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TMI Blog1986 (5) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Rs. Salary : 80 per cent of Rs. 2,65,948 2,12,750 Sweeping charges : 80 per cent of Rs. 2,154 1,723 Commission on export : 100 per cent &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 82,337 Business promotion 57,180 Postage and Telex : 80 per cent of 64,452 51,562 Export expenses &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Rs. Salary : 80 per cent allowed 2,53,975 Samples : 100 per cent 1,71,846 Business promotion : 80 per cent 1,50,126 Postage and Telegram : 50 per cent &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; ---- Sweeping charges : 80 per cent 2,190 Membership fee : 100 per cent 3,827 Rent : 75 per cent 95,700 Commission 100 per cent &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; --------- On the basis of the above particulars, the ITO reduced the total income by a sum of Rs. 3,75,340, i.e., one-third of Rs. 11,26,019. In the assessment year 1981-82 also the ITO proceeded to complete the assessment on the same lines. He held that the following expenses of Rs. 8,44,272 qualified for weighted deduction under section 35B : Rs. Commission on export sales : 100 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 8,44,272 -------- On the basis of the above particulars, the ITO reduced the total income by a sum of Rs. 2,81,424, i.e., by one-third of Rs. 8,44,272. 3. According to the Commissioner, the above allowances granted by the ITO under section 35B in the three assessment years were erroneous insofar as these were prejudicial to the interests of the revenue. He, therefore, issued show-cause notices under section 263 and after giving the assessee an opportunity of being heard, modified the assessments of the three assessment years as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which weighted deduction had been allowed by the ITO, the Commissioner held that the allowance granted by the ITO was excessive, inasmuch as, he had not taken into account the fact that most of the space occupied by the assessee for which rent had been paid, had been used for the manufacturing activity of the assessee. Similarly, the Commissioner held that most of the expenditure on electricity having been incurred on production of goods, the allowance granted by the ITO was excessive. In respect of car maintenance expenses, the Commissioner held that only one-fourth of the total expenditure could be considered to be eligible for weighted deduction under section 35B. For coming to this conclusion, the Commissioner followed the order passed by his predecessor in office under section 263 in the assessment year 1978-79. In respect of export expenses, which were held to be cent per cent eligible for weighted deduction by the ITO, the Commissioner found on examination of the details of the expenses that some of the expenses related to carriage of goods, etc., which were not eligible for weighted deduction. On the facts found by the Commissioner he held that 50 per cent of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book, the learned counsel submits that the commission paid to Banaras House Ltd. in the three assessment years was on account of services rendered by them in respect of goods exported by the assessee and that, therefore, the ITO was justified in granting deduction to the extent of 100 per cent on the expenses on commission. It is further submitted by him that the Commissioner had while passing an order under section 263 in the assessment year 1978-79 accepted the assessee's contention that expenses on commission were to the extent of 100 per cent eligible for weighted deduction under section 35B and that therefore there was no justification for the Commissioner in the three assessment years under appeal to have taken a different view. According to Shri Agarwal, the decision of the Madras High Court in the case of Southern Sea Foods (P.) Ltd. could not have been pressed into service by the Commissioner as the commission had been paid not for the purpose of procuring any orders for the assessee but for rendering of varied services by Banaras House Ltd. in connection with the exports made by the assessee. When it was pointed out to Shri Agarwal with reference to the papers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt sales or which furnishes information to the assessee about the foreign buyers, or which advertises the assessee's goods abroad or which brings the foreign buyer and the inland seller together for the purposes of making sales by the latter, is an allowable deduction and when the decision in the case of J. H. & Co. had been accepted by the department and no reference had been filed against it, it could not be said that the orders passed by the ITO in the three years were erroneous insofar as these were prejudicial to the interests of the revenue. Reliance has been further placed by Shri Agarwal on another Special Bench decision of the Tribunal in the case of ITO v. Bharath Skin Corpn. [1985] 3 SOT 339 (Mad). It is contended on the basis of this decision that the payment by way of commission to Banaras House Ltd. being for the services rendered in fixing of foreign buyers was an allowable deduction under section 35B. Lastly Shri Agarwal has placed reliance on another decision of the Tribunal in the case of Industrial & General Products v. First ITO [1983] 39 CTR (Mad.) 17 at page 21 in order to contend that where the ITO has made an assessment after taking into account all the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment as