Commissioner Of Income-Tax vs Span Industries
2001 Latest Caselaw 15 Del

JUDGMENT

Arijit Pasayat, C.J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Delhi Bench-B (the "Tribunal" in short), has referred the following question under section 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 March 31, 1976, would meet the requirements of section 34(3) ?"

2. For the assessment year 1976-77, the assessed filed its original return on July 16, 1976. In the profit and loss account and balance-sheet filed along with the original return, the assessed had not shown any claim relating to development rebate reserve. Immediately thereafter a revised return was filed and in the profit and loss account 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 Assessing Officer held that since the entries had not been made before the close of the accounting period, the provisions of section 34(3) of the Act were not complied with and, therefore, the claim was not admissible. The assessed preferred an appeal before the Commissioner of Income-tax (Appeals) ("the CIT(A)" in short). It was contended that section 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 and Haryana High Court in CITv. Rita Mechanical Works [1977] 108 ITR 552, the Andhra Pradesh High Court in Veera-bhadra iron Foundry v. CIT [1968] 69 ITR 425, the Allahabad High Court in CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1973] 89 ITR 304, the Bombay High Court in Tata Iron and Steel Co. Ltd. v. N. C. Upadhyaya [1974] 96 ITR 1 and the Orissa High Court in CIT v. Narula Cold Storage and Ice Factory [1976] 104 ITR 148. The Income tax Officer denied the claim relying on the decision of the Gujarat High Court in Keshavlal Vithal-das v. CIT [1976] 105 ITR 601. The assessed submitted that if two views are possible on a particular matter, in view of the decision of the apex court in CITv. Vegetable Products Ltd. [1973] 88 ITR 192, the one in favor of the assessed had to be adopted. It is to be noted that the Commissioner of Income-tax (Appeals) held that the view expressed by the Gujarat High Court was to be adopted. The assessed carried the matter in further appeal before the Tribunal. On a consideration of the rival submissions, it was held by the Tribunal that there was preponderance of the authority in favor of the assessed 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 profit and loss account and balance-sheet which were made soon after the first return was filed on July 16, 1976. In the profit and loss account and balance-sheet annexed to the revised return filed on July 24, 1976, the assessed had credited in its books development rebate reserve. This, according to the Tribunal, was in compliance with the requirement of section 34(5) of the Act. On being moved for reference, the question as set out above has been referred for the opinion of this court.

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

4. Learned counsel for the Revenue submitted that the entries should be made before finalisation of the accounts, more particularly before drawing up the profit and loss account 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.

5. The decision of the Allahabad High Court to which reference was made by the Tribunal, i.e.. CIT v. Modi Spinning and Weaving Mills Co. Ltd, [1973] 89 ITR 304, was the subject-matter of appeal before the apex court in CiTv. Modi Spinning and Weaving Mills Co. Lid. (1991] 187 ITR 51. 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 and Steel Co. Ltd.'s case [1974] 96 ITR 1, was also taken note of. The apex court noted that the Central Board of Direct Taxes had, by Circular No. 189, dated January 30, 1976 (reported in [1976] 102 ITR (St.) 90), clarified the matter in paragraph (a) thereof. Therefore, the apex court did not entertain the Revenue's appeal.

6. The above being the position, we answer the question referred in the affirmative, in favor of the assessed and against the Revenue.

7. The reference stands disposed of accordingly.