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2013 (9) TMI 812 - HC - Income TaxDeduction u/s 32A(1) of the Act – Investment allowance - Requirement u/s 32A(2) needs to be fulfilled - Assessee is running sugar factory and fully owned by the State of U.P. For the assessment year under consideration, the loss return was filed before passing of the assessment order under Section 143(3) of the Act - Assessee had claimed the investment allowance deduction for Rs.1,40,35,103/- under Section 32A(1) of the Act - Assessee did not comply with the statutory requirement of Section 32A(4)(ii) of the Act, as the assessee has not created the 75% reserve amounts to Rs.1,05,26,327/-, but created a reserve only for Rs.93,26,754/-. The same is less than 75% of the claim for the investment allowance – Held that:- Reliance has been placed upon the judgment of Hon'ble Bombay High Court in the case of Indian Oil Corporation Ltd. vs. S.Rajagopalan, Income-Tax Officer, Companies Circle II(1), Bombay & Ors., [1973 (4) TMI 12 - BOMBAY High Court] and also on the judgment in the case of Commissioner of Income-tax vs. Khandelwal Ferro Alloys Ltd., [1988 (11) TMI 54 - BOMBAY High Court] If during the assessment year relevant to the year of installation or use the total assessed income of the assessee is nil or negative, then the assessee cannot be expected to create an actual and non-illusory reserve equivalent to 75% of the claim and as such reserve can only be created out of assessed profits. There can be no obligation on the part of the assessee to create a reserve as a condition merely for carrying over the development rebate without it being actually allowed to the assessee by setting off the rebate against the assessed profit. So, we are unable to accept the contention of the Department that the assessee must create the reserve in the year of installation or use of the plant or machinery, irrespective of any profits. So, it is expected to create reserve as per condition, in the subsequent years in which assessee is assessed profits – Assessee is directed to create 75% reserve in the subsequent assessment years with the positive income – Decided in favor of Assessee.
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