1985 (3) TMI 88 - AT - Income Tax

Bench Of Tribunal, Deduction In Respect, Export Business, In This Behalf, Orders Prejudicial To Interests, Weighted Deduction

Summary

Issues Involved:
1. Whether the Commissioner had jurisdiction under Section 263 to revise the assessment order.
2. Whether the ITO committed an error by allowing weighted deduction under Section 35B for certain expenditures.
3. Whether the ITO made proper and adequate enquiries before allowing the weighted deduction.

Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263:
The Commissioner revised the assessment order under Section 263, believing it to be erroneous and prejudicial to the interests of the revenue. The Commissioner noted that the ITO allowed weighted deductions based on Tribunal decisions which were later contradicted by a Special Bench decision in the case of J.H. & Co. The Commissioner argued that the ITO should have followed the Special Bench decision, which correctly interpreted sub-clause (iii) of clause (b) of Section 35B(1).

The Tribunal observed that the ITO followed existing Tribunal decisions at the time of assessment, which were not overruled by higher judicial authorities. The Tribunal held that the ITO did not commit an error by following these decisions, as the Special Bench decision was not available to the ITO at the time of assessment. The Tribunal emphasized that the ITO is not bound to follow a Special Bench decision if it was not part of the record during the assessment. The Tribunal also noted that the record referred to in Section 263 is the record available at the time of the ITO's assessment, not subsequent developments.

2. Error in Allowing Weighted Deduction:
The Commissioner identified specific expenditures (freight, clearing, and inspection charges) that did not qualify for weighted deduction under Section 35B, based on the Special Bench decision. The ITO had allowed these deductions following earlier Tribunal decisions favoring the assessee.

The Tribunal clarified that the ITO did not commit an error by following the existing Tribunal decisions, as these were valid and not overruled by any higher authority at the time of assessment. The Tribunal emphasized that the ITO's reliance on these decisions was justified and did not render the assessment erroneous or prejudicial to the revenue.

3. Adequacy of Enquiries by the ITO:
The Commissioner contended that the ITO did not make proper enquiries regarding the expenditures listed under serial numbers 4 to 11, which included salaries, bonus, rent, stationery, commission, postage, and advertisement. The Commissioner argued that the ITO accepted the claims without verifying whether these expenses were incurred wholly and exclusively for export activities.

The Tribunal reviewed the records and found that the ITO had indeed made enquiries and obtained detailed information from the assessee. The ITO examined the books of account, called for evidence, and considered the assessee's submissions, including several Tribunal decisions supporting the claims. The Tribunal held that the ITO conducted adequate enquiries and properly assessed the claims based on the information provided.

Conclusion:
The Tribunal concluded that the Commissioner did not have jurisdiction under Section 263 to revise the assessment order, as the ITO did not commit an error in following existing Tribunal decisions. The ITO made proper and adequate enquiries before allowing the weighted deduction under Section 35B. The Tribunal, therefore, set aside the Commissioner's order and restored the ITO's assessment order.