TaxTMI 
TaxTMI 
1999 (5) TMI 55
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....0 as required under the second proviso to sub-section (1) thereof. On 1-10-1989, one of the partners, viz., Miss F.I.P. Shroff retired and one more partner was inducted to the firm with change of share ratio to the profit and loss of the partners. In order to give due accounting treatment it transferred the reserve created in 1988-89 to the original three partners' capital account. The Assessing Officer, therefore, added back this sum of Rs. 3,81,000 to the income of the assessee by observing as under : "Export Reserve Scrutiny of the partners' capital accounts revealed that there is transfer of Export Reserve of Rs. 3,81,000 as under :--- (i) Miss R.S.K. Wallani Rs. 1,71,450 (ii) Mr. P.K. Sharma Rs. 38,100 (iii) Miss Farida I.P. Shrof....
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....allowed and added back to the income of the assessee." 3. The CIT(A) allowed the assessee's appeal and deleted the addition by observing in para 3 of his order as under : "3. I have carefully considered the submissions of the appellant and the reasoning of the Assessing Officer. I am of the view that the Assessing Officer has not been able to show how the amount of Rs. 3,81,000 was the income of the appellant chargeable to tax for the A.Y. 1990-91. Even if the contention of the Assessing Officer is accepted that by transferring the reserve account to partners' capital accounts, the export reserve ceased to be utilised for the purposes of business, it cannot be held that the amount of Rs. 3,81,000 became the income of the appellant taxabl....
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...., therefore, no requirement was there to keep the amount in the reserve account in the year under consideration. It was, therefore, submitted that even if the amount was transferred there was no violation of any of the provisions of section 80HHC of the Act. 5. The parties were heard and their submissions have been considered. Section 80HHC(1) as it was in force at the relevant time read as under :--- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of section, be allowed, in computing the total income of the assessee, ....
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.... to claim the benefit under section 80HHC was relevant upto the assessment year 1988-89. The section provided for the utilisation of the reserve for the purposes of the business. The CBDT have clarified in Circular No. 463, dated 11-7-1986 that the distribution of dividends out of the reserve created under section 80HHC will be considered utilisation for the purpose of the business. There is no further requirement of creation of reserve from assessment year 1989-90 onwards. It may, however, be noted that it will be prudent to retain the reserve created upto assessment year 1988-89 at least upto the date of completion of the assessment of the relevant year." In the absence of any such limit of retaining the reserve fixed by the Act. I am of ....