TMI Blog1999 (8) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... d doubtful debts account and that there was no amount available in the Special Reserve Account. The Commissioner was of the view that the assessee was not entitled to the deduction under section 36(1)(viii) as the amount from the special Reserve had been transferred to another account leaving no reserve as such. He then issued a notice under section 263 to the assessee proposing revision of the assessment. Overruling the assessee's objections, the Commissioner passed the impugned order under section 263 on 25-11-1998 directing the Assessing Officer to withdraw the deduction granted under section 36(1)(viii). Aggrieved with the order of the Commissioner the assessee has filed this appeal before the Tribunal. 3. On behalf of the assessee Shri V. Devarajan, C.A., submitted before us that the Commissioner was not justified in directing the Assessing Officer to revise the assessment by withdrawing the deduction under section 36(1)(viii). The learned representative submitted that the assessee had created the reserve of Rs. 71,18,786 by debitting the profit and loss account as could be seen from page 15 of the Annual Report and thereby fulfilled the condition under section 36(1)(viii) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of jurisdiction by the Commissioner on the basis of an objection by the Audit Party. According to the learned representative, the Commissioner had not exercised his discretion before issuing the notice under section 263. He placed reliance on the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 for the contention that the Commissioner had to apply his mind before exercising the revisional jurisdiction under section 263 and he should not have acted on the suggestion of the audit department. Arguing ion the above lines, the learned representative urged us to cancel the order of the Commissioner and restore the assessment made under section 143(3). 4. Per contra, the Sr. departmental representative, Shri Ambasanker Dev, supported the order of the Commissioner and submitted that when a concession was given to the assessee under section 36(1)(viii) by way of deduction of an amount it was necessary that the provisions should be strictly complied with. In the present case, though the assessee had created the reserve by transferring Rs. 71,18,786 by debiting the profit and loss appropriation account immediately after the creation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per section 36(1)(viii), the entire amount in that account had been later transferred to another account i.e., the provision for Bad and Doubtful Account, leaving no balance in the special reserve account. On page 17 of the Annual Report the details are shown as under : Special reserve under section 36(1)(viii) of Income-tax Act, 1961 : As per last balance-sheet - Rs. 5,55,27,306 Added during the year - 71,18,786 ----------------------------- Total - 6,26,46,092 Less : Provision for bad doubtful debt. - 6,26,46,092 ----------------------------- Balance Nil ----------------------------- The Commissioner found that the assessee had not in fact kept the Special Reserve as such and transferred the entire amount from the reserve account to the Provision for Bad and Doubtful Account in accordance with the guidelines issued by IDBI. As per the letter from IDBI dated 28-3-1994 the assessee had to make provision for bad and doubtful debts to the extent of Rs. 6,70,55,830. It was found that the assessee had in the Special Reserve Account under section 36(1)(viii) a total sum of Rs. 6,26,46,092 including the sum of Rs. 71,18,786 transferred during the current year. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 17 of the Banking Companies Act, 1949 as well as the provisions relating to development rebate reserve. The contention of the assessee was that as the transfer to the reserved was sufficient to meet the requirements of section 17 of the Banking Companies Act as well as the provisions relating to development rebate reserve, in Substance, if not in form, it had complied with the requirement of law, and therefore it was entitled to the allowance of development rebate claimed. In deciding the issue against the assessee the Supreme Court observed that the entries in the account books required by the provisions were not an idle formality. The court further observed : "The reserve contemplated by that provision is a separate reserve. The amount transferred to that reserve cannot be utilised for business purposes. The reserve contemplated by proviso (b) to section 10(2)(vib) of the Act is an independent reserve. The amount to be transferred to that reserve is debited before the profit and loss account is made up. That amount is required to be credited to a reserve account to be utilised by the assessee during a period of ten years for the purpose of the business of the undertaking. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be sufficient compliance of the requirements regarding the creation of the development related reserve. But that claim does not lend support to the contention that after creating the reserve by book entries, the assessee would be free to transfer the amount to another account and still the reserve could be deemed to remain intact. In the case of CIT v. Standard Motor Products of India Ltd. [1962] 46 ITR 814 the Madras High Court had held that the provisions relating to relief under section 15C of the Income-tax Act should be strictly construed. The same view was taken by the Kerala High Court in the case of Chembra Peak Estates Ltd. v. CIT [1972] 85 ITR 401. We are not inclined to agree with the learned representative of the assessee that the transfer of the amount from the Special Reserve Account was in compliance with the suggestion of IDBI and so it was utilisation of the funds for the business purposes of the assessee only and in that sense there was no violation of the provisions under section 36(1)(viii). The important point to take note is that the money is not kept in the Special Reserve Account. 8. The learned representative of the assessee has referred to the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Reserve Account should remain in act to make the assessee eligible for the deduction under section 36(1)(viii). 10. We do not also accept the contention that in this case the Commissioner had not applied his mind and that he had merely acted on the suggestion of the Audit Wing in holding that the assessee had not strictly complied with the requirement of section 36(1)(viii). The learned representative of the assessee has not furnished any evidence before us to show that the Commissioner was acting on any suggestion of the Audit Wing without applying his mind. On the other hand, the reasons given in para 1 of the impugned order leave no room for doubt that the Commissioner applied his mind in coming to the finding that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of Revenue. The relevant portion of the order reads as under : "A perusal of the records for the relevant assessment year shows that even though the assessee had created the reserve to the extent of Rs. 71,18,786 by debiting the profit and loss account and crediting the Special Reserve Account, it was transferred immediately debiting the special reserve account under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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