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TMI Blog1989 (2) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in specific terms before the ITO as well as before the IAC in proceedings under s. 144B of the IT Act. It is seen from the directions given by the IAC under s. 144B of the IT Act that this claim of the assessee was rejected on the ground that the assessee admitted that he was neither a holder of Export House Certificate nor a small scale industrial undertaking. Referring to a letter dt.6th March, 1982filed by the assessee issued by the Reserve Bank ofIndiastating that the assessee was an approved refiner with the Reserve Bank ofIndiawas not considered by the IAC as proving that the assessee was a small scale industrial undertaking. On this ground, the IAC directed the allowance of weighted deduction under s. 35B only upto 31st March, 1978 on proportionate basis because w.e.f. 1st April, 1978 the law underwent a change withdrawing the benefit of s. 35B except to holder of Export House Certificate or to a small scale industrial undertaking. It was also pointed out that objection was taken before the CIT(A) also to the disallowance of the claim under s. 35B in an omnibus ground of appeal without specifically referring to this question. It is now urged that this ground raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, sub-cl. (ii) of cl. (a). Explanation--For the purposes of this sub-section-- (a) "small scale exporter" means a person who exports goods manufactured or produced in any small scale industrial undertaking or undertakings owned by him: Provided that such person does not own any industrial undertaking which is not a small scale industrial undertaking; (b) "Export House Certificate" means a valid Export House Certificate issued by the Chief Controller of Imports and Exports, Government of India; (c) "provision of technical know-how", has the meaning assigned to it in sub-s. (2) of s. 80MM; (d) "small scale industrial undertaking" has the meaning assigned to it in cl. (2) of the Explanation below sub-s. (2) of s. 32-A". Now we have to go to s. 32A to ascertain the meaning of the expression 'small scale industrial undertaking'. In cl. (2) of the Explanation below sub-s. (2) of s. 32A the meaning of the expression 'small scale industrial undertaking' was given as: "(2) an industrial undertaking shall be deemed to be a small scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the 1st day of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges of Rs. 1,49,567 the whole of which was disallowed. At the time of hearing of this appeal, the learned representative of the assessee invited our attention to an order passed by Delhi Bench 'E' of the Tribunal in the assessee's own case in ITA No. 3674 (Del) of 1982 relating to the asst. yr. 1977-78 where a similar claim made by the assessee was allowed vide para 8 of its order. The Bench negativing the contention of the Department that these charges pertained to the procuration of stock-in-trade, held that these expenses were incurred by the foreign buyers after the goods reached the destination with a view to verify the purity of the silver. Since the foreign buyers accepted the silver only after satisfying about its purity and paid the sale proceeds to the assessee deducting the said expenses on refining, handling and melting, these expenses related to export market development within the meaning of s. 35B. Following with respect of the view expressed by the Bench, with which we agree, we allow the claim of the assessee. The next item is about the establishment. The claim for establishment was allowed by the ITO only upto31st March, 1978and disallowed the claim on the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 144B was that these interest charges were in the nature of addition to the cost of raw material procured for exports and secondly it was mostly for discounting facilities of the bills and did not constitute an activity directly connected with the export of the goods. Early realisation of the price of the goods exported or the services rendered by the bank in this connection, was not an activity connected with the export. The CIT(A), on appeal, not only confirmed the order of the ITO but enhanced the disallowance by withdrawing the weighted deduction already allowed on items on like directors fee, postage and telegram, legal and professional charges, newspapers and periodicals. 7. In the present appeal, the learned representative for the assessee submitted that matter stands squarely covered by the decision of the Madhya Pradesh High Court in the case of CIT vs. Vippy Solvex Product P. Ltd. (1985) 47 CTR (MP) 44 : (1986) 159 ITR 487 (MP) and following that decision, the claim of the assessee must be allowed under s. 35B. The discounting facilities offered by the banks had a very intimate connection with the exports and it was therefore incorrect to say that these did not form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was while interpreting this sub-clause, the Madhya Pradesh High Court held that the interest paid to banks should be qualified for weighted deduction. The High Court also pointed out that even incidental expenditure would be covered by this sub-clause, inasmuch as, the language showed that if the expenditure was in connection with or incidental to the execution of the contract, that expenditure would be eligible for the weighted deduction. Here the undisputed finding of fact was that this interest related to pre-shipment and post-shipment advances obtained by the assessee-company in connection with its exports outsideIndiaand no part of it was shown to be the interest paid in connection with the normal cash credits. On page 104 of the paper book, a certificate given by the Chartered Bank, which allowed the assessee-company the clean pre-shipment advances was filed, which showed that these loans were advanced not to enable the assessee to procure raw materials in a way as to add the interest to the cost of the raw material procured but to enable the assessee-company to ship the finished goods. The arrangement with Chartered Bank was for a sum of Rs. 50 lakhs. It may be pertinent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany or he was a part of the management. But the point for consideration is that Shri Puran Mal is the father of one of the directors of the assessee-company and in that capacity we see no impediment in extending his helping hand to the son's business by undertaking journey as and when necessary. Instead of directors of the assessee-company undertaking the journey, if someone on behalf of the director undertakes the journey, it is not possible to say that the purpose of the journey or the expenditure incurred thereon was not for business. The finding ought to be that even though the journeys were undertaken by the father of the director, were not for the purpose of the business. The assessee's contention was that the business trips undertaken by the father of the director was for the purpose of the business which was not disproved. Besides that the details furnished for this expenditure in the paper book at page 103 disclosed that the expenditure included not only the travelling expenditure of Shri Puran Mal, which was stated to be for oil business, but also on Shri M.L. Sharma, and Shri P.M. Parikh, which was stated for the purpose of attending the income-tax matters. Such being t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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