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Judgment
The Department reports that, the records of the writ petition are not available in the department. Learned Senior Advocate for the petitioner makes over a copy of the writ petition and submits that the records may be reconstituted on the basis thereof. Learned Advocate for the respondent does not object to the copy of the writ petition made over on behalf of the petitioner being treated as the reconstituted writ petition.
The records are accordingly reconstituted with a copy of the writ petition filed on behalf of the petitioner. The writ petition is taken up for final
consideration. The writ petition is pending since 1990. The petitioner assails a notice dated March 6, 1990 issued under Section 263 of the Income-Tax
Act, 1961 in respect of assessment year 1985-86. Learned senior advocate appearing for the petitioner submits that, Section 263 of the Act of 1961
requires the revisional authority to be satisfied that, there is an error in the order of assessment and that such error has resulted in prejudice to the
revenue. He submits that, the impugned notice discloses two grounds which the revisional authority claims to be erroneous findings by the Assessment
Officer causing prejudice to the revenue.
He draws attention of the Court to the two grounds and submits that, neither of the two grounds are available to the revisional authority to claim that,
the jurisdictional facts required for the purpose of invocation of Section 263 of the Act of 1961 exist. Consequently, the impugned order should be interfered with. Referring to the impugned notice he submits that, the first ground is a so-called erroneous treatment of expenditure on commission of
sales. He relies upon Section 37(3A) of the Income Tax Act, 1961 then existing and submits that, such provisions had come up for consideration in
192 ITR 619 (Commissioner of Income Tax vs. Hindusthan Motors Ltd.). There the Court has held that, brokerage and commission paid for selling of
the goods will not come within the mischief of the phrase “advertisement, publicity and sale promotion”. Such decision was followed in 201
Income Tax Reports 884 (Commissioner of Income Tax vs. Bata India Ltd.). Therefore, according to him, the first ground in the impugned notice is not available to the revisional authority.
So far as the second ground is concerned, where, the revisional authority has sought to take a different view than that of the Assessment Officer,
relying upon a decision of the Supreme Court, learned senior advocate for the petitioner submits that, such view of the Supreme Court had received consideration of the parliament and, the provisions of the Act were amended with retrospective effect so as to permit an assessee to create reserves in the years where profits are posted. Therefore, according to him, such a ground is also not available to the revisional authority. In support of his contention that, the Act stood amended with retrospective effect, he refers to the Finance Bill, 1990 and the memorandum explaining the provisions of
the Finance Bill, 1990.
Learned advocate appearing for the department submits that, the petitioner has come up to the Writ Court against a show cause notice. The petitioner has statutory alternative remedy available. The issues raised by the writ petitioner in the present writ petition are such that, the same can be looked into and considered by the statutory authorities. The two grounds on which the impugned notice had been issued are best left to be adjudicated by the statutory adjudicating authorities, as they involve both questions of facts and law. The quantum of assessment is required to be adjudicated upon which should be best done by the persons bestowed with the jurisdiction to do so under the Act of 1961. A Writ Court should not interfere therein. In support of his contentions, he relies upon 254 ITR 210 (Indo Asahi Glass Co. Ltd. & Anr. vs. Income-Tax Officer & Ors.) and (1996) 1 Supreme Court
Cases 327 (The Executive Engineer, Bihar State Housing Board vs. Ramesh Kumar Singh & Ors.).
As noted above, a show cause notice dated March 6, 1990 is under challenge. Again, as noted above, the writ petition is pending since 1990.
Therefore, it would be prudent to dispose of the writ petition on merits. By the impugned show cause notice, the revisional authority has invoked provisions of Section 263 of the Act of 1961. Section 263 of the Act of 1961 allows the revisional authority to invoke jurisdiction where he finds that,
there is manifest error in the order of assessment resulting in prejudice to the revenue. Two grounds have been noted in the impugned notice, which according to the revisional authority, are manifest errors in the order of assessment and causes prejudice to the revenue.
The first ground is expenditure on commission on sale. The question of disallowance under Section 37(3A) of the Income Tax Act, 1961 came up for consideration in Hindusthan Motors Ltd. (supra). It is held there that, all costs incurred to sell goods simpliciter will not come within the meaning of the
word “promotion”. It goes on to say that, every type of expenditure incurred in the connection of sale of goods will not come within the phrase
“advertisement, publicity and sales promotion”. Only those expenditure which are in the nature of sales promotion will come within the mischief of
Section 37(3A). Hindusthan Motors Ltd.(supra) was referred to in Bata India Ltd.(supra). It is held that, discount allowed to wholesale dealers from the listed retail price and commission paid to the selling agents did not come within the purview of Section 37(3A) inasmuch as trade discount merely represents lesser realisation of the sale price itself and the commission paid to selling agents are actual selling expenses. The order of assessment has considered disallowance under Section 37(3A), dealt with it elaborately and has given reasons for its findings. Therefore, the revisional authority is incorrect when it say that the assessing officer did not consider disallowance under Section 37(3A) of the Income Tax Act, 1961. The first ground in the impugned notice is not available to the department to claim that, there is an error of assessment and that, the same has resulted in prejudice to the
department.
So far as the second ground is concerned, it appears that the revisional authorities had relied upon (1979) 177 ITR 193 (Shri Shubhlaxmi Mills Ltd. vs.
Additional Commissioner of Income Tax, Gujarat). Subsequent to such judgment, the Finance Bill, 1990 was introduced which proposed an amendment to Section 37(3A) of the Act of 1961 with retrospective effect, in order to permit an assessee to make provisions in the year when they posted profits. The memorandum explaining the provisions in the Finance Bill, 1990 takes note of the fact that, if Shri Shubhlaxmi Mills Ltd. (supra) is
to be followed then taxpayers who have been following the Board’s circular for many years would be placed in a very difficult situation as their
assessment already completed could be reopened. Apart from this, it may run contrary to accounting principles and the assurance given by the Central
Board of Direct Taxes through its circulars. Amendments were introduced to Section 37(3A) of the Act of 1961 with retrospective effect so as to negate the effect of Shri Shubhlaxmi Mills Ltd. (supra). On the strength of the amendments carried out by the Finance Bill, 1990 with retrospective
effect, the second ground is also not available to the revisional authority.
Indo Asahi Glass Co. Ltd. (supra) is a case where a writ petition was dismissed by the Trial Court as well as by the Appeal Court on the ground of availability of alternative remedy. The Supreme Court, in the facts of that case, finding that, there was a voluntary disclosure scheme under which the writ petition had applied, allowed to the writ petitioner to reply to the show cause notice. Ramesh Kumar Singh (supra) is a case where the Supreme
Court is of the view that, existence of statutory alternative remedy is not an absolute bar to the maintainability of the writ petition. A writ petition is maintainable if, it can be established that, the authority had acted without jurisdiction.
In the present case, it appears that, the jurisdictional facts required for the purpose of the revisional authority to invoke jurisdiction under Section 263
of the Act of 1961 were not present. In fact, as on the date of issuance of the notice, the second ground based on Shri Shubhlaxmi Mills Ltd. (supra)
may have been available to the revisional authority. However, the subsequent amendments to Section 37(3A) with retrospective effect, took the same way also. As the writ petition is pending since 1990, no useful purpose would be subserved by requiring the petitioner to reply to the show cause notice for the purpose envisaged under the Act of 1961 to decide thereon. In such circumstances, the impugned show cause notice is quashed. W.P. No. 982
of 1990 is disposed of. No order as to costs.