Genuine reserve deficiency for development rebate may be cured later by amended accounts and additional reserve creation.

A genuine shortfall in the statutory reserve for development rebate or investment allowance may be condoned where it is later cured by valid amendment of the accounts and creation of the required additional reserve in the current books. The delay in completing the rectification was not treated as fatal, because amendment of disclosed company accounts was recognised as a special procedure that necessarily takes time. The allowance was therefore to be reconsidered on the basis of the revised reserve position, and worked out with reference to the reserves standing to the credit of the relevant year.

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Issues: Whether the assessee's claim for development rebate and investment allowance could be considered where the reserve was initially inadequate, but the deficiency was later made good by reopening and amending the relevant accounts and by creating the necessary reserve in the current books.

Analysis: The circular relied upon by the assessee contemplated condonation of genuine deficiencies where they were made good by creation of an adequate additional reserve in the current year's books. The subsequent amendment of the relevant year's accounts and the creation of the reserve supported the assessee's case. The fact that the rectification was not completed within the time originally allowed by the Income-tax Officer was not treated as a bar, since amendment of disclosed accounts under the Companies Act was regarded as a special procedure that necessarily took time.

Conclusion: The assessee's claim was not finally rejected on the procedural objection, and the matter was restored for reckoning the allowance with reference to the reserves standing to the credit of the relevant year.

Final Conclusion: The appeal succeeded only to the extent of securing reconsideration of the claim on the revised reserve position, and the matter was left to be worked out by the Income-tax Officer.

Ratio Decidendi: A genuine deficiency in the statutory reserve for development rebate or investment allowance may be condoned where it is later made good by a valid amendment of the accounts and creation of the requisite reserve, and delayed rectification does not by itself defeat the claim.

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