Sengupta, J. - (1.) At the instance of the Commissioner, the following question of law has been referred to this court under Section 256(2) of the Income-tax Act, 1961 ("the Act"), for the assessment year 1961-62 : "Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the mistake sought to be rectified under Section 154 of the income-tax Act, 1961, was not a mistake apparent from the record within the meaning of the said section."
(2.) The facts shortly stated hereinafter are as follows : The assessee in its return of income had claimed development rebate of Rs. 4,55,623 even though it had created a reserve of Rs. 1,46,566 only. During the course of the assessment proceedings, the Income-tax Officer, by his letter dated January 17, 1964, directed the assessee to create the necessary reserve as could be seen from the following extracts from the said letter : "The Income-tax Act, 1961, contemplates that the assessee has the obligation of computing his assessable profits and of making an adequate reserve of 75 per cent. of the development rebate actually allowable to him. The development rebate for the year according to your claim would be Rs. 4,55,623 but a reserve of Rs. 1,46,566 only has been made by you obviously on the conception that the business profits for the year before considering development rebate would not exceed a sum of Rs. 1,71,000. However, after considering the profit under Section 10(2)(vii), on the sale of assets of Orient Mills, the assessable profits would far exceed your computation that the entire development rebate for the year, if otherwise admissible, could be absorbed in this very year. As the development rebate created by you falls short of the statutory requirements, it would be permissible under the law to disallow development rebate to the extent of the deficiency on this ground alone. However, under instructions of the Central Board of Revenue, where the variation in the assessable profits exceed a certain amount, the Income-tax Officers have been directed to ask the assessee in writing to make within one month adequate additional reserve in the current year's account. Hence, on the basis of the instruction referred to above, you are hereby specifically directed to make within a month adequate additional reserves in the current year's account. If you fail to make the further reserve as advised above within one month of the service of this notice, the development rebate would be disallowed."
(3.) The assessee in reply to the said letter of the Income-tax Officer stated as under : "We thank you for your letter Ref. No. C/I/C/2/C/H-62, dated 17th January, 1964, and have to advise you the following in respect of the development rebate claimed: -------------------------------------------------------------------------------- Development rebate claimable Development rebate actually claimed Development rebate claim c/f Development rebate made 75 per cent. Development rebate reserve required -------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. Rs. -------------------------------------------------------------------------------- 1961-62 4,56,623 1,67,894 2,97,729 1,46,666 1,18,421 1962-63 4,97,955 Nil 7,96,684 2,68,300 2,97,729 1963-64 1,14,769 7,95,684 8,97,330 -------------------------------------------------------------------------------- 6,73,020 -------------------------------------------------------------------------------- 6,72,997 -------------------------------------------------------------------------------- 10,55,224 -------------------------------------------------------------------------------- 10,77,886 -------------------------------------------------------------------------------- 7,91,418 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- From the above, you will observe that, according to our return, the unabsorbed development rebate claim in respect of any assessment has been carried forward to the subsequent years and finally in 1963-64 assessment, the unabsorbed development rebate has been claimed. While in the above three years, total development rebate of Rs. 10,55,224 has been claimed, the total reserve made amounts to Rs. 10,77,886. The reserve, as required under the statute, has, therefore, been fully made. From the above, it will, therefore, be clear that the further reserve you suggest to us to make within a month has already been made in 1963-64 assessment and, in the circumstances, unless we hear from you to the contrary, we think that further development rebate reserve will not be required to be made.";