9911796707
TMI Blog2011 (8) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITAT has dismissed the appeal filed by the Revenue and confirmed the order passed by the Commissioner of Income Tax (Appeals)-I, Bangalore in ITA No.l47/R-11/CIT(A)I/99-00 dated 19-3-2002. 2. The appeal has been admitted for consideration of the following substantial questions of law by order dated 14-12-2010: (1) "Whether the Tribunal was correct in holding that the set off of investment allowance need not be availed of in the first year, when there are profits and the assessee would be entitled to skip that year and effect the carry forward law to the set off in a subsequent year of a profit. (2) Whether the appellate authorities were correct in reserving the finding of assessing officer that the assessee had profit during the assessment year 1995-96 and the assessee should have created necessary reserve and claimed set off of brought forward investment allowance in the assessment year 1995-96 itself instead of creating reserve for the assessment year 1996-97 and claim set off?' 3. The material facts leading up to this appeal with reference to rank of the parties before the assessing officer are as follows: The assessee filed his return on 27-11-1996 declaring an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment allowance to the extent of Rs. 6,64,606/- for the assessment years 1988-89, 1989-90 and 1990-91 was required to be allowed. It was also contended that in the original balance sheet submitted, by inadvertence, reserve was not created and hence, the shareholders have amended appropriation of profit at their Extraordinary General Meeting held on 4-9-1997. The appellate authority, in view of the amendment of Section 32A of the Act and also in view of the Board's circular No.572 dated 3-8-1990, held that when there was no profit, creation of reserve was not mandatory. However, sufficient reserve was created when the investment allowance was claimed and therefore, the assessee was entitled to investment allowance claimed and allowed the claim of investment allowance of Rs. 6,64,606/- pertaining to the assessment years 1988-89 to 1990-91. Being aggrieved by the said order of the first appellate authority, the Revenue preferred an appeal before the ITAT in ITA No.810/Bang/2002. The ITAT having regard to the observations made by the first appellate authority regarding amendment of Section 32A and in view of sub-section (4) in clause (ii) of Section 32A and the circular issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the reserve fund have to be made before the profit and loss account is finally drawn up. That is a condition for securing the benefit of development rebate and if that condition is not satisfied, we fail to see how the deduction on account of development rebate can be claimed at all." 6. The learned counsel for the respondent-assessee submitted that the appeal is devoid of merit as the appellate authorities have concurrently held that sufficient reserve had been created and in view of the amendment of Section 32 by Amending Act of 1990 and also as per the Board's circular No.572 dated 3-3-1990 that if sufficient reserve has been created when the claim for rebate is made, the same should be allowed and the decision of the Hon'ble Supreme Court in Shubhlaxmi Mills Ltd.'s case cited supra, is also referred to in the said circular. 7. We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinised the material on record. 8. The material on record would clearly show that the assessee had originally filed return on 26-11-1996 declaring an income of Rs. 73,12,840/- and subsequently a revised return was filed on 31-10-1997 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bate came to be allowed, the CBDT through a circular clarified that the requirement of creation of reserve will be considered to have been satisfied if the accumulated reserves in respect of the said machinery or plant up to the year or years of actual deductions is equal to seventy-five per cent of the amount of development rebate to be actually allowed. This means that in a year when profits are insufficient or there are no profits, the creation of reserve was not mandatory. 18.2 The Supreme Court in the case of Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC), has held that in order to claim the deduction on account, of development rebate, it is obligatory that the reserve should be created in the year of acquisition/installation of machinery or plant, etc., even in a case where there are no profits. If the decision of the Supreme Court is to be followed, then taxpayers who have been following the Board's circulars for many years would be placed in a very difficult situation as their assessments already completed could be reopened. Apart from this, it may run contrary to accounting principles and the assurance given by the CBDT through its circular. 18.3 Though the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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