Law:

Section:

Section 155, read with section 32A, of the Income-tax Act, 1961 - Rectification of mistakes - Other amendments - Assessment years 1981-82 to 1987-88 - Whether when a firm is dissolved and rights of erstwhile partners are mutually adjusted, there is no transfer - Held, yes - Assessee on death of one of partners on 26-10-1987 constituted a new firm comprising of all its original partners and widow of deceased partner and had taken over all assets and liabilities of firm which was dissolved on 26-10-1987 - New firm continued to carry on same business - It had made additions to plant and machineries between 1981-82 and 1988-89 - It had, thus, utilised full extent of investment allowance that had been allowed within period allowed by law - Deputy Commissioner by an order made under section 155 withdrew investment allowance that had been availed by reconstituted firm on the ground that there had been transfer of assets and liabilities of old firm to new firm and, therefore, section 155(4A) and section 32A(5) had been contravened - Whether Deputy Commissioner was justified - Held, no FACTS The assessee on the death of one of the partners on 26-10-1987 constituted a new firm comprising of all its original partners and the widow of the deceased partner and had taken over all the assets and liabilities of the firm which was dissolved on 26-10-1987. The new firm continued to carry on the same business. It had made additions to the plant and machineries between 1981-82 and 1988-89. It had, thus, utilised full extent of the investment allowance that had been allowed within the period allowed by law. However, the Deputy Commissioner by an order made under section 155 withdrew the investment allowance that had been availed by the reconstituted firm on the ground that there had been transfer of assets and liabilities of the old firm to the new firm and, therefore, section 155(4A) and section 32A(5) had been contravened. On appeal, the Commissioner having noticed that the old firm had fully utilised the allowance by purchasing new machinery within the period allowed by law, held that there was no infringement of the provisions of section 34(3)(a) even prior to the dissolution…

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