Sethuraman, J. - (1.) THIS is a reference under Section 256(1) of the I.T. Act, 1961. The following question has been referred ; " Whether, on the facts and in the circumstances of the case, the assessee is disentitled from carrying forward the development rebate of the earlier years to the extent of Rs. 1,77,077 as held by the Income-tax Officer or to the extent of Rs. 1,06,773 as held by the Appellate Assistant Commissioner and the Tribunal ? "
(2.) THIS reference relates to the" assessment year 1963-64. The assessee was incurring losses up to the assessment year 1962-63. It had installed plant and machinery and was eligible for the grant of allowance for development rebate on the said plant and machinery. Since the assessee had incurred losses, no deduction could be allowed in regard to the development rebate in the earlier years and, therefore, the amounts due for allowance as and by way of development rebate were carried forward as follows: JUDGEMENT_589_ITR129_1981Html1.htm In addition, for the assessment year 1962-63, the assessee was declared eligible to carry forward to the assessment year 1963-64 a sum of Rs. 5,550, being the loss brought forward from the assessment year 1958-59. For the assessment year 1963-64, now under reference, the assessment was completed on 26th February, 1968, on the total income of Rs. 2,18,396 after setting off the brought forward loss of Rs. 5,550. The ITO found that the assessee had credited to the development rebate reserve account a sum of Rs. 78,992. He held that this reserve was adequate to cover an allowance of development rebate only to the extent of Rs. 1,04,957. Deducting this sum of Rs. 1,04,957 from the total income determined, namely, Rs. 2,18,396, there was a balance of Rs. 1,13,439. The assessee was eligible for relief under Section 84 of the Act in a sum of Rs. 1,60,617. The result was that the total income of the assessee had to be determined as nil. The ITO completed the assessment observing that the assessee was not assessable for this year. He, however, observed that the assessee was being allowed a development rebate of Rs. 1,04,957 which would cover the brought forward development rebate of Rs, 55,801 for the assessment year 1960-61 and Rs. 49,156 out of the brought forward development rebate of Rs. 64,927. The result was that the following amounts of development rebate would require to be carried forward : JUDGEMENT_589_ITR129_1981Html2.htm
(3.) THE ITO was of the opinion that as there was a balance of Rs. 1,13,439, which was the residual total income, after the allowance of the development rebate which could have been credited as a reserve and as the assessee's creation of the reserve fell short by Rs. 34,517, the assessee would forfeit the development rebate of Rs, 46,023. He held that the assessee forfeited the claim pertaining to the assessment year 1961-62 in whole and Rs. 30,252 out of the claim due for 1962-63. He, therefore, declared that the assessee would be entitled to carry forward only the following amounts of development rebate to the assessment years succeeding 1964-65 and thereafter : JUDGEMENT_589_ITR129_1981Html3.htm On 5th May, 1970, the ITO purported to pass an order under Section 154 of the Act to rectify two mistakes that were alleged to have crept into the assessment order. About the first mistake, there was no controversy and as a result of the rectification, the total income of the assessee came to be determined at Rs. 2,11,730 as against Rs. 2,18,396, originally determined. The second mistake which the ITO sought to rectify was as regards the amount of the development rebate to be carried forward. The ITO was of the opinion that since the profits of the year amounted to Rs. 2,11,730, the assessee should have created a development rebate reserve to that extent. As it had created reserve only to the extent of Rs. 78,922 there was a shortfall of (Rs. 2,11,730--Rs, 78,922) Rs. 1,32,808 and the development rebate that would have been eligible for allowance, had this reserve of Rs. 1,32,808 been credited as reserve, was Rs. 1,77,077. As against the original determination of Rs. 46,023 as the forfeited allowance, the ITO thus determined Rs. 1,77,077 as the forfeited allowance. The result was that the carried forward figures of development rebate for the later years underwent modification as follows : JUDGEMENT_589_ITR129_1981Html4.htm ;