Karimjee (P.) Ltd. vs Deputy Commissioner of Income Tax

This appeal has been filed by the assessee seeking to challenge the order of the Tribunal dated 28-5-1999, in the income tax Appeal No. 2915 (Bom.) of 1991 in respect of the assessment year 1987-88. The facts giving rise to this appeal are as follows :

In the accounting year 1986-87, the assessee exported goods out of India. It was entitled to deduction u/s 80HHC of the income tax Act, 1961 (''the Act''). It was also required to create a reserve to the extent of deduction claimed under the said section. The assessee created a reserve of Rs. 60,90,000 and claimed deduction thereof. However, due to increase in the total income computed by the Assessing Officer, the amount of profit also increased and deduction was computed and allowed at a higher amount of Rs. 70,08,819. On scrutiny of the records, the Commissioner noticed that deduction of Rs. 70,08,819 was higher than the reserve created of Rs. 60,90,000 and the assessee could not have been allowed deduction of more than the amount of Rs. 60,90,000. Accordingly, the Commissioner issued a notice to the assessee for revision u/s 263 of the Act.

The assessee objected to the exercise of powers u/s 263 by the Commissioner. By the said objection, it was urged on behalf of the assessee that u/s 80HHC nothing prevented the assessee to create extra reserve in case of deficiency under the above circumstances. It was urged that when the profit and loss account is prepared, the assessee cannot visualise as to what extent the profit would increase and in that circumstance, the assessee was entitled to create this extra reserve. This argument was rejected by the Tribunal on the ground that on the facts of the present case, it is clear that the assessee was given ample opportunity to create the extra reserve but it did not avail of the said opportunity to do so. On the facts, the Tribunal found that when the Assessing Officer increased the amount of deduction, the assessee could have created the extra reserve. Secondly, when notice u/s 263 was given to the assessee by the Commissioner, such extra reserve could have been created. However, the appellant failed to do so. Under the above circumstances, on facts, without going into the question of the different phraseology used in section 80HHC and other sections in the Act, with regard to the expressions ''amount claimed'' and ''amount allowed'', we are satisfied that in this appeal, on facts, no substantial question of law arises. Before concluding, we may mention that the learned counsel for the assessee-appellant next contended that in view of the judgment of the Supreme Court in the case of Shri Shubhlaxmi Mills Limited Vs. Additional Commissioner of Income Tax, Gujarat, , it was not permissible to create extra reserve after the profit and loss account was finally drawn up. We do not find any merit in the said contention. All throughout, it has been contended by the assessee in the present matter that section 80HHC does not prevent the assessee from creating extra reserve in the above circumstances and that natural justice warranted that an opportunity be given to create extra reserve. The Tribunal found, on the facts, that this opportunity was available to the assessee but it did not avail of the said opportunity which is a pure finding of fact, as stated above. Secondly, the judgment of the Supreme Court in the case of Shri Shubhlaxmi Mills Ltd. (supra), was in the context of development rebate and not u/s 80HHC and, therefore, it has no application to the facts of the present case. Under the above circumstances, the appeal stands dismissed. No order as to costs.