1979 (1) TMI 122 - AT - Income Tax

Summary

Issues:

1. Claim of weighted deduction under section 35B.
2. Application of section 154 to withdraw previously granted deductions.
3. Interpretation and applicability of section 35B(1)(b).
4. Debatable issues as subject matter of section 154.

Analysis:

The appeals involved the claim of weighted deduction under section 35B for the assessment years 1969-70 and 1970-71. The assessee claimed deductions for various expenditures like commission paid to foreign agents, bank charges, foreign traveling expenses of partners, and postages and cable charges. Initially, the Income Tax Officer (ITO) allowed the deductions as claimed. However, later the ITO attempted to withdraw the deductions granted by resorting to section 154, alleging lack of evidence to support the claim under section 35B(1)(b). The Additional Commissioner of Income Tax (AAC) partly upheld the ITO's orders under section 154 for both assessment years.

The main argument before the Tribunal was regarding the debatable nature of the issues arising from the application of section 35B(1)(b). The appellant contended that the ITO did not commit any obvious error in granting the deductions initially and that conflicting opinions of the Tribunal necessitated the constitution of a Special Bench to decide the matter. It was emphasized that debatable issues should not be the subject of section 154 proceedings. On the contrary, the departmental representative argued that the ITO erred in interpreting section 35B(1)(b) and allowing the deductions hastily, justifying the AAC's decision to uphold the ITO's orders.

After considering the contentions of both parties, the Tribunal acknowledged the existence of debatable issues surrounding section 35B(1)(b), which had been extensively deliberated by various Tribunal Benches across India. It was noted that a Special Bench had been formed to clarify the scope and content of the sub-clauses of section 35B(1)(b). The Tribunal highlighted the absence of any authoritative judicial pronouncement from the Bombay High Court or the Supreme Court on the matter. The Tribunal held that the ITO's attempt to withdraw the deductions using section 154 was unjustified, as debatable issues should not form the basis of section 154 actions, citing the Supreme Court decision in the case of Volkart Brothers & Ors. Consequently, the Tribunal vacated the orders of the AAC and the ITO, allowing the appeals in favor of the assessee.