Transfer of Machinery by a member to the HUF is not a transfer between ‘related parties’, reiterates ITAT Hyderabad [Read Order]


Only Clerical and Grammatical errors can be corrected through rectification application, says ITAT Hyderabad.

In Ganjikunta Kishore Babu (HUF) v. HUF, the Hyderabad ITAT reiterated that the Transfer of machinery by a member to the HUF is not a transfer between ‘related parties’, and therefore, the transaction is rightly assessed under s. 56(2) of the Income Tax Act. The bench was hearing a rectification application preferred by the assessee rebutting the interpretation of seciton 56(2) of the Income Tax Act made by the ITAT at the time of disposal of the appeal. The bench, while dismissing the petition specifically stated that only Clerical and grammatical errors can be corrected through rectification application.

A machinery was transferred by an individual to the appellant, an HUF. The Assessing Officer held that the transaction is assessable under section 56(2) of the Income Tax Act. The appellant rebutted this contention on appeal and contended that since the transaction was between ‘relatives’, it is exempted from income tax.

However, the Appellate Tribunal, on second appeal, held that the definition of “property” under explanation to section 56(2)(vii) pro-tanto being aligned with definition of “capital assets” under section 2(14) of the Income Tax Act. It was further held that in the absence of specific clause stating that “Machinery” being included as part of the definition, the transfer of machinery to the assessee by the individual is to be taxed under section 56(2)(vii) of the Act.

The assessee preferred a rectification application against the order of ITAT on ground that the ITAT misunderstood the wordings of section 56(2) and they stated that the transaction of machinery between ‘related parties’ are still not taxable under the said section.

Dismissing the application, the bench said that it have already considered the issue on merits and adjudicated and there is no mistake apparent on the record. “The Hon’ble Calcutta High Court in the case of CIT Vs. Suman Tea and Plywood Industries (P) Ltd., 226 ITR 34 held that “by section 254(4)of the IT Act, an order which has been passed by the Tribunal reaches finality the moment the same is passed: it cannot be touched thereafter. By section 254(2) of the act, the Tribunal,however, has been authorized to rectify mistakes in its orders,which are apparent on the face of the records. The expression“mistake apparent on the record” means a mistake either clerical or grammatical or arithmetical or of like nature, which can be detected without there being any necessity to reargue the matter or to reappraise the facts as appearing from the records.

Read the full text of the order below.