ORDER
S. Rajaratnam, Accountant Member
1. This is a departmental appeal arising out of the order of the Commissioner (Appeals) in the case of Wilson Industries for the assessment year 1978-79.
2. The assessee is a registered firm engaged in the manufacture of springs. It had claimed investment allowance to the extent of Rs. 56,633 at 25 per cent of cost of machinery at Rs. 2,26,533. The assessee had omitted to make a reserve as required under Section 32A of the Income-tax Act, 1961 (“the Act”). The omission was, however, rectified by a revised profits and loss account and balance sheet, copies of which were filed. The ITO, however, declined to allow the claim because, in his view, the assessee can rectify the mistake only if there had been a short provision, but not where no provision has been made. It was, however, the assessee’s contention that there was no time limit for the creation of reserve under the statute. The assessee’s argument was accepted by the first appellate authority who held that the requirement of Section 32A(4) is satisfied once the requisite reserve is created before the assessment is made. He cited a number of authorities for the proposition including a decision of the Madras High Court in Radhika Mills Ltd. v. CIT [1969] 74 ITR 661. In the departmental appeal it is contended that an assessee may be allowed to rectify the mistake before the assessment only where there is an insufficient profits and not where there is total failure to make any provision. The learned departmental representative repeated this argument and claimed that the decisions relied upon were cases of insufficient reserve.
3. We have carefully considered the records as well as the arguments. Section 32A(4)(ii) requires that an amount at 75 per cent of the investment allowance has to be debited in the profits and loss account and credited to the investment reserve account, in order that the assessee may be eligible for investment allowance. At the time when the assessment order was made, this condition admittedly stands satisfied. Since such reserve was already created before the assessment, we do not think that the ITO had any justification to disallow the same unless there are other conditions which are not satisfied. The condition requiring creation of the reserve is the only condition which, according to authorities, has not been satisfied in this case. Explanation to Section 32A(4) no doubt allows the ITO to accept any rectification even in a subsequent year. When it is so, we are unable to appreciate rather the ultra-technical stand of the authorities in claiming that even in the same year such rectification cannot be done in the accounts of the same year once the return is filed and not thereafter. In the case of a firm unlike that of a company, there are no statutory formalities required for reopening the profits and loss account and making further adjustments. Under the circumstances, we find no merit in the departmental appeal. There is no material for holding that there was any deliberate contravention of any of the provisions of Section 32A. In such instances, we understand that it is also not the intention of the Central Board of Direct Taxes to deprive the assessees of their right to legitimate deduction warranted by law as noticed in respect of development rebate reserve in Circular No. 189 dated 3-1-1976. We do not find any basis for the view that “rectification” can be permitted only where there is insufficiency and not where there has been a total omission. If in both cases the rectification was only of a bona fide mistake, there is no justification for coming to two different conclusions as between them. In any view of the matter the departmental appeal has to be dismissed.
4. In the result, the appeal is dismissed.
