SATISH CHANDRA, J. - (1.) FOR the asst. yrs. 1966 -67 and 1967 -68, the assessee -company claimed development rebate at the rate of 20per cent. The ITO allowed the claim but to a lesser extent. Subsequently, the assessee applied for rectification under S. 154 of the Act on the ground that it was entitled to be treated as a priority industry under S. 80 -I of the IT Act and, as such, entitled to a development rebate at the rate of 35per cent. The ITO allowed the rectification but only in so far as the assessee was treated to be a priority industry. He repelled the claim for rebate on the ground that the assessee had not created the requisite reserve. This view was upheld in appeal. The assessee then went up to the Tribunal. The Tribunal held that the rectification proceedings are part of the assessment proceedings and hence the ITO should have allowed the assessee an opportunity to have created a further reserve. The counsel for the assessee stated before the Tribunal that the existing reserve was far in excess of the statutory requirements but since this has not been verified, the Tribunal sent the matter back to the ITO for re -determination of the development rebate.
(2.) AT the instance of the Department, the Tribunal has referred for our opinion the following three questions of law : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the ITO should have allowed the assessee an opportunity to create further reserve under S. 34(3)(a) of the INCOME TAX ACT, 1961, in order to meet the deficiency ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of the ITO under S. 154 of the INCOME TAX ACT, 1961, and directing him to allow the assessee an opportunity to make further reserve so as to entitle it to development rebate ? 3. Having found that development rebate reserve as prescribed under s. 34(3)(a) of the IT Act, 1961, was not created, whether the Tribunal was justified in law in directing the ITO to allow development rebate to the assessee ?" In substance, the controversy between the parties is whether, under the circumstances of the case, should the assessee have been given an opportunity to create further reserve under S. 34(3) (a) of the Act to meet the deficiency, if any. In CIT vs. Modi Spinning & Weaving Mills Co. Ltd. (1973) 89 ITR 304 (All), a Bench of this Court has held that the assessee is entitled to an opportunity to create a reserve so long as the assessment proceedings are not over. The Act does not specify any period of time within which the relevant entry should be made. Even if the entries are made during the pendency of the assessment proceedings, they are entitled to be taken into consideration. The Tribunal has found that the rectification proceedings are part of the assessment proceedings.
(3.) THIS finding has not been challenged by asking for a reference. We, therefore, need not go into that question. If rectification proceedings are treated as part of the assessment proceedings, the position is clear, namely, till the conclusion of the rectification proceedings the assessee was entitled to an opportunity to create a reserve. We are, hence, satisfied that the Tribunal took a correct view of the law. The questions are accordingly answered in favour of the assessee and against the Department. The assessee will be entitled to costs which are assessed at Rs. 200.;