TMI Blog1991 (5) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... r immediately succeeding the assessment year 1967-68 for the purpose of carry forward and set off of unabsorbed development rebate under section 33(2)(ii) of the Act and not the assessment year 1976-77 ? (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that, for the purpose of carry forward of section 80J relief, the assessment year 1975-76 is the fourth assessment year immediately succeeding the assessment year 1971-72 and not the assessment year 1976-77 ? (iv) Whether the Tribunal was right in holding that, as far as the assessee was concerned, it cannot be said that the assessment year 1975-76 did not exist or was not there ? (v) Whether the Tribunal was right in holding that the applicant is not entitled to deduction of the provision for gratuity ?" The assessee-company is engaged in the business of manufacture and sale of cables and wires. The respondent is the Revenue. We are concerned herein with the assessment year 1976-77. Up to the assessment year 1974-75, the assessee was following the financial year as its accounting year. After March 31, 1974, the assessee requested the Revenue for changing the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with section 144B of the Income-tax Act, as it stood then, a draft assessment order was sent to the Inspecting Assistant Commissioner of Income-tax. After hearing the assessee's objections, the Inspecting Assistant Commissioner of Income-tax issued directions to the Income-tax Officer. The order of assessment dated September 22, 1979, was passed thereafter. The above assessment order was the subject-matter of the suo motu revisional proceedings of the Commissioner of Incometax. On a perusal of the relevant files, the Commissioner of Income-tax took the view that the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue on the four following aspects : (i) Section 33(2) of the Income-tax Act permits the carry forward of outstanding development rebate only for eight assessment years immediately succeeding the relevant assessment year. A sum of Rs. 33,16,297 permitted to be carried forward as development rebate related to the assessment year 1967-68 and the 8th assessment year for the year 1967-68 was the assessment year 1975-76. So the set off allowed for the same against the income for the assessment year 1976-77 was erroneous and preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision and also upheld the variation in the assessment order on four specific grounds stated by the Commissioner. It is thereafter at the instance of the assessee, that the Tribunal has, under section 256(1) of the Income-tax Act, referred the five questions of law, formulated hereinabove in paragraph 1 of the judgment, for the decision of this court. At the motion of the assessee, in 0. P. No. 4532 of 1983, this court directed the Tribunal to refer four further questions of law in order to enable this court to focus better, for detailed consideration of the various aspects that arose for consideration before the Tribunal when it disposed of I. T. A. No. 496/(Coch.) of 1981 by order dated March 20, 1982. The Tribunal has referred the following four questions of law also for the decision of this court which is the subject-matter of the connected I. T. R. No. 375 of 1985. They are as follows : (i) Whether, on the facts and in the circumstances of the case, 1975-76 could be regarded as one of the relevant assessment years for the purpose of development rebate relating to the assessment year 1967-68 and relief under section 80J when the applicant had no previous year for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b) ... (2) In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be, (the total income for this purpose being computed without making any allowance under sub-section (1) or sub-section (1A) of this section or sub-section (1) of section 33A or any deduction under Chapter VI-A or section 280-0) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under sub-section (1) or sub-section (1A), as the case may be, (i) the sum to be allowed by way of development rebate for that assessment year under sub-section (1) or sub-section (1A) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'seven and a half per cent.' had been substituted. (2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year. " 144B. Reference to Inspecting Assistant Commissioner in certain cases. - (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Incometax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Incometax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer permitted a change of the accounting year from the year ending March 31, to the year ending September 30, subject to the condition that the profits for the 18 months from April 1, 1974, to September 30, 1975, will be assessed for the assessment year 1976-77 vide order of Income-tax Officer dated April 21, 1975-page 14 of the paper book. Though five different questions have been formulated in Income-tax Reference No. 417 of 1982 and four different questions in Income-tax Reference No. 375 of 1985 for the decision of this court, broadly, three points arise for consideration : Point No. 1. -Whether the Commissioner of Income-tax had jurisdiction under section 263 of the Act to revise the order of the Income-tax Officer, since it was subjected to scrutiny by the Inspecting Assistant