2002 (4) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Retrospective application of Rule 6AA.
2. Applicability of Rule 6AA for the assessment year 1982-83.
3. Entitlement to weighted deduction u/s 35B(1)(b)(ix).
4. Consideration of legal contention without appeal or cross-objection.

Summary:

1. Retrospective Application of Rule 6AA:
The Tribunal held that Rule 6AA, incorporated with effect from August 1, 1981, did not have retrospective effect and would not apply to expenses incurred on or before June 30, 1981. The applicant-company argued that Rule 6AA was in operation as of the first day of the assessment year 1982-83 and should apply to all assessments made after August 1, 1981. The Tribunal upheld the Assessing Officer's view that the rule was prospective and did not apply to expenses incurred before its effective date.

2. Applicability of Rule 6AA for the Assessment Year 1982-83:
The applicant-company contended that the law in force on the first day of the assessment year governs the assessment for that year. The Commissioner of Income-tax (Appeals) agreed and directed that the claim for export markets development allowance be allowed for all assessments made after August 1, 1981. However, the Tribunal reversed this decision, stating that the rule was not applicable to expenses incurred before its effective date.

3. Entitlement to Weighted Deduction u/s 35B(1)(b)(ix):
The applicant-company initially claimed the benefit of weighted deduction under section 35B(1)(b)(iv) for warehouse charges, which was allowed by the Assessing Officer. However, the Commissioner of Income-tax, invoking power u/s 263, withdrew this benefit. The Tribunal later upheld the Assessing Officer's refusal to allow the deduction, stating that the applicant-company did not appeal or file a cross-objection regarding this issue.

4. Consideration of Legal Contention Without Appeal or Cross-Objection:
The core issue was whether the Tribunal should consider the applicant-company's contention that warehouse charges were covered by section 35B(1)(b)(iv) in the absence of an appeal or cross-objection. The Tribunal ruled that it could not entertain this plea without an appeal or cross-objection. The High Court, however, held that procedural rules should not thwart substantial justice and remanded the case to the Tribunal to consider the contention on its merits, provided the basic facts were available on record.

Conclusion:
The High Court affirmed that the Tribunal erred in not considering the applicant-company's contention regarding section 35B(1)(b)(iv) solely due to the absence of an appeal or cross-objection. The case was remanded to the Tribunal for a merit-based consideration of the applicant-company's claim for weighted deduction under section 35B(1)(b)(iv).