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Issues:
1. Validity of development rebate on gas cylinders for the assessment year 1968-69. 2. Correctness of subsequent correction of company's account for meeting statutory provision for the assessment year 1968-69. Analysis: The case involved questions referred by the Income-tax Appellate Tribunal regarding the validity of development rebate on gas cylinders and subsequent correction of the company's account for the assessment year 1968-69. The assessee claimed a total development rebate of Rs. 72,507, consisting of rebate on gas cylinders and other machinery. The Income-tax Officer disallowed the entire claim for gas cylinders, stating they did not qualify for the rebate. The accounts were adopted by the annual general meeting, but later, the directors amended the accounts to increase the reserve. The Appellate Assistant Commissioner allowed a partial rebate based on the available reserve. The Tribunal, however, allowed the appeal, stating that rectification of the accounts created the required reserve from the beginning, relying on legal provisions and rectification orders. The Commissioner challenged this conclusion, leading to the present judgment. The statutory provisions under section 33 and section 34(3)(a) of the Income-tax Act were crucial in determining the allowance of development rebate. Section 34(3)(a) mandates the creation of a reserve equal to seventy-five percent of the rebate claimed for the deduction to be allowed under section 33. In this case, the accounts initially adopted did not create the required reserve, leading to the partial allowance by the Appellate Assistant Commissioner. Subsequently, the annual general meeting ratified the amendments to the accounts, increasing the reserve. However, the court emphasized that the necessary reserve should have been created before the Income-tax Officer's decision, as per the statutory provisions. The court rejected the Tribunal's reliance on the Code of Civil Procedure and other sections of the Act for retroactively amending the accounts. It clarified that once the accounts are adopted by the annual general meeting, they cannot be altered by the directors. The court held that any subsequent amendment or creation of reserve after the Income-tax Officer's decision does not impact the validity of the decision. The court emphasized that the creation of the necessary reserve at the time of the Income-tax Officer's consideration is essential for claiming the development rebate, and subsequent changes cannot alter the original decision. The court concluded that the Tribunal's decision was incorrect, and the questions were answered against the assessee.
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