Commissioner under section 144B of the Act ? (Question No. 1 in Income-tax Reference No. 417 of 1982). Point No. 2. -Whether the adjustment of development rebate relating to the assessment year 1967-68 and the relief under section 80J relating to the assessment year 1971-72 could have been allowed for the assessment for the year 1976-77. The question that arises for consideration in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Inspecting Assistant Commissioner under section 144B of the Act. We are of the view that the Tribunal was justified in holding so. In cases where the variation between the income returned by the assessee and the income that was proposed to be assessed by the Income-tax Officer was more than one lakh rupees during the relevant time, the Income-tax Officer was obliged to send a draft assessment order to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner was enabled to issue directions to the Income-tax Officer. Even so, the final order is one to be passed by the Income-tax Officer. We are of the view that the final order, so passed by the Income-tax Officer, does not cease to be an order passed by him and so, it does not cease to be revisable by the Commissioner, merely because it was passed with the approval of the Inspecting Assistant Commissioner.-See CIT v. Vithal Textiles [1989] 175 ITR 629 (MP), CIT v. Satishkumar and Co. [1990] 181 ITR 57 (MP), CIT v. East Coast Marine Products (P.) Ltd. [1990] 181 ITR 314'(AP) and CIT v. Christian Mica Industries Ltd. [1979] 120 ITR 627 (Cal). We, therefore, hold that the Commissioner of Income-tax has jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment year which is specified in this provision as the initial assessment year. So, to resolve the controversy, the question that arises for consideration is whether, in respect of the two claims, 1975-76 would be the 8th/4th immediately succeeding assessment year or 1976-77 is the 8th/4th immediately succeeding assessment year. We are concerned in these references with the assessment year 1976-77. The adjustment of the development rebate related to the assessment year 1967-68. The relief under section 80J related to the assessment year 1971-72. The relief under section 337(2) can be carried forward to eight assessment years immediately succeeding the assessment year relevant to the previous year in which the machinery or the plant was installed. - (section 33 (2) (ii) ). The deduction under section 80J(2) can be allowed in respect of an assessment year and each of the four assessment years immediately succeeding the initial assessment year. So, for relief under section 33(2)(ii) relating to the assessment year 1967-68, 1975-76 will be the 8th assessment year. Similarly, for relief under section 80J(2), the last assessment year will be 1975-76. This is by applying the norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of skipping over or otherwise not giving effect to the assessment year 1975-76. The assessment year 1975-76 cannot be said to be irrelevant, nor can it be ignored so far as the assessee is concerned. The plea of the assessee that, in the peculiar circumstances, so far as the assessee is concerned, there was no assessment year 1975-76 and the immediately succeeding assessment year for the year 1974-75 should be considered to be 1976-77 ignores the factual and legal position aforesaid. There was no income in the hands of the assessee for the year 1975-76. Due to peculiar reasons, it cannot be said that there was no assessment year 1975-76 so far as the assessee is concerned, nor is it proper to contend that, for counting the immediately succeeding 8th 4th assessment year, in the statute, anything other than an arithmetical calculation is permissible. We are of the view that, regard being had to the language of section 33(2)(ii) and section 80J(2) of the Act, the words "eight assessment years" immediately succeeding the assessment year relevant to the previous year and each of the four assessment years immediately succeeding the initial assessment year should be taken in the natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Point No. 3. -This point is the claim for deduction of the provision for gratuity. The assessee had made a provision for payment of gratuity in the sum of Rs. 2,54,452. The fund itself was created only on December 30, 1975. The application was made to the Commissioner on the same day, December 30, 1975. We are concerned with the previous year ending on September 30, 1975. Admittedly, there was no approved gratuity fund in existence during the relevant previous year. Even according to the assessee, the trust came into existence only on January 1, 1976 (see order of the Commissioner of Income-tax, paragraph 5). For the assessment year 1976-77, section 40A(7)(b)(i) alone is applicable. Under the said provision, the gratuity trust should be in existence during the relevant previous year. It is not so in this case. So, the assessee is not entitled to the claim for deduction. We should state that section 40A(7)(b)(ii) will be relevant only for the assessment years 1973-74 to 1975-76. This is not relevant in this case. The Tribunal was justified in holding that the assessee is not entitled to the claim for deduction of the provision made for gratuity. We answer question No. 5 in Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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