1. The sum and substance of all the six grounds raised by the assessee in this appeal is that assessee's claim of investment allowance has wrongly been rejected by the ITO and also by the Commissioner (Appeals) when the matter went before him.
2. The facts pertaining to the issue are in short compass. The assessee is an individual and the assessment year involved is 1977-78 for which the relevant previous year ended on 31-3-1977. The business of the assessee is to purchase tungsten, a heavy metal used for making lamp filaments and manufacture of sets therefrom. When originally the return declaring income of Rs 116 was filed by the assessee before the ITO, no claim in respect of investment allowance was made, though during the relevant accounting year the assessee had added machinery to the tune of Rs. 1,01,799. There is no controversy about the fact that the assessee had not made any provision of statutory reserve in the books of account pertaining to the year under consideration. In course of certain enquiries, the relevant books were required to be produced by the assessee to the Assistant Director of Inspection (Intelligence) and the same were impounded which were ultimately sent to the ITO, Roop Nagar, assessing the assessee.
3. During the course of assessment proceedings, the assessee came forward with a request before the revenue, including the Assistant Director of Inspection (Intelligence) and the ITO, that the relevant books for the year under consideration may be made available to the assessee in order to facilitate the assessee to pass relevant entries pertaining to creation of reserve in respect of investment allowance.
This request of the assessee was never accepted and under the circumstances, the assessee filed revised profit and loss account and balance sheet creating investment allowance reserve therein and contended before the ITO that in the light of the ratio of Punjab and Haryana High Court decision in CIT v. Sardar Singh Sachdeva  86 ITR 387, the assessee's claim of investment allowance be accepted. The ITO rejected the same.
4. Then the matter was carried before the Commissioner (Appeals) with whom as well the contention raised by the assessee did not find favour, as he confirmed the action of the ITO. While doing so, he, however, besides relying upon the judgment of the Hon'ble Supreme Court in the case of Indian Overseas Bank Ltd. v. CIT  77 ITR 512, also relied on the Explanation to Section 32A(4). Before the Commissioner (Appeals), the assessee also contended that it was against the principles of natural justice that the assessee was denied access to his books by the revenue. The Commissioner (Appeals) observed that such a contention does not arise out of the assessment order and the assessee, if at all had any cause of action, it was on the date when he was refused to have access to the books and the assessee was at liberty to have suitable legal remedy on that date. It is this main action of the Commissioner (Appeals) denying the benefit of investment allowance which is disputed, though the assessee has come forward with many grounds which can to some extent be treated as argumentative and in certain respects the same can be in respect of observations of the Commissioner (Appeals).
5. The learned counsel for the assessee, while disputing the action of the Commissioner (Appeals) before us, first of all narrated the facts in detail which are briefly placed above and thereafter highlighted the situation in which, according to him, the assessee was placed by the revenue in the course of assessment proceedings, firstly by not making the books available to the assesssee for passing of necessary entries in respect of investment allowance reserve and secondly by rejecting the assessee's claim in spite of the fact that the assessee filed a revised profit and loss account and balance sheet before the ITO. He relied on the Tribunal's decision in ITO v. Wilson Industries  1 ITD 301 (Mad.). He also relied on the Punjab and Haryana High Court decision in Sardar Singh Sachdeva (supra) and submitted that reliance placed by the Commissioner (Appeals) on Indian Overseas Bank Ltd. (supra) was misplaced because the said case was in respect of an issue different from what was considered by the Punjab and Haryana High Court. He also invited reference to Board's Circular No. 189 dated 30-1-1976 and also relied on CIT v. Rijhumal Relumaj  6 Taxman 14% (MP) for the proposition that there is no statutory bar for change of profit and loss account.
6. The learned departmental representative, on the other hand, submitted that the Punjab and Haryana High Court decision in Sardar Singh Sachdeva (supra) is not applicable to the facts of the instant case and mainly relying on the order to the Commissioner (Appeals), he submitted that in the light of Indian Overseas Bank Lid. (supra) and the Explanation to Section 32A(4), the assessee's claim was rightly rejected.
7. After taking into consideration the rival submissions and careful perusal of records, we are unable to confirm the action of the Commissioner (Appeals). There is no controversy about the following facts : 1. That the assessee purchased new machinery worth Rs. 1,01,799 during the accounting year relevant to the assessment year under consideration.
2. That the assessee, while filing return showing total income of Rs. 116, did not put in its claim in respect of investment allowance.
3. That the assessee had not made any provision for statutory reserve in the books of account nor was it projected in the profit and loss account and balance sheet filed with the original return.
4. That (he relevant books of account of the assessee were in the custody of the revenue.
5. That the assessee in the course of assessment proceedings made request to the ITO to make the books available to him for passing necessary entries for purposes of providing investment allowance reserve.
