M/S Trust Enterprises P Ltd, Baroda V. The Dcit Co Cir-1(2), Baroda

ITA 1684/AHD/2001

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9052 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-08-2009
• Assessment Year: 1995-1996
• Appeal Filed On: 27-07-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Keywords: Rectification of order; Assessment record
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1684/AHD/2001 ASSESSMENT YEAR:1995-96 DATE OF HEARING:5.8.09 DRAFTED:6.8.09 TRUST ENTERPRISES PVT. LTD., 17, GAUTAMNAGAR, RACE COURSE, BARODA PAN NO.EV5244 V/S . DY. CIT.CO. CIRCLE- 1(2),BARODA (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI VARTIK CHOKSHI, AR RESPONDENT BY:- SHRI P.M. SHUKLA, SR DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, BARODA IN APPEAL NO. CAB/ III-320/2000-2001 DATED 29-05- 2001. THE ORDER U/S.155(4A) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED BY THE DY. COMMISSIONER OF IN COME-TAX, CO. CIRCLE-1(2), BARODA. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN W ITHDRAWING THE INVESTMENT ALLOWANCE ON PLANT & MACHINERY BY WAY OF RECTIFICAT ION U/S.154 OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE THR EE GROUNDS:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANTS CASE THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT THE PLANT AND MACHINERY ON WHICH THE INVESTMENT ALLOWANCE WAS ALLOWED WAS TRAN SFERRED BY WAY OF LEASING WITHIN A PERIOD OF 8 YEARS AFTER THE YEAR O F INSTALLMENT OF THE SAME AND ITA NO.1684/AHD/2001 A.Y. 1995-96 TRUST ENTERPRISES P. LTD. V. DY. CIT.CO. CIR-1(2) BRD PAGE 2 HENCE THE ASSESSING OFFICER HAS RIGHTLY WITHDRAWN T HE INVESTMENT ALLOWANCE GRANTED TO THE APPELLANT. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT I) THE APPELLANT WAS CARRYING ON BUSINESS OF MANUFA CTURE OF WOVEN SACKS. ON ACCOUNT OF THE NON-AVAILABILITY OF WORKING CAPIT AL SUPPORT FROM THE BANKERS THE ASSESSEE FACED LIQUIDITY PROBLEMS. IN THE CIRC UMSTANCES FOR A TEMPORARY PERIOD THE ASSESSEE HAD ENTERED INTO AN AGREEMENT W ITH ONE M/S. PAC PLASTIMER ON 29-6-1991 WHEREBY THEY WERE TO RUN THE PLANT AND MACHINERY ETC. IN SUCH A WAY THAT THE ASSESSEE WOULD GET NET SURPLUS OF RS.75,000, AFTER PROVIDING LABOUR, ELECTRICITY, MAINTENANCE ETC. THE MACHINERY WAS THUS NOT HIRED OUT OR TRANSFERRED TO THE SAID PARTY AS IS PR ESUMED BY THE LEARNED ASSESSING OFFICER AND THE LEARNED CIT(APPEALS). II) WITHOUT PREJUDICE TO ABOVE AN ACT OF HIRE OUT O F MACHINERY FOR A TEMPORARY PERIOD DOES NOT AMOUNT TO TRANSFER WHICH WOULD JUST IFY WITHDRAWAL OF THE DEDUCTION U/S.32A. THIS VIEW IS SUPPORTED BY THE DE CISION OF THE SUPREME COURT IN THE CASE OF CIT VS. SHAAN FINANCE PVT.LTD. 231 ITR 308. III) EVEN IF IT IS PRESUMED WITHOUT ADMITTING THAT AS HELD BY THE LEARNED CIT(APPEALS) AND A.O THE ASSESSEE HAD HIRED OUT MAC HINERY AND IT WAS A TRANSFER, THAT TRANSACTION HAS NOT BEEN ENTERED INT O IN THE PRESENT ASSESSMENT YEAR. HENCE ALSO THE ASSESSING OFFICER WAS NOT JUST IFIED IN INVOKING SECTION 155(7) OF THE ACT FOR THE PRESENT YEAR. 3. