Per Shri S. Rajaratnam, Accountant Member - This is an appeal filed by Hindustan Polymers Ltd. of Visakhapatnam objecting to the order of the Commissioner (Appeals), Visakhapatnam for the assessment year 1974-75.
2. The assessee is a public company and the issue relates to the question of allowance of development rebate on technical know-now fees amounting to Rs. 11,23,902 and capitalised amount on account of exchange rate fluctuations amounting to Rs. 7,89,894. The question of computation of development rebate was the subject-matter of an earlier order of the AAC, Special Range III New Delhi. The assessee had not claimed development rebate on these two items though it had claimed on other items. The ITO did not allow any development rebate on the ground that the assessee did not produce the necessary vouchers regarding plant and machinery on which development rebate is claimed. The first appellate authority came to the conclusion that there was no proper opportunity and had, therefore, sent back the matter to the ITO to enable him to satisfy on this point before the issue of allowance of development rebate can be finally adjudicated upon. When the matter went back to the ITO, the assessee took the opportunity of claiming the further rebate which the ITO thought the assesse is not entitled to do.
All the same, he has given a finding on merits against the assessee.
The first appellate authority confirmed the order of the ITO on the question of jurisdiction on the ground that consideration of the question of development rebate on these two additional items was not possible in view of the limited jurisdiction conferred on the ITO by the first appellate authority on the first occasion. He cited the decision of the Calcutta High Court in Katihar Jute Mills (P.) Ltd. v.CIT  120 ITR 861 wherein it was pointed out that where the entire assessment is not set aside, it is not open to the taxpayer to raise the issues which had reach finality in the assessment earlier. A similar decision was rendered by the same High Court in the case of Surrendra Overseas Ltd. v. CIT  120 ITR 872. All the same, he found on merits that the assessee would be entitled to the development rebate on the first item (technical know-how fees) in view of a number of High Court decisions to that effect. As regards development rebate on exchange rate fluctuations, he came to the conclusion that the assessee would not be eligible to the same in view of the specific bar to such allowance under sub-section (2) of section 43A of the Income-tax Act, 1961 (the Act). The assessee is in second appeal. The arguments regarding jurisdiction were repeated. While revenue relied upon the decision of the Supreme Court in the case of Addl. CIT v.Gurjargravures (P.) Ltd.  111 ITR 1 the learned counsel for the assessee relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd.  116 ITR 778 as explaining the decision of the Supreme Court relied upon by him. A number of other decisions were cited by both sides.
3. We have carefully considered the records as well as the arguments.
We have no doubt that there is no necessity to discuss the law on the subject which, in our opinion, is well established. The ITO has jurisdiction only in respect of matters sent to him and the entire assessment is not open before him. It is, however, the assessees case that the question of development rebate was restored to the ITO. No doubt, the assessee had claimed of development rebate on a lesser amount. If that had been allowed, that would have been the end of the matter. The operative part of the order of AAC clearly suggests that the entire question of development rebate admissible to the assessee was sent back to the ITO to enable him to satisfy on this point before the issue of allowance of development rebate can be finally adjudicated upon. What is, therefore, sent back is the entire issue of development rebate. Hence, the assessee, can claim a higher or lesser development rebate on the second occasion in accordance with law. We, therefore, see no merit in the departmental contention that the assessee should be confident to the claims on certain specific items only as per the original assessment. Since the entire question of development rebate was sent back, it was certainly open to the assessee to make a claim of development rebate on whatever items on which it though it was entitled to. It is under these circumstances we find that the ITO had jurisdiction to entertain these claims. We would, however, like to add that even assuming that a narrower view of the ITOs jurisdiction is accepted the issue would be only academic as far as this case is concerned. It is because there is only a loss for the year and in our view, the assessee would be entitled to claim this development rebate in the year in which the set off would arise for consideration. Such a view is consistently being taken in a number of cases following the rational of the decisions of the Allahabad High Court in Addl. CIT v.Sheetalaya  117 ITR 658, the Calcutta High Court in Indian Aluminium Co. Ltd. v. CIT  122 ITR 660 and the Madras High Court in CIT v. Bluemount Ceramics Ltd.  123 ITR 385. Especially in the case of development rebate the question of admissibility would arise only on a reserve being created and such reserve under the statute can be created in a later year when there are profits to enable the assesse to create the reserve. There is no question of set off also during the year. Hence, the departmental objection as to the jurisdiction in our opinion is even otherwise academic.
4. As for merits, we are in agreement, with the first appellate authority that development rebate is admissible in respect of payment for technical know-now treated as plant. The Andhra Pradesh High Court had also held so following the other High Courts decisions mentioned by the first appellate authority in his order in the case of Scientific Engg. House (P.) Ltd. [CR No. 118 of 1977 dated 7-12-1982]. However, this aspect has not been gone into in any detail by the ITO, we would remit the question back to him for ascertaining the extent of technical know-now fees capable of being capitalised as plant in the facts and circumstances of the assessees case.
5. As for the second issue relating to the assessees entitlement for development rebate on exchange fluctuations in respect of amounts payable for meeting the cost of machinery on deferred payment basis, the issue no doubt is controversial in view of the specific provisions in section 43A (2). However, we have the benefit of a recent decision of the Andhra Pradesh High Court in the case of Coromandel Fertilisers Ltd. [CR Nos. 144 of 1977 and 82 of 1978 dated 15-7-1983] which has held that the assessee is entitled to the same under the law even outside the provisions of section 43A. It is under these circumstances that even this ground has to be conceded subject to the assessees claim on facts. Hence, this claim is also remitted to the ITO for proceedings is subject to the assessees right to development rebate on principles as claimed by it.