Commissioner of Income Tax vs Seshasayee Paper and Boards Ltd.

P.D. Dinakaran, J.—Heard The above appeal is directed against the order of the Tribunal, Madras Bench ""D"". dt. 29th March, 2005 in

ITA No. 1023/Mds/1998.

The facts in brief are : The assessee is a public limited company engaged in the business of manufacture of paper. For the asst. yr. 1993-94, the

assessee filed a return of income and claimed set off of brought forward investment allowance pertaining to the asst. yrs. 1987-88, 1989-90 and

1990-91 amounting in all to Rs. 1.15 crores. The AO, by order dt. 31st March, 1997, passed u/s 143(3) of the Act, initially allowed a set off

amount to a sum of Rs. 98.27 lakhs. In the subsequent rectification order passed u/s 154 of the Act, the amount of carried forward and set off of

investment allowance was varied to Rs. 98.59 lakhs. But, in the subsequent order dt. 12th Oct., 2000 passed u/s 154 of the Act, the AO

withdrew the set off of brought forward investment allowance for the earlier years on the ground that the assessee had not fulfilled the statutory

requirement of creating an investment allowance reserve either in the year of purchase of the asset or in the year in which it is absorbed. Aggrieved

by the said order, the assessee filed appeals before the CIT(A). The CIT(A), by an order dt. 31st March, 1998, set. aside the assessment order

and directed the AO to afford an opportunity to the assessee to credit the required amount in the investment allowance reserve account in

accordance with Explanation u/s 32A(4) of the Act. The CIT(A), in respect of the dispute regarding quantification of benefit u/s 80HHC, found

that contentious issues relating to deduction u/s 80HHC cannot be considered in Section 154 and if the appellant is entitled to a deduction, the

same should be allowed as per the claim filed. The Tribunal upheld the decision of the CIT(A) and dismissed the appeal filed by the Revenue.

Aggrieved by the said order of the Tribunal, the Revenue has filed the above appeal by raising the following substantial questions of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee ought to be given an opportunity to create

an increased investment allowance reserve, when it had not even created a reserve sufficient to cover the claim made in its return?

Whether, on the facts and circumstances, of the case, the Tribunal was right in holding that the assessee should be granted the benefit of

(Section) 80HHC as per its claim, as the quantification could not be considered u/s 154 ?

As far as the first question is concerned, it is not in dispute that the issue is relating to the asst. yr. 1991-92, but the assessee claimed deduction

from its current year income, of carried forward investment allowance in priority over the carried forward depreciation. As the claim of the

assessee has been allowed, no portion of carried forward investment allowance would have been available to deduction in the current year. That

apart, in view of the circular of the CBDT relating to development rebate, the ITO should condone the genuine deficiencies subject to the

assessee''s making good the amount through creation of a adequate additional reserve. The Explanation to Section 32A(4) of the Act also

contemplates that an opportunity shall be allowed to the assessee to create investment allowance reserve account by the requisite amount.

Explanation to Section 32A(4) reads as follows:

Explanation to Section 32A(4)-Where the amount debited to the P&L a/c and credited to the investment allowance reserve account under this

sub-section is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance

claimed in the return made by the assessee u/s 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the

total income as proposed to be computed by the AO u/s 143, the AO shall, by notice in writing in this behalf, allow the assessee an opportunity to

credit within the time specified in the notice or within such further time as the AO may allow, a further amount to the investment allowance reserve

account out of the profits and gains of the previous year in which such notice is served on the assessee or of the immediately preceding previous

year, if the accounts for that year have not been made up; and, if the assessee credits any further amount to such account within the time aforesaid,

the amount so credited shall be deemed to have been credited to the investment allowance reserve account of the previous year in which the

deduction is admissible and such amount shall not be taken into account in determining the adequacy of the reserve required to be created by the

assessee in respect of the previous year in which such further credit is made:

Hence, the CIT(A), as confirmed by the Tribunal, directed the AO to allow the appellant an opportunity to credit the investment allowance reserve

account by the requisite amount in compliance with the said circular and as contemplated under the Explanation to Section 32A(4) of the Act, and

if the assessee complies with such condition, directed the AO to allow the investment allowance. If that be so, since the directions of the CIT(A) as

well as the Tribunal are strictly in compliance with the Board circular and the Explanation to Section 32A(4) of the Act, we answer the first

question in the affirmative, against the Revenue and in favour of the assessee.

With regard to the second question that the assessee should be granted the benefit of Section 80HHC as per its claim, the CIT(A) and the

Tribunal, held that due to short deduction of brought forward investment allowance, there is a profit and the claim of deduction u/s 80HHC of the

Act will be academic and therefore, the issue with regard to the deduction u/s 80HHC cannot be considered u/s 154 of the Act, as the same is

debatable.

This Court in the decision rendered in The Commissioner of Income Tax Vs. Nameel Leathers and Uppers, held that even though losses should

be deducted from the profit available for the purpose of computation of relief u/s 80HHC of the IT Act, 1961, since the question of relief u/s

80HHC of the Act is a debatable issue which does not fall within the purview of prima facie adjustment u/s 143(1)(a) of the Act and could be

taken up in regular assessment u/s 143(3) of the Act, the action of the Revenue invoking Section 154 of the Act to rectify the intimation u/s 143(1)

(a) of the Act was not valid.

In view of the above discussion, we do not find any error in the order of the Tribunal and no question of law much less a substantial question of

law arises for consideration of this Court. Hence, the appeal is dismissed.