1994 (11) TMI 67 - HC - Income Tax

Assessment Order Assessment Year Business Expenditure Development Allowance Law Applicable To Assessment Surtax Liability Tax Liability Weighted Deduction

Summary

Issues Involved:

1. Applicability of section 144B to assessment year 1975-76.
2. Eligibility of certain expenditures for weighted deduction under section 35B for assessment years 1975-76 and 1976-77.
3. Allowability of deduction for incremental liability not provided for in accounts.
4. Allowability of surtax liability deduction for assessment year 1976-77.

Issue-wise Detailed Analysis:

1. Applicability of Section 144B to Assessment Year 1975-76:

The primary issue was whether the provisions of section 144B, inserted with effect from January 1, 1976, were applicable to the assessment year 1975-76. The court considered the procedural nature of section 144B, which mandates that if the Income-tax Officer proposes a variation in the income or loss returned that is prejudicial to the assessee and exceeds a specified amount, a draft order must be forwarded to the assessee. The court held that section 144B applies to all assessments to be made after its insertion, regardless of the assessment year. Consequently, the assessment completed on September 26, 1978, was within the extended period allowed by section 144B. The court concluded that section 144B is procedural and not substantive, thus applicable to the pending assessment for the year 1975-76. Therefore, the assessment was not barred by limitation.

2. Eligibility of Certain Expenditures for Weighted Deduction under Section 35B:

The Tribunal had denied weighted deduction under section 35B for expenditures incurred by the assessee on export inspection fees, trade discount on sales, interest paid to the State Trading Corporation of India, freight and forwarding charges for export of goods, consular fees paid to consulate, and wages to export godown workers. The court, following the decision in M. H. Daryani v. CIT [1993] 202 ITR 731, answered this question in the negative and in favor of the Revenue, thereby upholding the Tribunal's decision that these expenditures do not qualify for weighted deduction under section 35B.

3. Allowability of Deduction for Incremental Liability Not Provided for in Accounts:

The Tribunal had disallowed the claim for deduction of incremental liability not provided for in the accounts. The court, following the Supreme Court's decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, answered this question in the negative and in favor of the Revenue, affirming the Tribunal's decision that the claim for such deduction is not allowable.

4. Allowability of Surtax Liability Deduction for Assessment Year 1976-77:

The Tribunal had disallowed the surtax liability deduction for the relevant previous year. The court, following the decision in Lubrizol India Ltd. v. CIT [1991] 187 ITR 25, answered this question in the negative and in favor of the Revenue, thereby upholding the Tribunal's decision that the surtax liability is not an allowable deduction.

Conclusion:

In conclusion, the court answered all the questions referred to it in favor of the Revenue. The provisions of section 144B were held applicable to the assessment year 1975-76, and the assessment completed under section 143(3) read with section 144B was within the period of limitation. The expenditures claimed for weighted deduction under section 35B, the incremental liability not provided for in accounts, and the surtax liability were all disallowed as deductions. The court's judgment was comprehensive and aligned with the established precedents of higher courts.