Income Tax Appellate Tribunal - Pune
Jain Bros. vs Income-Tax Officer on 31 October, 1991
Equivalent citations: [1992]40ITD109(PUNE)
ORDER
K.R. Dixit, Judicial Member
1. This appeal deals with the withdrawal of investment allowance under Section 155(4A).
2. As on 1-6-1983 there were five partners whose names are as follows :
1. Shri Bhavarlal Hiralal Jain
2. Shri Bansilal Hastimal Jain
3. Shri Hiralal Sagarmal Jain
4. Shri Rajendra Ranidan Jain
5. Shri Shirish Dalichand Oswal The firm was carrying on trading and agency business in various items and also some manufacturing business of some items. With effect from 31-12-1984 partners 1, 3 and 5 above retired from that partnership. From 1-1-1985 all the remaining partners described as continuing partners in the retirement deed formed one new partnership, two of the retiring partners along with the third partnc. formed another new partnership and the third retiring partner remaining as sole proprietor of a business. Each of these partnership firms and the sole proprietor took over some of the business activities of the old partnership. Under Section 143(1), in the first assessment of the firm, the ITO had granted investment allowance for certain amount which he reduced by an order under Section 154 dated 7-4-1986. Thereafter by an order dated 22-2-1990 under Section 155(4A) read with Section 32A(5), the ITO withdrew the said investment allowance totally on the ground that there was a transfer of the assets on which the investment allowance was granted because there was reconstitution of the old firm by formation of a new firm in which two of the partners had continued to be in the old firm had continued to be partners in the new firm. The Commissioner has confirmed that order.
3. The assessee had contended before him that there was no transfer of the assets relying on the various Supreme Court and High Court decisions where it has been held that there is no transfer of assets on the dissolution of the firm. The Comrris-sioner rejected this contention on the ground that this was a case of reconstitution of the firm and so there was a transfer of the assets in question. The Commissioner also rejected the assessee's contention that the order of the ITO was time barred. According to him time granted under Section 154(7) could not be reduced by Section 155(4A) which made it clear that it was intended to extend the time under Section 154(7).
4. Before us the assessee's advocate first of all submitted that in this case there was no transfer of the assets relying on the following decisions :
Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), Tyresoles (India) v. CIT [1963] 49 ITR 515 (Mad.), Bharat Petroleums v. CIT [1979] 116 ITR 75 (Guj.), Nipa Twisting Works v. ITO [1985] 11 ITD 387 (Ahd.) (TM), A.S. Engg. Works v. ITO [1987] 29 TTJ (Delhi) 48, First ITO v. Industrial & General Products [1985] 22 TTJ (Mad.) 581, O.K. Trivedi & Sons v. HO [1989] 33 TTJ (Jp.) 63.
Secondly he submitted that the action of the ITO under Section 145(4A) was time barred because the time limit therein set out was four years from the end of the previous year in which the transfer took place. In support of his contention he pointed out that the action under Section 154 would be taken in the case error apparent from record whereas action under Section 155 was based on different ground and so the time limit under Section 154 would not apply. He also said that since this issue was debatable whether there was a transfer or not Section 154 was not applicable which also implied that the time limit therein was not applicable.
5. On the other hand the Id. D.R. in reply to the first contention of the assessee stated that since this was a case of reconstitution and not of dissolution, the decision in the case of Malabar Fisheries Co. (supra) was not applicable. On the question of limitation the Id. D.R. submitted first of all Section 155(4) was procedural and so its construction should be liberal so as to make it workable. He accordingly submitted that greater time limit available to the department under Section 154 would be applicable in this case. He submitted that an order under Section 143(1) could not be rectified only because formerly that provision contained the words 'where the ITO is satisfied that the return is correct and complete' but those words were no longer present in the present section, relying on the Board Circular No. 56, dated 19-3-1971 reproduced in Sampat Iyangar Commentary, 7th Edition at page 3352. Regarding the argument on behalf of the assessee that this is not an apparent mistake he relied on the dec ision in CIT v. Suresh Chand Jain [ 1988] 39 Taxman 10 (AP) that even where mistake is not apparent it can be rectified. The assessee's advocate replied that the provision in Section 155(4A) is not procedural but involved a question of limitation which gave jurisdiction to exercise the powers. He also submitted that the decision in Suresh Chand Jain's case (supra) actually supported the assessee. He also relied on Sixth ITO v. Pithva Engg. Works [1983] 6ITD 413 (Bom.) which lays down that an order under Section 143(1) could not be rectified under Section 154 and that it could be rectified only under Section 143(2)(b). Therefore since the first assessment in this case was under Section 143(1) it could not be altered as was done in this case.
