1981 (4) TMI 124 - AT - Income Tax

Tribunal grants relief for rectification of deductions under IT Act, emphasizing mandatory nature of Chapter IV-A.

The tribunal partially allowed the appeal, directing the ITO to recompute the relief under s. 80J in accordance with the law. The failure to claim ... - Issues:1. Claim for deduction under s. 80J and development rebate allowance not made during original assessment.2. Rectification under s. 154 of the IT Act for missed deductions.3. Interpretation of mandatory nature of deductions under Chapter IV-A.4. Compliance with conditions for deduction under s. 80J.5. Creation of development rebate reserve for claiming development rebate allowance.Analysis:1. The appeal involved the failure of the assessee to claim deductions under s. 80J and development rebate allowance during the original assessment, resulting in the allowances not being granted by the ITO. The ITO corrected the rate of depreciation but rejected the claims made under s. 80J and development rebate, stating they were not raised during the assessment proceedings and could not be rectified under s. 154 of the IT Act. The CIT (A) upheld this decision, leading to the second appeal before the tribunal.2. The assessee argued that deductions under Chapter IV-A were mandatory as indicated by the use of the word 'shall' in s. 80A and 80J, contending that the failure to grant relief under s. 80J was against the law and could be rectified under s. 154. Reference was made to a circular emphasizing the duty of the department to assist taxpayers in claiming entitled reliefs. The Gujarat High Court's decision in a similar case supported the view that the ITO should have alerted the assessee to unclaimed reliefs.3. The tribunal examined the conditions required for deduction under s. 80J, highlighting that the assessee's industrial undertaking status was evident from the assessment order itself. The absence of the sub-section requiring audit for deductions under s. 80J in the relevant assessment year was noted, strengthening the assessee's case for rectification.4. The tribunal considered past judgments emphasizing that the ITO's duty under s. 35 was to review the entire assessment proceedings for errors, supporting the assessee's argument for rectification under s. 154. The Revenue conceded that all s. 80J requirements were met, justifying rectification for the missed deduction.5. However, regarding the development rebate claim, the tribunal noted the necessity of creating a development rebate reserve before claiming the allowance. The absence of a reserve creation request by the assessee and failure to demonstrate reserve existence led to the denial of the development rebate in rectification proceedings. The tribunal directed the ITO to recompute the relief under s. 80J in accordance with the law, partially allowing the appeal.