1990 (12) TMI 119 - AT - Income Tax

Assessing Officer Development Allowance Investment Allowance Mistake Apparent From Record Plant And Machinery

Summary

Issues Involved:
1. Withdrawal of development rebate/investment allowance under section 154/155(5).
2. Scrapping/discarding/writing off of plant and machinery.
3. Interpretation of "sale or transfer" within the context of section 155(5).
4. Jurisdiction of the Assessing Officer under section 154 for rectification of original assessment orders.

Issue-Wise Detailed Analysis:

1. Withdrawal of Development Rebate/Investment Allowance under Section 154/155(5):
The case revolves around the withdrawal of development rebate/investment allowance granted to the assessee for the assessment year 1973-74. The Assessing Officer (AO) issued a notice to the assessee to show cause why the development rebate/investment allowance should not be withdrawn under section 154/155(5) of the Act. This action was based on the observation that the assessee had scrapped/discarded/written off plant and machinery within eight years of installation, which was initially eligible for development rebate.

2. Scrapping/Discarding/Writing Off of Plant and Machinery:
The assessee admitted that the plant and machinery in question were scrapped due to corrosion and continuous wear and tear, making them unserviceable. The scrapped items were sent to the scrapping department and sold along with other scrapped machinery. The AO assumed that the scrapped/discarded plant and machinery were sold during the relevant previous year, thus justifying the withdrawal of the development rebate.

3. Interpretation of "Sale or Transfer" within the Context of Section 155(5):
The primary contention was whether the scrapping/discarding/writing off of plant and machinery amounted to "sale or transfer" under section 155(5). The CIT(A) upheld the AO's decision, relying on the Tribunal's precedent in Phoenix Chemicals Works (P.) Ltd., which stated that the provisions of section 155(5) applied to the sale of machinery within eight years, irrespective of its usability. However, the Tribunal in the current case distinguished between the replacement of parts to keep machinery working and the sale of machinery as such. The Tribunal concluded that the replacement of parts did not constitute a sale or transfer, thereby not attracting the provisions of section 155(5).

4. Jurisdiction of the Assessing Officer under Section 154 for Rectification of Original Assessment Orders:
The assessee argued that the issue was debatable and, therefore, not suitable for rectification under section 154. The Tribunal noted that the AO was not clear about the specific items scrapped and whether they were sold as working machinery. The Tribunal also referenced conflicting decisions in similar cases, highlighting the debatable nature of the issue. Consequently, the Tribunal held that the AO did not have proper jurisdiction to withdraw the development rebate under section 154.

Conclusion:
The Tribunal allowed the appeals, concluding that the replacement of parts to keep the plant and machinery working did not amount to a sale or transfer under section 155(5). The Tribunal emphasized that the legislative intent was to ensure that the plant and machinery were used for business purposes for at least eight years. The Tribunal also found that the AO did not have proper jurisdiction under section 154 to rectify the original assessment orders, given the debatable nature of the issue. The appeals for the subsequent years were allowed based on identical facts and reasoning.