1978 (12) TMI 85 - AT - Income Tax

Summary

Issues:
- Appeal against the order of CIT Central, Madras setting aside the assessment made by ITO for the assessment year 1974-75.
- Dispute over the weighted deduction claimed by the assessee under section 35(b) of the IT Act, 1961.
- Jurisdiction of the Commissioner under section 263 to set aside the assessment.
- Whether expenditure incurred in India qualifies for weighted deduction.

Analysis:
The appeal was filed against the order of the CIT Central, Madras setting aside the assessment made by the ITO for the assessment year 1974-75. The assessee, a firm engaged in the export business, claimed weighted deduction under section 35(b) of the IT Act, 1961. The ITO allowed a deduction of Rs. 6,03,312 out of the claimed Rs. 20,05,001. The CIT set aside the assessment under section 263, stating that expenditure incurred in India does not qualify for weighted deduction. The assessee contended that the Commissioner was unjustified in setting aside the assessment and that the ITO had considered each item of expenditure separately before allowing the deduction.

The Tribunal analyzed the situation and found that the ITO had indeed considered each item of expenditure separately before allowing the deduction of Rs. 6,03,312. The Tribunal referred to a decision of the Bombay High Court, which clarified that under section 35B of the IT Act, expenditure incurred in India could qualify for weighted deduction unless specifically excluded by the legislature. Since there was no specific exclusion mentioned, the expenditure could be incurred in or outside India for the deduction. Therefore, the Tribunal concluded that the order of the ITO was not erroneous and prejudicial to the revenue, and the CIT was not justified in setting it aside under section 263. Consequently, the Tribunal allowed the appeal, canceling the order of the CIT.

In summary, the Tribunal upheld the decision of the ITO to allow weighted deduction for the expenditure incurred by the assessee, including those in India. The Tribunal rejected the CIT's assertion that the expenditure in India did not qualify for deduction, citing a Bombay High Court decision. The Tribunal found that the ITO had properly considered each item of expenditure before granting the deduction. Therefore, the Tribunal concluded that the CIT was not justified in setting aside the assessment under section 263, ultimately allowing the appeal filed by the assessee.