2006 (9) TMI 164 - HC - Income Tax

Tribunal allowed weighted deduction u/s 35B in respect of subscription to hosiery exporters association and to export promotion council, salary & bonus, packing credit interest etc. AO contend that claim for weighted deduction is admissible only if the expenditure is incurred for the purpose of export & not admissible only on the ground that it was part of business expenditure - CIT & ITAT have not gone into the correctness of findings recorded by AO matter remanded

Summary

Issues:
1. Interpretation of Section 35B of the Income-tax Act, 1961 for weighted deduction.
2. Allowance of weighted deduction under Section 35B for various expenses.
3. Disallowance of weighted deduction by Assessing Officer.
4. Decision of CIT (A) and Tribunal in allowing weighted deduction.
5. Examination of the issue in light of the judgment of the Hon'ble Supreme Court.
6. Disallowance based on expenditure not being solely for export purposes.
7. Lack of finding by CIT (A) and Tribunal on expenditure relating to Section 35B (1)(b).
8. Remand of the matter for fresh decision by Commissioner of Income-tax (Appeals).

Analysis:
1. The case involved questions regarding the interpretation of Section 35B of the Income-tax Act, 1961 for weighted deduction. The Income Tax Appellate Tribunal referred the questions to the High Court, concerning the allowance of weighted deduction for various items like subscription, salary, bonus, printing, and more.

2. The assessee, engaged in hosiery goods business, claimed weighted deduction for specific expenses. The Assessing Officer disallowed the claim, but the CIT (A) and Tribunal allowed it, including packing credit interest under Section 35B of the Act.

3. The Assessing Officer disallowed the claim citing it should be solely for export purposes, not just part of business expenditure. However, the CIT (A) and Tribunal upheld the claim without establishing the expenditure's exclusivity for Section 35B (1)(b) purposes.

4. Referring to a Supreme Court judgment, it was emphasized that the deduction is permissible only if the expenditure is wholly and exclusively for the purposes mentioned in Section 35B(1)(b). The Tribunal's decision was set aside, and the matter was remanded for a fresh examination of the facts.

5. The High Court held that the CIT (A) and Tribunal's view could not be upheld in light of the Supreme Court's judgment. The question was answered in favor of the revenue, and the matter was remanded to the CIT (A) for a fresh decision in accordance with the law, considering the provisions of Section 35B(1)(b).