Development rebate claim sustains where reserve requirements are met in a reliable profit and loss account despite lost books.

Development rebate under Explanation 2 to section 10(2)(vib) of the Indian Income-tax Act, 1922 is available where seventy-five per cent of the rebate is debited to the profit and loss account and credited to a reserve account for use in the business during the prescribed period. The provision does not make maintenance or production of regular books of account a condition precedent. A genuine profit and loss account, together with evidence that the original books were lost in a fire, was treated as sufficient compliance. On that reasoning, absence of day books or other regular accounts did not defeat the rebate claim.

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Issues: Whether the assessee was entitled to development rebate under Explanation 2 to section 10(2)(vib) of the Indian Income-tax Act, 1922 despite loss of regular account books, and whether the Tribunal was right in granting the rebate.

Analysis: Explanation 2 requires that an amount equal to seventy-five per cent of the rebate be debited to the profit and loss account and credited to a reserve account for use in the business during the prescribed period. It does not insist on the maintenance or production of regular books of account as a condition precedent. The assessee's profit and loss account was produced and its genuineness was not disputed, while the loss of the original books in a fire accident was also undisputed. In these circumstances, the absence of day books or other regular accounts did not defeat the claim, and the statutory requirement was treated as sufficiently met.

Conclusion: The assessee was entitled to development rebate, and the Tribunal was right in allowing the claim.

Final Conclusion: The reference was answered in favour of the assessee and against the revenue on both questions.

Ratio Decidendi: For claiming development rebate under Explanation 2 to section 10(2)(vib), it is sufficient if the required reserve is reflected in a reliable profit and loss account; production of regular books of account is not indispensable where the statutory debit and reserve requirements are otherwise met.

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