1981 (3) TMI 142 - AT - Income Tax

Summary

Issues:
1. Disallowance of investment allowance and withdrawal of development rebate by CIT (Appeals) for asst. yr. 1978-79.
2. Admissibility of additional grounds raised by the assessee regarding amendment of accounts for the year 1977.
3. Consideration of the assessee's claim for development rebate/investment allowance based on circulars issued in 1965 and 1976.
4. Reopening of relevant year's accounts and provision made by the assessee.
5. Time frame for rectification and allowance of development rebate/investment allowance.

Analysis:

1. The appeal was filed by M/s Shri Venkatesa Mills Ltd. against the order of CIT (Appeals) denying the investment allowance and withdrawing development rebate. The issue arose as the development rebate reserve was found inadequate, and the assessee failed to rectify the shortfall in the accounts of the calendar year 1977. The first appellate authority held that the statutory requirement was not satisfied, leading to disallowance. However, the assessee relied on executive instructions in Circular No. 189, claiming that the creation of a reserve in the current account should suffice for the allowance.

2. The assessee sought to introduce additional grounds supporting the original appeal, highlighting that an extraordinary general meeting was held in November 1980 to amend the accounts for 1977. The Tribunal admitted this fact, noting that amending closed accounts under the Companies Act is a specialized process. The Departmental Representative argued that the amendment was not made within the ITO's specified timeframe.

3. The Tribunal analyzed the circulars issued in 1965 and 1976, emphasizing that the creation of a reserve in the current account could support the assessee's claim for development rebate/investment allowance. The fact that the relevant year's accounts were reopened, and further provisions were made, favored the assessee's case. Despite the delay in rectification, the Tribunal opined that the procedure under the Companies Act for amending disclosed accounts warranted time, and the allowance should be considered based on the reserves at the extraordinary general meeting in November 1980.

4. Consequently, the Tribunal allowed the appeal for statistical purposes, indicating that the quantum of development rebate and investment allowance, whether past or current, should be reassessed by the ITO with reference to the reserves in the calendar year 1977 at the extraordinary general meeting held in November 1980, in line with the Board's Circulars.