Commissioner of Income Tax vs Meenakshi and Company

N.V. Balasubramanian, J.—At the instance of the Revenue, the following two questions of law have been referred for the assessment year

1977-78 in respect of the assessee, Meenakshi and Co., Dindigul.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the commission and

brokerage paid of Rs. 43,351 would qualify for deduction u/s 35B of the Income Tax Act, 1961, for the assessment year 1977-78 ?

Whether the Appellate Tribunal is correct in law in directing to grant weighted deduction u/s 35B of the Income Tax Act, 1961, in respect of the

commission paid to the State Trading Corporation ?

The assessee is a registered firm and during the course of the assessment proceedings for 1977-78, the assessee claimed export markets

development allowance u/s 35B of the Act. The order of assessment shows that the assessee in support of its claim has produced the items of

expenditure, but the Income Tax Officer on the ground that none of the items of expenditure satisfied the conditions stipulated in Section 35B of

the Act, disallowed the entire claim. When the matter came up before the Commissioner of Income Tax (Appeals)-II, he followed an order of the

Full Bench of the Income Tax Appellate Tribunal, Bombay, in the case of J. H. and Company and allowed the weighted deduction in respect of

commission and brokerage on exported skin, premium to Export Credit Guarantee Corporation and commission to the State Trading Corporation.

On appeal by the Revenue before the Appellate Tribunal, the Appellate Tribunal also followed the Full Bench order of the Income Tax Appellate

Tribunal, Bombay, and held that the Commissioner of Income Tax (Appeals) was justified in allowing the item of weighted deduction. It is against

the order of the Appellate Tribunal, the Revenue has sought for a reference and the two questions of law stated earlier have been referred to us.

The reading of the orders of the Income Tax Officer, Commissioner of Income Tax (Appeals) and also the order of the Tribunal does not show

that any of the authorities have discussed the question how the assessee would be entitled to weighted deduction, u/s 35B of the Act. They have

not indicated under which sub-clause of Clause (b) of Section 35B(1) of the Act the assessee''s claim would fall. No doubt, the assessee had

produced certain materials before the Income Tax Officer and the Income Tax Officer had not discussed the nature of the expenditure and passed

an order rejecting the claim of the assessee. The order of the Income Tax Officer does not contain any reason. The order of the Commissioner of

Income Tax (Appeals) has not improved the position as he merely followed an earlier order of the Appellate Tribunal and allowed the claim of the

assessee, which was confirmed by the Appellate Tribunal.

The Supreme Court in the case of Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., , has held that there cannot be

any blanket allowance of the expenditure ; nor can there be any blanket disallowance. Each case has to be discussed specifically and the

expenditure must be found to be of the nature mentioned in any one of the sub-clauses of Section 35B(1)(b) of the Act. We are of the opinion, that

the Tribunal was wrong in allowing the claim of the assessee without going to the materials of the case. The assessee has made a claim before the

Income Tax Officer by furnishing certain particulars and the Tribunal was not quite justified in accepting the claim of the assessee on certain

assumption of facts. The Tribunal, in our opinion, was in error in allowing the claim of the assessee without going into the question whether the

expenditure was of the nature mentioned in any one of the sub-clauses of Section 35B(1)(b) of the Act. Though our above observation would

disentitle the assessee to claim the weighted deduction, we find that on the facts of the case, the assessee had produced certain materials before the

Income Tax Officer, but there was no consideration of the materials by any of the authorities.

Therefore, we are of the opinion that the Tribunal should consider the question afresh and determine whether the expenditure claimed by the

assessee for weighted deduction would fall under any of the sub-clauses of Section 35B(1)(b) of the Act and the Tribunal is directed to consider

the question in the light of the decision of the Supreme Court in the case of Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt.

Ltd., Ludhiana, . Though we answer the questions in the negative, in favour of the Revenue, the Tribunal is directed to consider the questions

afresh, in the light of the two decisions of the Supreme Court referred to earlier. There will be no order as to costs.