6. That the assessee also approached the Assistant Director of Inspection (Intelligence) in the same regard.
7. That neither the books were made available to the assessee nor was he permitted to make necessary entries in the same as was evident from the following observations in the order of the Commissioner (Appeals), besides the two letters by the assessee to the ITO and the Assistant Director of Inspection (Intelligence): From the assessee's letter dated 27-3 1980 to the Income-tax Officer, Roopnagar (which has been reproduced above), it is clear that the Income-tax Officer refused permission to the appellant on 27-3-1980 to make any entries in the books of account.
8. That the assessee revised the profit and loss account and balance sheet indicating the provision of investment allowance reserve before the assessment was completed and it was after considering this that the ITO rejected the assessee's claim.
8. From the above facts, it is clear that the assessee was placed in a very helpless position by being denied access to books for passing the necessary entries on 27-3-1980, and by the framing of the assessment order by the ITO on 28-3-1980, i.e., on the very next day. Under these circumstances, the Commissioner (Appeals) is not justified in making the following observation in para 2 of his order : In these circumstances, it is clear that the assessee's grievance which forms the subject-matter of ground of appeal No. 3, does not arise out of the assessment order dated 28-3-1980 but arose on 27-3-1980 when the ITO refused permission to the appellant to make any entries in the books of account. If the assessee felt aggrieved by this order of the ITO, he should have taken recourse to suitable legal remedies.
9. In the light of the above facts that the permission sought in the course of the assessment proceedings having been refused on 27-3-1980 and the assessment order having been passed on 28-3-1980, that the revenue, while rejecting assessee's claim, observes that the entries were not made in the books of account. It apparently a case of denial of opportunity which can safely be classed as an act of violence of natural justice. In the instant case what is to be seen is whether it was possible for the assessee to make the entries in the books of account when the same were in the custody of the revenue. The Commissioner (Appeals) in para 3 of his order, while distinguishing the facts in the case of CIT v. A.S. Kuppa Ammal  85 ITR 633 (Mad.), highlights the difference between that case and that of the assessee by stating that in that case, the books were lost and in the instant case the books existed. This may literally be, but under the circumstances when books were in the custody of revenue and access to the same was refused to the assessee, they were as good as lost for the said purposes.
10. Then looking to the case of Rijhumal Relumaj (supra), in which it was held that it is open to the assessee for claiming the development rebate to amend the profit and loss account to create the reserve account as statutorily required. The court observed : Undoubtedly, the assessee must comply with the requirement of Section 34(3)(a), i.e., 75 per cent of the development rebate to be actually allowed must be debited to the profit and loss account of the relevant previous year and credited to a reserve account before he can be held to be entitled to claim development rebate. However, there is no statutory bar that a profit and loss account once prepared, cannot be later amended. It is, therefore, open to the assessee for claiming the rebate to amend the profit and loss account to create a reserve account as required by Section 34(3)(a) before the assessment is completed. This view is further supported by Section 139(5) which permits an assessee to file a revised return in case he discovers any omission or any wrong statement in the return originally filed by him. Therefore, in the instant case, the assessee was entitled to deduction on account of development rebate.
It will not be out of place to mention that their Lordships of the Madhya Pradesh High Court in the said case, explaining the case of Indian Overseas Bank Ltd. (supra) distinguished the same. Coming to the Punjab and Haryana High Court decision in Sardar Singh Sachdeva (supra), wherein also the said Supreme Court decision in Indian Overseas Bank Ltd. (supra) was distinguished, the Court observed: It is not necessary that entries about development rebate should be made in the accounts on or before the last day of the accounting year or even before the preparation of the profit and loss account.
It is open to the assessee to make the entries at any time before the assessment is completed. The entries become final only when the assessment is made. Till then, they are in a fluid state and any defect or error in them could be corrected.(p. 387) 11. There is no dispute about provisions pertaining to development rebate and investment allowance, being identical. The only main support of the revenue has been the Explanation to Section 32A(4) but while dealing with an identical issue, the Madras Bench of the Appellate Tribunal in the case of Wilson Industries (supra) which also makes a mention about Circular No, 189 dated 3-1-1976, which was pointed out by the learned counsel for the assessee, the learned members adjudicated the issue in the following words : 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 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 bonafide 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.(p. 302) 12. Under the peculiar circumstances in the instant case, the assessee could not do anything more than what it had done in revising the profit and loss account and balance sheet indicating the provision for investment allowance reserve and in the light of the Punjab and Haryana High Court decision in Sardar Singh Sachdeva (supra), the assessee's claim ought to have been accepted by the Commissioner (Appeals). The orders of the Commissioner (Appeals) is, therefore, reversed and in the result, the assessee's appeal is allowed.