Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the entry made for development rebate reserve after 31st March, 1976 would meet the requirements of s. 34(3)?

Counsel Appeared

Sanjiv Khanna with Ajay Jha, for the Revenue : None, for the Assessee

JUDGMENT

ARIJIT PASAYAT, C.J. :

At the instance of the Revenue, the Income-tax Appellate Tribunal, Delhi Bench-B (the “Tribunal” in short), has referred the following question under s. 256(1) of the Income-tax Act, 1961 (in short “the Act”), for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the entry made for development rebate reserve after 31st March, 1976 would meet the requirements of s. 34(3)?”

2. For the asst. yr. 1976-77, the assessee filed its original return on 16th July, 1976. In the P&L a/c and balance sheet filed along with the original returns, the assessee had not shown any claim relating to development rebate reserve. Immediately thereafter a revised return was filed and in the P&L a/c and balance sheet annexed thereto development rebate reserve was shown on the basis of the entries made in the books of account. The amount in question was Rs. 1,06,567. The AO held that since the entries had not been made before the close of the accounting period, the provisions of s. 34(3) of the Act were not complied with and, therefore, the claim was not admissible. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [“the CIT(A)” in short]. It was contended that s. 34(3) of the Act did not contemplate any time-limit for creating development rebate reserve in order to make a claim. Reliance was placed on the decisions of various High Courts, i.e., the Punjab & Haryana High Court in CIT vs. Rita Mechanical Works (1977) 108 ITR 552 (P&H) : TC 28R.519, the Andhra Pradesh High Court in Veerabhadra Iron Foundry vs. CIT (1968) 69 ITR 425 (AP) : TC 28R.509, the Allahabad High Court in CIT vs. Modi Spinning & Weaving Mills Co. Ltd. (1973) 89 ITR 304 (All) : TC 28R.513, the Bombay High Court in Tata Iron & Steel Co. Ltd. vs. N.C. Upadhyaya & Anr. (1974) 96 ITR 1 (Bom) : TC 28R.477, and the Orissa High Court in CIT vs. Narula Cold Storage & Ice Factory 1976 CTR (Ori) 120 : (1976) 104 ITR 148 (Ori) : TC 28R.516. The ITO denied the claim relying on the decision of the Gujarat High Court in Keshavlal Vithaldas vs. CIT 1977 CTR (Guj) 146 : (1976) 105 ITR 601 (Guj) : TC 28R.515. The assessee submitted that if two views are possible on a particular matter, in view of the decision of the apex Court in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) : TC 49R.516, the one in favour of the assessee had to be adopted. It is to be noted that the CIT(A) held that the view expressed by the Gujarat High Court was to be adopted. The assessee carried the matter in further appeal before the Tribunal. On consideration of the rival submissions, it was held by the Tribunal that there was preponderance of the authority in favour of the assessee and accordingly it was to be held that it is not necessary that entries in the accounts must be made on or before the last day of the accounting year. The Tribunal noticed that on the facts there was no dispute regarding the entries in the books of account and consequent revision of the P&L a/c and balance sheet which were made soon after the first return was filed on 16th July, 1976. In the P&L a/c and balance sheet annexed to the revised return filled on 24th July, 1976, the assessee had credited in its books development rebate reserve. This according to the Tribunal, was in compliance with the requirement of s. 34(3) of the Act. On being moved for reference, the question as set out above has been referred for the opinion of this Court.

We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of service of notice.

Learned counsel for the Revenue submitted that the entries should be made before finalisation of the accounts, more particularly before drawing up the P&L a/c and balance sheet. According to him, when the original return was filed this admittedly had not been done and, therefore, the Tribunal was not justified in its view.

The decision of the Allahabad High Court to which reference was made by the Tribunal, i.e., CIT vs. Modi Spinning & Weaving Mills Co. Ltd. (supra), was the subject-matter of appeal before the apex Court in CIT vs. Modi Spinning & Weaving Mills Co. Ltd. (1990) 90 CTR (SC) 58 : (1991) 187 ITR 51 (SC) : TC 28R.511. The view expressed by the Allahabad High Court was affirmed by the apex Court. Further, the view expressed by the Bombay High Court in Tata Iron & Steel Co. Ltd.’s case (supra), was also taken note of. The apex Court noted that the CBDT had, by Circular No. 189, dt. 30th Jan., 1976 [reported in (1976) 102 ITR (St) 90], clarified the matter in para. (a) thereof. Therefore, the apex Court did not entertain the Revenue’s appeal.

The above being the position, we answer the question referred in the affirmative, in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly.

[Citation : 249 ITR 333]