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Issues Involved:
1. Eligibility for development rebate and investment allowance. 2. Amendment of accounts post regular assessment for allowance purposes. Detailed Analysis: 1. Eligibility for Development Rebate and Investment Allowance: The core issue was whether the assessee, Sri Venkatesa Mills Limited, could claim development rebate and investment allowance for the assessment year 1978-79, despite not creating the necessary reserve in the accounting year 1977. The assessee had initially failed to comply with the statutory requirement of creating an adequate reserve for development rebate. Despite the opportunity provided by the Income-tax Officer (ITO) to rectify this shortfall, the assessee did not amend the accounts for the calendar year 1977, citing that the accounts had already been audited and approved by the general body. The Tribunal, however, considered the executive instructions in Circular No. 189 dated January 30, 1976, which allowed for condoning genuine deficiencies if the reserve was created in the current year's books. The Tribunal admitted the assessee's additional grounds of having amended the accounts in an extraordinary general meeting held on November 15, 1980, to provide the necessary reserve. The Tribunal held that the assessee was entitled to consideration of its claim on merits, given the circulars and the fact that the accounts for 1977 had been reopened and further provisions made. 2. Amendment of Accounts Post Regular Assessment: The pivotal question was whether the amendment of accounts after the regular assessment could be taken into account for allowing development rebate and investment allowance. The Revenue argued, relying on the decision in Addl. CIT v. South India Carbonic Gas Industries Ltd. [1977] 109 ITR 700 (Mad), that any amendment or creation of reserve subsequent to the assessment order was not valid. The statutory requirement under section 34(3)(a) of the Income-tax Act, 1961, necessitated that the reserve be created at the time the ITO disposed of the matter. Contrarily, the assessee cited the Supreme Court decision in CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1991] 187 ITR 51, where the amendment of accounts before the assessment order was deemed sufficient to allow the rebate. However, the High Court distinguished between the two cases, noting that in South India Carbonic Gas Industries, the amendment occurred post-assessment, rendering the assessee ineligible for the rebate. In contrast, Modi Spinning involved pre-assessment amendments, thus allowing the rebate. In the present case, the amendment of accounts took place after the assessment order, aligning with the South India Carbonic Gas Industries precedent. Consequently, the High Court concluded that the assessee was not eligible to claim the rebate, answering both questions against the assessee and in favor of the Revenue. Conclusion: The High Court held that the assessee was not entitled to the development rebate and investment allowance as the necessary reserve was not created within the required timeframe, i.e., before the assessment order. The Tribunal's decision to allow the rebate based on subsequent amendments was overturned, reaffirming the principle that statutory requirements must be met at the time of assessment. The tax case was disposed of with no order as to costs.
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