1982 (8) TMI 95 - AT - Income Tax

Summary

Issues:
Claim for weighted deduction under section 35B of the Income-tax Act, 1961 for expenses incurred in connection with the business of manufacturing and selling paper and hessian bags and plastic containers, without actual export of goods.

Analysis:
The assessee, engaged in the manufacture and sale of bags and containers, claimed weighted deduction under section 35B for various expenses incurred. The Income Tax Officer (ITO) disallowed the claim, stating lack of evidence linking the expenses to export business. The Commissioner (Appeals) partially allowed the claim, considering turnover and sales to exporters but only granted deduction for one-third of the expenses. The department appealed, arguing that the packing material supply did not constitute exports, and the staff did not exclusively handle export business. The department contended that the case referenced by the Commissioner (Appeals) was distinguishable. The assessee argued that actual export was not a prerequisite for weighted deduction under section 35B.

The Tribunal agreed with the department, noting the absence of evidence showing the exporters used the packing material for actual exports. It highlighted the lack of proof of advertisement or publicity outside India for the goods, as required for weighted deduction under section 35B. The Tribunal emphasized that the assessee merely supplied packing materials, which did not automatically qualify for the deduction. Additionally, there was no agreement with exporters for pooling export expenses as per precedent. The Tribunal distinguished the Indian Hotels case, where foreign tours for advertisement were deemed sufficient for deduction. Ultimately, the Tribunal concluded that the assessee failed to demonstrate expenditure related to export business and upheld the ITO's decision, canceling the Commissioner (Appeals) order.

In conclusion, the Tribunal dismissed the assessee's appeals and partly allowed the department's appeals. The judgment clarified that the assessee's activities did not meet the criteria for weighted deduction under section 35B due to the lack of evidence linking the expenses to actual export business, thus upholding the ITO's decision and canceling the Commissioner (Appeals) order.