Development rebate entitlement upheld despite partial reserve creation and year loss, with no further reserve required for future profits.

Development rebate could not be withdrawn merely because the assessee had incurred a loss in the year or had created the reserve for only part of the amount. The cited precedent and CBDT circular supported allowance of the rebate even where the reserve was not made for the full claim, and the partial reserve did not defeat entitlement to the balance relief. It was also clarified that, where the rebate is to be given effect from future profits, no further reserve is required to that extent. The revisionary restriction on the rebate was therefore held unsustainable.

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Issues: Whether the withdrawal of development rebate under section 263 was justified when the assessee had suffered a loss and had created the development rebate reserve only for part of the amount; and whether any further reserve was required before the carried-forward rebate could be allowed.

Analysis: The assessee was held entitled to the full development rebate notwithstanding the loss in the year and the absence of reserve for the entire amount. The earlier decisions and the CBDT circular supported allowance of development rebate even where no reserve had been created for the whole amount, and the partial creation of reserve did not disentitle the assessee to the balance relief. The revisionary order restricting the rebate was therefore found unsustainable. It was also clarified that, when the rebate is actually to be allowed out of future profits, no further reserve need be created to that extent.

Conclusion: The withdrawal of development rebate was not justified, the assessee was entitled to the full carry-forward of the rebate claimed, and the order of the Commissioner was set aside.

Final Conclusion: The assessee succeeded in the appeal, and the revisionary restriction on development rebate was annulled.

Ratio Decidendi: Development rebate cannot be withdrawn merely because the reserve was created only for part of the amount or because the assessee suffered a loss, where the governing circular and precedent permit the allowance.

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