Commissioner of Income Tax vs Haryana State Minor Irrigation and Tubewell Corporation Ltd.

J.V. Gupta, J.—At the instance of the Revenue, the following two questions have been referred for the opinion of this court u/s 256(1) of the I.T. Act, 1961 (hereinafter called "the Act"), by the income tax Appellate Tribunal, Chandigarh Bench (hereinafter called "the Tribunal"), vide its order dated June 18, 1976.

"1. Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to come to the finding that there existed no balance-sheet of the assessee before the assessment was completed ?

Whether, on the facts and circumstances of the case, the Tribunal has been right, in law, in holding that the requirements of Section 34(3)(a) were duly satisfied so as to qualify the assessee to claim development rebate of Rs. 7,18,208 u/s 33(1)(a) of the Income Tax Act, 1961 ?"

The brief facts giving rise to this reference are these. The assessment year of the assessee, that is, the Haryana State Minor Irrigation and Tubewell Corporation Ltd., Chandigarh, was 1971-72, which commenced on April 1, 1971. The assessee is a company in which the public are substantially interested as denned in Section 2(18) of the Act. The assessee carries on business of installation of tubewells in the State of Haryana, and outside. It also carried on the business of manufacturing spun pipes, R.C.C. pipes and cement pipes to be used in the installation of tubewells. The financial year is the previous year and the method of accounting is mercantile. The assessment of the assessee was completed by the ITO on January 31, 1973. The assessee had declared a loss of Rs. 7,15,125, as per the original return dated December 30, 1971. The said return was later on revised, firstly, on October 11, 1972 and, secondly, on November 17, 1972, ultimately declaring a loss of Rs. 14,92,000. In addition to the said declared loss, the assessee also claimed development rebate and depreciation. The total development rebate of Rs. 7,18,208 in respect of certain plant and machinery was claimed u/s 33(1)(a) of the Act. The ITO found that the assessee had credited to the reserve account, as contemplated u/s 34(3)(a) of the Act, only an amount of Rs. 1,85,638 instead of the requisite amount of Rs. 5,38,656. He, on the basis of the said finding, rejected the assessee''s claim altogether.

On appeal, the AAC took the view that the ITO should not have rejected the assessee''s claim to development rebate in toto and that such a rebate should have been allowed to the extent of the amount found credited to the reserve account, as aforesaid. Against the order of the AAC, both the parties filed their appeals before the Tribunal where the assessee pressed its claim for full development rebate of Rs. 7,18,208 whereas the Revenue contended that the AAC could not, in law, allow the assessee''s claim to development rebate, even in pArticle The Tribunal took the view that the assessee''s balance-sheet, as on March 31, 1971, was prepared after the statutory auditing as required u/s 619 of the Companies Act, 1956, only on May 22, 1973, and this was done after the completion of the assessment by the ITO on January 31, 1973. Since the said balance-sheet admittedly credited to the reserve account the full amount as required u/s 34(3)(a) of the Act, the assessee was clearly entitled to the development rebate in question. The plea of the Revenue was rejected on the ground that the present case was not one of amendment of any accounts. According to the Tribunal, there existed no statutory balance-sheet of the assessee as on March 31, 1971, before the assessment was completed by the ITO and, therefore, the bar of the ruling in Commissioner of Income Tax Vs. Sardar Singh Sachdeva, , was not attracted in the present case. Ultimately, the Tribunal allowed the assessee''s appeal and dismissed that of the Revenue.

The learned counsel for the Revenue has contended that the Tribunal was not justified in holding that there existed no balance-sheet of the assessee before the assessment was completed. We find force in this contention. From the orders of the ITO and the AAC, we find that there was a balance-sheet filed along with the original return. Moreover, the balance-sheet was prepared as on March 31, 1971, though the same was audited u/s 619 of the Companies Act, 1956, on May 22, 1973, that is, after the completion of the assessment by the ITO. This auditing could not affect the assessment proceedings taken earlier. It has been wrongly held by the Tribunal that there existed no balance-sheet of the assessee as on March 31, 1971, before the assessment was completed. In view of this, the answer to question No. 1 is in the negative, that is, against the assessee.

The learned counsel for the Revenue next contended that if their existed a balance-sheet earlier, then the judgment of this court in Commissioner of Income Tax Vs. Sardar Singh Sachdeva, , which has also been followed in Commissioner of Income Tax Vs. Rita Mechanical Works, , is fully applicable to the facts of the present case.

We have heard the learned counsel for the parties at great length. It has been clearly held by this court in Sardar Singh Sachdeva''s case, as follows (headnote);

" It is not necessary that entries about development rebate should be made in the accounts on or before the last day of the accounting year or even before the preparation of the profit and loss account. It is open to the assessee to make the entries at any time before the assessment is completed. The entries become final only when the assessment is made. Till then, they are in a fluid state and any defect or error in them could be corrected."

Under the circumstances, the Tribunal was not justified in the facts and circumstances of this case, in holding that the requirements of Section 34(3)(a) of the Act were duly satisfied so us to qualify the asscssce to claim development rebate of Rs. 7,18,208 u/s 33(1)(a) of the Act. However, it may be made clear that out of the total amount claimed on account of development rebate, the AAC had found a sum of Rs. 1,85,638 as credited to the reserve account and, therefore, to the extent admissible the assessee will be entitled to claim the same u/s 33(1)(a) of the Act,

Thus, the answer to question No. 2 is in the negative, that is, against the assessee.

The reference stands answered accordingly with costs. Civil Miscellaneous Application also stands disposed of.