(AHD)
ORDER
R.L. Sangani, Judicial Member
1. In the assessment order for AY 1981-82 dated 6-8-1983 investment allowance of Rs. 10,557 on the purchase of new machinery had been allowed in the computation of income of the assessee. The assessee had created the necessary reserve and that was verified.
The ITO in his order under Section 155 of the Act has observed that the assessee had subsequently debited investment allowance reserve account and credited to the capital account and that the assessee was required to show cause why the investment allowance should not be withdrawn under the provisions of Section 155(4A) of the Act. The ITO observed that the assessee had furnished revised balance sheet wherein he had adjusted the initial investment allowance reserve account to the capital account by debiting capital account and crediting to the Anamat account. According to the ITO this subsequent adjustment indicated that the assessee had committed a mistake in crediting the capital account at the earlier stage. He accordingly withdrew the investment allowance of Rs. 10,557.
2. The assessee filed appeal before the Deputy CIT (A). The Dy. CIT(A) has not discussed the facts in detail. He has relied on his appellate order dated 29-7-1988 for asst. year 1980-81 and upheld the action of the ITO. The assessee is now in further appeal before the Tribunal.
3. I have heard the parties. I find that mere debiting investment allowance reserve account and crediting the capital account would not be sufficient for the ITO to withdraw investment allowance under Section 155(4A) of the Act. Section 155(4A) lays down the circumstances in which investment allowance granted initially can be withdrawn subsequently. One of the circumstances is that the assessee does not utilise the amount credited to the reserve account for the purpose of acquiring new machinery. In the present case admittedly in the very next year new machinery worth Rs. 1,96,096 had been purchased. Consequently it cannot be said that the reserve has not been utilised for purchase of new machinery. Since the reserve was utilised for purchase of new machinery there was no question of withdrawing the investment allowance which had been initially granted. Hence the order of the ITO cannot be sustained. The ITO has relied on sole fact that the amount in reserve account has been credited to the capital account of the partners. This by itself on the facts and circumstances of the present case does not justify withdrawal of investment allowance particularly when the amount in question has been utilised for purchase of new machinery. In this connection it would be pertinent to refer to the decision of the Allahabad High Court in the case of CIT v. Sri Hemontpat Singhcmia, HUF [1991] 105 Taxation 284 in which it has been held that when subsequent to the creation of reserve for development rebate, if that reserve is transferred to capital account, the development rebate allowed cannot be withdrawn because such transfer did not violate the statutory provisions. The ITO has relied on provisions of clause (c) of Section 155(4A) of the Act. The said clause envisages utilisation of the amount in the reserve (i) for distribution by way of dividends or profits; (ii) for remittance outside India as profits or for the creation of any asset outside India; and (iii) for any other purpose which is not a purpose of the business of the undertaking. Transfer to capital account of the partners does not attract any of the above factors. Consequently the investment allowance should not have been withdrawn merely on the ground that the amount had been transferred to the capital account of the partners particularly when the amount had been utilised in purchase of new machinery in the very next year. It may be mentioned here that the learned counsel for the assessee has filed a copy of the order of the Tribunal for asst. year 1982-83 and the Tribunal had restored the matter to the ITO to examine the matter afresh. The assessee has filed copy of fresh order of the ITO for AY 1982-83 in which investment allowance has again been allowed. This is on the footing that if the amount is utilised for the purchase of new machinery in the next year, investment allowance cannot be withdrawn simply because the amount is credited to capital account of the partner. I, accordingly set aside the order of the ITO withdrawing the investment allowance.
4. The appeal is allowed.