1970 (10) TMI 26 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the requirements of proviso (b), clause (vib), of sub-section (2) of section 10, of the Indian Income-tax Act, 1922, for creation of development rebate reserve have been satisfied ? - In our opinion it was open to the assessee to make these entries at any time before the assessment was completed. The entries only become final as and when they are accepted or rejected by the Income-tax Officer, i.e., when the assessment is made. Till then, they are in a fluid state and any error or defect in them could be corrected.For the reasons recorded above, we reply the question referred to us in the affirmative, that is, against the department

Summary

Issues:
Interpretation of proviso (b), clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 regarding the creation of development rebate reserve.

Analysis:
The case involved a dispute regarding the creation of a development rebate reserve by the assessee for the assessment year 1961-62. The Income-tax Officer disallowed the claim for development rebate as the reserve was created after the close of the relevant accounting year. The Appellate Assistant Commissioner also rejected the claim, leading the assessee to appeal to the Income-tax Appellate Tribunal. The Tribunal accepted the assessee's contention and allowed the claim, disagreeing with the department's argument based on a decision of the Madras High Court. The department then applied for reference to the High Court.

The High Court considered the requirement of making relevant entries in the account books and profit and loss account before the close of the accounting year. The court referred to decisions of the Andhra Pradesh High Court and the Rajasthan High Court, which clarified the interpretation of the relevant provisions. The court emphasized that statutory provisions should not be extended beyond their clear language. The court highlighted that the profit and loss account cannot be finalized immediately after the close of the year and noted the assessee's right to modify the return before assessment, indicating the possibility of correcting mistakes in the accounts.

The department relied on a Supreme Court decision regarding a different context, but the High Court distinguished the case and emphasized that the key issue was compliance with the requirements of the proviso before the assessment is completed, rather than before the close of the accounting year. The court concluded that the entries could be made before the assessment was finalized, and any errors could be corrected until that point. Therefore, the court answered the question referred in favor of the assessee, rejecting the department's contention.