Development rebate reserve can be created during rectification proceedings if assessment is still pending.

Where rectification proceedings are treated as part of the assessment proceedings, an assessee may create the required development rebate reserve under section 34(3)(a) until those proceedings conclude. The absence of any prescribed statutory time limit for making the reserve entry supported that construction, and the Tribunal was correct in holding that the assessee remained entitled to make the reserve during the pendency of rectification proceedings. The legal point is that the reserve requirement can still be satisfied so long as the assessment process, including rectification, has not reached finality.

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Issues: Whether, in rectification proceedings treated as part of the assessment proceedings, the assessee was entitled to an to create the further reserve required under section 34(3)(a) of the Income-tax Act, 1961, so as to qualify for development rebate.

Analysis: The controversy turned on whether the reserve could be created so long as the assessment process had not concluded. The Tribunal had found that rectification proceedings form part of the assessment proceedings. On that footing, the assessee remained entitled to make the requisite reserve up to the end of the rectification proceedings. The absence of a prescribed time limit in the Act for making the relevant entry supported this view.

Conclusion: The assessee was entitled to an opportunity to create the reserve during the pendency of the rectification proceedings, and the Tribunal was correct in law.

Ratio Decidendi: Where rectification proceedings are part of the assessment proceedings, the assessee may be allowed to make the requisite development rebate reserve until those proceedings conclude.

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