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE THE HONBLE ITAT MAY PLEASE HOLD THAT THE ORDER U/S.155 (7) WAS NOT JUSTIFIED AND THAT THE WITHDRAWAL OF THE DEDUCTION OF RS.9,20,797 WAS NOT CORRECT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ORDER OF CIT(A). THE BRIEF FACTS ARE THAT THE ORIG INAL ASSESSMENT ORDER WAS FINALIZED U/S.143(3) OF THE ACT ON 14-02-1996 AT A LOSS OF RS .1,65,790/-. THE ASSESSING OFFICER SUBSEQUENTLY NOTICED FROM THE ASSESSMENT RECORD THA T DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1995-96 THERE WAS NO MA NUFACTURING ACTIVITY AND THE FACTORY SHED AS WELL AS PLANT & MACHINERY WAS GIVEN ON RENT. ACCORDING TO THE ASSESSING OFFICER, THE PLANT & MACHINERY WAS NOT US ED DURING THE PREVIOUS YEAR AND PRODUCTION HAS BEEN DISCONTINUED SINCE THE ASSESSME NT YEAR 1991-92 AND ACCORDINGLY, HE ISSUED RECTIFICATION NOTICE U/S.154 OF THE ACT TO RECTIFY THE MISTAKE BY WHICH THE ASSESSEE HAS BEEN GRANTED INVESTMENT ALLO WANCE U/S.32A OF THE ACT IN ITA NO.1684/AHD/2001 A.Y. 1995-96 TRUST ENTERPRISES P. LTD. V. DY. CIT.CO. CIR-1(2) BRD PAGE 3 ASSESSMENT YEAR 1988-89. ACCORDINGLY, THE AO PASSE D RECTIFICATION ORDER U/S.155(4A) OF THE ACT WITHDRAWING THE INVESTMENT A LLOWANCE. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A ) ALSO CONFIRMED THE ACTION OF THE AO BY GIVING THE FOLLOWING FINDING IN PARA-1.2 OF HIS APPELLATE ORDER:- 1.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSION OF THE APPELLANTS COUNSEL. INVESTMENT ALLOWANCE UNDER SECTION 32A OF THE ACT IS ALLOWED TO AN ASSESSEE IN RESPECT OF PLANT AND MACHINERY WHICH IS OWNED BY THE ASSESSEE AND IT IS ONLY USED FOR THE PURPOSES OF BUSINESS CA RRIED ON BY HIM SUBJECT TO CERTAIN CONDITIONS AS MENTIONED IN THE SAID SECTION . IF THE CONDITIONS ARE NOT FULFILLED AND THE MACHINERY IS TRANSFERRED WITHIN T HE PERIOD OF EIGHT YEARS FROM THE END OF THE PREVIOUS YEAR IN WHICH THE MACHINERY WAS INSTALLED, THE INVESTMENT ALLOWANCE GRANTED TO AN ASSESSEE HAS TO BE WITHDRAWN AS PER THE PROVISIONS OF SECTION 155(4A) OF THE ACT. IN THIS C ASE, THE INVESTMENT ALLOWANCE WAS GRANTED TO THE APPELLANT IN THE ASSES SMENT YEAR 1988-89 AND IT HAS BEEN FOUND THAT THE MANUFACTURING ACTIVITY OF T HE APPELLANT DISCONTINUED SINCE ASSESSMENT YEAR 1991-92 AND THE APPELLANT LEA SED OUT THE PLANT AND MACHINERY TO M/S. PAC PLASTIMER ON 29.6.1991 AGAINS T AN AGREED RENT FOR A PERIOD OF FIVE YEARS IN THE FIRST INSTANCE, RENEWAB LE THEREAFTER FOR ONE MORE YEAR OR MORE ON THE EXISTING TERMS AND CONDITIONS W ITH MODIFICATIONS AS THE CASE MAY BE. IT IS, THUS, SEEN THAT FIRST THE PLANT AND MACHINERY HAS NOT BEEN UTILIZED FOR THE MANUFACTURING ACTIVITY OF THE APPE LLANT FROM THE ASSESSMENT YEAR 1991-92. THE DOMINANT INTENTION OF THE APPELLA NT FROM THE BEGINNING WAS TO UTILIZE THE MACHINERY FOR MANUFACTURING PROCESS AND NOT TO LET THEM ON HIRE. HENCE, IT CAN NOT BE SAID THAT THE MACHINERY WAS US ED FOR THE PURPOSE OF BUSINESS EVEN IF THERE IS A CLAUSE IN MEMORANDUM OF COMPANY AUTHORIZING LETTING ON HIRE AS BUSINESS OF LETTING MACHINERY ON HIRE. RELIANCE IS PLACED ON THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF WALKINS MAYOR (AGRICO) P. LTD. (117 ITR 202). IN THESE CIRCUMSTAN CES, THE LETTING OUT OF THE MACHINERY ON HIRE WOULD AMOUNT TO TRANSFER OF THE M ACHINERY. FURTHER, ON GOING THROUGH THE LEASE DEED IT IS SEEN THAT THERE IS NO OUTER LIMIT FOR LEASING THE MACHINERY. IN VIEW OF THE AFORESAID, IT CAN BE SAFELY INFERRED THAT THE PLANT AND MACHINERY ON WHICH THE INVESTMENT ALLOWANCE WAS ALLOWED WAS TRANSFERRED BY WAY OF LEASING WITHIN A PERIOD OF EI GHT YEARS AFTER THE YEAR OF INSTALLATION OF THE SAME AND HENCE IT IS HELD THAT THE ASSESSING OFFICER HAS RIGHTLY WITHDRAWN THE INVESTMENT ALLOWANCE GRANTED TO THE APPELLANT. THE RESULTANT ADDITION IS, THEREFORE, CONFIRMED. 4. FIRST OF ALL, WE FIND THAT THE ASSESSING OFFICER IN ORIGINAL ASSESSMENT ORDER HAS ALLOWED THE INVESTMENT ALLOWANCE AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT THE PLANT AND MACHINERY WAS HIRED OUT FOR A TE MPORARY PERIOD DOES NOT AMOUNT TO TRANSFER AND MOREOVER, THE ASSESSEE HIRED OUT TH E MACHINERY ON LEASE BASIS. WE FIND, FIRST OF ALL, THIS IS A HIGHLY DEBATABLE ISSU E WHICH CANNOT BE RECTIFIED U/S.154 OF THE ACT, EVEN OTHERWISE THE CIT(A) HAS CATEGORICALL Y RECORDED THE FINDING THAT THE ITA NO.1684/AHD/2001 A.Y. 1995-96 TRUST ENTERPRISES P. LTD. V. DY. CIT.CO. CIR-1(2) BRD PAGE 4 MACHINERY ON WHICH INVESTMENT ALLOWANCE WAS TRANSFE RRED BY WAY OF LEASING WITHIN A PERIOD OF EIGHT YEARS AFTER INSTALLATION. HERE, THE ASSESSEE HAS LEASED OUT THE MACHINERY ON TEMPORARY BASIS, HAD IT BEEN TRANSFERR ED, THE TRANSACTION HAS NOT BEEN ENTERED INTO IN THE PRESENT ASSESSMENT YEAR. ACCORD INGLY, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 154 R.W.S. 155(7) OF THE ACT. MOREOVER, THE CIT(A) WAS ALSO ERRED IN CONFIRMING T HE ACTION OF THE ASSESSING OFFICER. ACCORDINGLY, WE DELETE THE ADDITION AND T HE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE REVERSED. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11/09/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 11/09/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-III, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD