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TMI Blog1982 (8) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... ct'). Insofar as this issue is concerned, the relevant facts are as under. 2. The assessee Swastika Metal Works, Jagadhari, is a registered firm. It filed a return of income for the assessment year under appeal on 30-7-1977 declaring total income of Rs. 3,84,710. In this return, the assessee claimed initial depreciation on additions by way of new machinery of the value of Rs. 63,243 at the rate of 20 per cent at Rs. 12,648.60. In addition to the initial depreciation, the assessee also claimed normal depreciation at Rs. 80,293. After the deductions, inter alia, the income was determined at Rs. 3,84,709 and so was declared in the return filed on 30-7-1977. 3. During the course of the assessment proceedings, the assessee found that with ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the now plant and machinery in the current year's books of account, i.e., the books of account of the previous year during which the assessment proceedings were going on as on 11-12-1978. For the sake of clarification, we may record here that the previous year followed by the assessee is the financial year which for the assessment year 1977-78 was from 1-4-1976 to 31-3-1977. The assessment was finalised on 31-1-1979, i.e., during the accounting period relevant to the assessment year 1979-80 and the entries in the reserve account were made by the assessee in the books of account relevant to the assessment year 1979-80 as the credit was made on 11-12-1978. 4. The ITO, however, refused the claim for investment allowance made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk Ltd. v. CIT [1970] 77 ITR 512, the CBDT reconsidered this circular. However, with regard to the position that where there was no deliberate contravention of the provisions, the ITO may condone genuine deficiencies, subject to the same being made good by the assessee through creating of adequate additional reserve in the current year's books in which the assessment is framed, it was not changed. Thus, insofar as it was contended, the development rebate reserve was concerned, the assessee was allowed to make good the inadequacy in creation of the reserve or allowed to create the reserve in the books of account of the current year in which the assessment is framed. The learned counsel for the assessee argued that insofar as the investment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he development rebate, at a rate higher than that already allowed but, as the assessee had not created the necessary reserve, it could not be allowed. The Tribunal held that as the rectification proceedings are part of the assessment proceedings, the assessee was entitled to an opportunity to create a reserve till the end of the rectification proceedings and on a reference, the High Court held that the Tribunal was right in directing the ITO to allow an opportunity to the assessee to meet the deficiency in the reserve. Therefore, the case of the assessee was on much stronger ground because though the assessee made a mistake initially at the time of filing the original return in claiming initiation depreciation, yet that claim was substitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 32A(4), he pointed out that the words used are 'in the books of the previous year relating to the assessment year in which the deduction is to be allowed'. Since the assessee did not create a separate reserve in the books of account of the previous year relevant to the assessment year under appeal, the conditions precedent for allowing the investment allowance had not been fulfilled. For the above proposition, he placed reliance upon the Supreme Court judgment in the case of Indian Overseas Bank with particular reference to page 514, where the Supreme Court observed that the creation of the reserve contemplated by this provision is a condition precedent for obtaining the allowance of development rebate and it was not a mere formality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Iron Foundry v. CIT [1968] 89 ITR 425 ; the Allahabad High Court in the case of CIT v. Modi Spinning Weaving Mills Co. Ltd. [1973] 89 ITR 304 ; the Bombay High Court in the case of Tata Iron Steel Co. Ltd. v. N.C. Upadhyaya [1974] 96 ITR 1 and the Punjab and Haryana High Court in the case of Sardar Singh Sachdeva along with the Orissa High Court in the case of CIT v. Narula Cold Storage Ice Factory [1976] 104 ITR 148 have consistently taken the view that the Act does not contemplate a limit of time for claiming development rebate. It may be noted here that the conditions for investment allowance are substantially in pari materia with that of development rebate. The High Court has pointed out that only the Gujarat High Court had take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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