6. On the question of transfer we are of the view that the decision in the case of Malabar Fisheries Co. (supra) would support the assessee's case. That was also a case where the firm's business run by five partners earlier was taken over by two of those partners. Secondly if as Lald down in that there was no transfer of the assets in the case of dissolution of the firm much less it would be a trasfer when there is only a reconstitution of the firm.
7. On the question of limitation the relevant part of Section 155(4A) is as follows:
155(4A) Where an allowance by way of investment allowance had been made...to an assessee in respect of...any machinery or plant...and subsequently --
(a) at any time before expiry of eight years from the end of the previous year in which the... machinery or plant was installed... machinery or plant is sold or otherwise transferred.
(b) *****
(c) ***** the investment allowance originally allowed shall be deemed to have been wrongly allowed, and the Assessing Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of Section 154 shall so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned. --
(i) in a case referred to in Clause (a) from the end of the previous year in which the sale or other transfer took place;
Section 154(7) to which a reference has been made under Section 154(4A) reads as follows:
Save as otherwise provided in Section 155 or Sub-section (4) of Section 186 no amendment under this section shall be made after the expiry of four years (from the end of financial year in which the order sought to be amended was passed).
8. We are of the view that Section 155(4A) prescribes a special time limit for the application of Section 155. Reference to Section 154 and the period of four years in Sub-section (7) is made only in order to make it clear that that period is regarding time limit. It is to be noticed that under Sub-section (7) of Section 154 there is a positive provision that the amendment is not to be made after the time limit set out in that sub section. In order that a time limit may be applicable a positive provision that a particular action cannot be taken beyond that time limit has to be made. Now, that is absent in Sub-section (4A) but it is present in said Sub-section (7) of Section 154 and that is brought in by reference to Section 154 in Sub-section (4A). The mention of 'period of four years in Sub-section (7)' identifies that period as the period which lays down the time limit in Sub-section (7) of Section 154. Thus the specific provision that no action under Section 155(4A) can be taken beyond the limit of four years is introduced in Sub-section (4A) by reference to Section 154(7). Sections 154 and 155(4A) deal with different situations although both of them give power of amendment of assessment order. In our view, it would be a mistake to treat them alike or consider them similar on the ground that both of them deal with rectification. The mention of Section 154(7) in Section 155(4A) is only for the purpose of importing some of the provisions of the former into the latter. This is a well known legislative device but that does not make the sections identical. That is why under Section 155(4A) amendment can be made even if an earlier assessment order did not carry an apparent mistake. In fact deeming provision in the said Sub-section (4A) clearly shows that when assessment was made first, there was no mistake in it. But because of the later developments a mistake is introduced in it by deeming provision. It is only another way of stating that if conditions (a), (b) and (c) Lald down in said Sub-section (4A) are fulfilled, the investment allowance earlier granted shall be withdrawn.
9. The question whether the order under Section 143(1) can be rectified by an order under Section 154 does not arise for consideration because as stated above Section 155(4A) deals with a different situation. It was because Section 155(4A) was quoted with Section 154 that the issue has arisen. So far as Section 155(4A) is concerned the fact that earlier assessment order was made under Section 143(1) will not matter for the simple reason that all the situations contemplated in Clauses (a), (b) and (c) above Sub-section (4A) are developments subsequent to the passing of that order which could not be present at the time of assessment. Reference to Section 154(7) in the said Sub-section (4A) and the fact that both deal with amendment of the assessment order creates a confusion that both the sections deal with the same subject matter. Further, while making the assessment the ITO is bound to come to know about the transfer and so the limit under Section 155(4A) starts from the time of the transfer. The ITO is bound to make an assessment within two years and it is presumed that he will do so.
Therefore the time limit for taking action under Section 155 started from the date of the assessment order on which action under Section 155 was taken. The partnership was reconstituted. The retirement from the original partnership firm took place on 31-12-84 and the new partnership were constituted on 1-1-85. Therefore the action should have been taken by the ITO on or before 31-12-88 whereas it was in fact taken on 22-2-1990. We therefore hold that the action under Section 155 was invalid and so the investment allowance could not be withdrawn.
10. The appeal is allowed.