COMMISSIONER OF INCOME TAX Vs. JANARDHAN ZARAPKAR

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961, by the Tribunal Bangalore Bench, at the instance of CIT, Mysore.

(2.) IN this case the assessee is a firm having four partner S. The concerned assessment year is 1966 67, with the previous financial year ending on 31st March, 1966. During the accounting year relevant to the assessment year the assessee had purchased certain items of machinery called a "Michigan Shovel" at the cost of Rs. 1,98,230, which was brought into use during that very year. In the return of income initially filed by the assessee for the said year it had not claimed development rebate on the said machine, to which it was entitled. So also the statement of account of the assessee on which the said initial return was based had not complied with the statutory conditions under S. 34(3) of the IT Act, 1961, namely, 75per cent of the development rebate actually allowed to the assessee, being shown in the accounts as debited to the profit and loss account and credited to a reserve account, to enable the ITO to allow the said development rebate to the assessee. However, during the hearing of the said assessment proceedings before the ITO the assessee filed a revised return of income based on a fresh statement of accounts made by the assessee, complying with the said statutory conditions laid down under S. 34(3) of the IT Act, 1961. The ITO, relying on the decision of the Madras High Court in CIT vs. Veeraswami Nainar (1965) 55 ITR 35 (Mad), rejected the assessee's claim for the development rebate made under the revised return on the ground that the reserve created was not a proper reserve as envisaged under S. 34 (3) of the IT Act, 1961.

(3.) THE Revenue filed an appeal against the said order to the Tribunal. The Tribunal confirmed the finding of the AAC, holding that in this case the assessee, which was a firm, had complied with the provisions of S. 34(3) of the IT Act, 1961. In doing so the Tribunal observed: