COMMISSIONER OF INCOME TAX Vs. MIHIR TEXTILES LIMITED

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following four questions have been referred to us by the Tribunal :

(2.) THE facts leading to this reference are as follows. We are concerned in the present case with the asst. year 1967 68. The assessee is a limited company and manufactures cotton textiles and sells the same. Before the ITO it was urged, (1) that the expenditure incurred on payment of betterment charges to the Ahmedabad Municipal Corporation should be allowed as admissible expenditure in computing the assessable income of the assessee. It was also urged, (2) that the amount of Rs. 9,700 paid by way of penalty for infraction of customs laws should be allowed as business expenditure ; (3) that an amount of Rs. 4,100 paid by way of penalty for delay in making payment of provident fund contribution of Rs. 82,033 for the period from August, 1965, to October, 1965, should be allowed as business expenditure ; and (4) that the development rebate of Rs.

(3.) SIMILARLY , we find that question No. (4) referred to us in now covered by a decision of this High Court in Addl. CIT vs. Shri Subhlaxmi Mills Ltd. 1975 CTR (Guj) 35 : (1975) 100 ITR 188 (Guj) It has been there held that by virtue of the Expln. to S. 34(3)(a) of the IT Act, 1961, with retrospective effect, the deduction is not to be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the reserve account exceeds the amount of the profit of such previous year as shown in the profit and loss account and, therefore, irrespective of the result of the profit and loss account as shown by the books of the assessee, the reserve fund can be credited merely by book entries, that is, by debiting the amount of the reserve to the profit and loss account of the relevant previous year and crediting the amount of the reserve account. The debiting of the profit and loss account must be done before the profit and loss account is closed, that is, entries should be made regarding the reserve at the time of making up the profit and loss account. The legislature has clearly indicated that the assessee must ordinarily be allowed the benefit of development rebate as a deduction in respect of the previous year in which the ship was acquired or the machinery or plant was installed and this can be done only if the profit and loss account, before it was finally made up, shows the necessary debit entry for purposes of creation of the reserve and the corresponding credit entry for the reserve account. If this is not done, the condition for getting the benefit of development rebate will not be satisfied and development rebate cannot be allowed. In view of this decisions in Addl. CIT vs. Shri Subhlaxmi Mills Ltd. (supra), it is obvious that in the instant case the development rebate reserve was not created in the year of installation so far as the relevant portion of the machinery was concerned and hence the development rebate in respect of that particular item was not allowable. Question No. (4) is, therefore, answered in the negative and against the assessee and in favour of the Revenue though the point on which the question is now being decided was not presented before any of the authorities until now.