TaxTMI 
TaxTMI 
2011 (8) TMI 496
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....sp; Whether the appellate authorities were correct in reserving the finding of assessing officer that the assessee had profit during the assessment year 1995-96 and the assessee should have created necessary reserve and claimed set off of brought forward investment allowance in the assessment year 1995-96 itself instead of creating reserve for the assessment year 1996-97 and claim set off?' 3. The material facts leading up to this appeal with reference to rank of the parties before the assessing officer are as follows: The assessee filed his return on 27-11-1996 declaring an income of Rs. 73,12,840/- and subsequently filed a revised return on 31-10-1997 declaring an income of Rs. 66,45,730/-. The assessee is engaged in the manufacture of Rims required for scooters and two wheelers. The assessee made a claim on brought forward investment allowance of Rs. 6,64,606/- pertaining to the assessment years 1988-89, 1989-90 and 1990-91. The assessee filed revised return claiming set-off of unabsorbed investment allowance pertaining to the said three assessment years. The Assessing Officer held that if the set off is not availed in the immediately succeeding year, it cannot be availed in ....
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....ted when the investment allowance was claimed and therefore, the assessee was entitled to investment allowance claimed and allowed the claim of investment allowance of Rs. 6,64,606/- pertaining to the assessment years 1988-89 to 1990-91. Being aggrieved by the said order of the first appellate authority, the Revenue preferred an appeal before the ITAT in ITA No.810/Bang/2002. The ITAT having regard to the observations made by the first appellate authority regarding amendment of Section 32A and in view of sub-section (4) in clause (ii) of Section 32A and the circular issued by the CBDT referred to in the order of the first appellate authority, held that since the assessee had created sufficient reserve, the order passed by the first appellate authority was justified and does not suffer from any error or illegality so as to call for interference in the appeal and accordingly, ITAT dismissed the appeal by order dated 6-5-2005. Being aggrieved by the said order, this appeal is filed by the Revenue for consideration of the above said substantial questions of law. 4. We have heard the learned counsel appearing for the Revenue and the learned counsel appearing for the respondent-assessee....
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....ufficient reserve has been created when the claim for rebate is made, the same should be allowed and the decision of the Hon'ble Supreme Court in Shubhlaxmi Mills Ltd.'s case cited supra, is also referred to in the said circular. 7. We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinised the material on record. 8. The material on record would clearly show that the assessee had originally filed return on 26-11-1996 declaring an income of Rs. 73,12,840/- and subsequently a revised return was filed on 31-10-1997 declaring an income of Rs. 66,45,730/-. Both the returns were processed and were selected for scrutiny. The notice was issued under Section 143(2) of the Act and necessary details were called for. After hearing the assessee, assessing officer disallowed the claim in respect of Rs. 6,64,606/- on the ground that no provision for set off had been made by creating reserve and provisions of set off and carry forward go hand in hand; that it is only after set off, the question of further carry forward arises. The Assessing Officer failed to consider as to whether there was sufficient reserve created on the date when the c....
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....unt, of development rebate, it is obligatory that the reserve should be created in the year of acquisition/installation of machinery or plant, etc., even in a case where there are no profits. If the decision of the Supreme Court is to be followed, then taxpayers who have been following the Board's circulars for many years would be placed in a very difficult situation as their assessments already completed could be reopened. Apart from this, it may run contrary to accounting principles and the assurance given by the CBDT through its circular. 18.3 Though the decision of the Supreme Court has been pronounced only with regard to the provisions relating to development rebate, the underlying principle may apply equally to the grant of investment allowance. Accordingly, Sections 32A and 34 have been amended to secure that the condition of creation of reserve even in a year of loss or of insufficiency of profit as laid down by the Hon'ble Supreme Court will not be mandatory in respect of both development rebate and investment allowance and it is now provided that in considering whether the condition regarding creation of reserve is fulfilled or not, the reserve(s) created in the year in ....