maintained by the ITO had been examined by the Commissioner and thereafter the Commissioner had decided to issue notices under section 263 for the three assessment years. In these circumstances, the learned authorised counsel of the assessee is wrong in alleging that the proceedings had not been initiated by the Commissioner on the basis of any objective consideration of material on record. The proceedings had been initiated strictly in accordance with the provisions of section 263 and, therefore, the decisions in Jeewanlal (1929) Ltd.'s case and Sirpur Paper Mill Ltd.'s case do not help the case of the assessee. In these two cases, the assumption of jurisdiction by the Commissioner had been held to be bad in law because that had not been done by an independent application of mind but at the instance of the audit party or the CBDT. In the present case, the facts are entirely different inasmuch as we find that the Commissioner had independently applied his mind and then came to the conclusion that the orders passed by the ITO were erroneous and prejudicial to the interests of the revenue inasmuch as deductions had been granted under section 35B which were not permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of J.H. & Co. expenditure on salary paid to staff dealing with exports had been held to be allowable by the AAC to the extent of 75 per cent and this finding had been upheld by the Tribunal as per paragraph 25 of its order. The order of the Commissioner curtailing the allowance of deduction under section 35B in respect of the expenditure under the head 'Salaries' was, therefore, in order in the assessment year 1979-80. In the assessment year 1980-81, the curtailment of allowance was made on the same lines as in the assessment year 1979-80. The only difference in this year was that the assessee had failed to give the break up of the salaries paid to factory staff and others. The Commissioner had, therefore, bifurcated the expenditure on salary paid to factory staff and others in the same proportion as in the assessment year 1979-80. No fault can be found with this approach of the Commissioner. In the assessment year 1981-82 also the Commissioner had allowed weighted deduction on expenditure under the head 'Salaries' on the same lines as was done in the previous two assessment years. Since the action of the Commissioner was in accordance with the decision of the Special B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished by the assessee at pages 77 to 85 of the paper book. All these certificates mentioned that the commission which had been charged from the assessee by Banaras House Ltd. was in connection with inspection of the goods shipped abroad. These certificates are more or less in the same terms. One of these may be reproduced : "Inspection certificate This is to certify that we have inspected the goods to be shipped by Allied Export Industries,New Delhiagainst order No. 92/5438 dated31-7-1979placed by Sarma Penney Ltd.,Belgiumand have found the same in order. This certificate of inspection is being issued subject to the proviso that if there is any claim of any nature whatsoever from the consignee relating to the subject goods, the same will be to the account of the supplier, as the acceptance of the goods by the consignee is final." These certificates clearly showed that the commission which had been paid to Banaras House Ltd. was not in respect of any of the services alleged to have been rendered by them but in respect of inspection of goods only. Such an expenditure does not fall within any one of the clauses of section 35B(1)(b) as these were applicable in the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the Additional Commissioner the allocation of shares between the partners as made in the books of account was different from that mentioned in the partnership deed and, therefore, the certificate given under section 184(7) of the Act was wrong. When an appeal was preferred against the order of the Additional Commissioner the Tribunal did not approve the grounds taken by the Additional Commissioner for cancelling the continuation of registration but at the same time upheld the order on the basis of a new ground which was available to the Addl. Commissioner but which had not been taken by him. The Tribunal held that a change in the constitution of a firm which had taken place when instead of 10 partners and 4 minors admitted to the benefits of partnership, the firm came to be differently constituted by 11 partners and three minors admitted to the benefits of partnership. The order, thus, passed by the Tribunal had been disapproved by the Hon'ble Punjab and Haryana High Court in its abovementioned decision. According to the Hon'ble High Court, the Tribunal had no justification in investing a new ground which never formed the basis of the order passed by the Commissioner. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner in this regard and according to us while we do so we are acting in accordance with the provisions of section 254(1) of the Act without in any way not following the order in Jagadhari Electric Supply & Industrial Co.'s case where the facts were materially different. Even though the learned authorised counsel of the assessee has been persistently contending all along before us that the abovementioned items of expenditure by way of payments made to Banaras House Ltd. were not inspection fees or certification charges in respect of shipments of goods sent abroad but were service charges in connection with the exports or charges for advertisement and publicity of the assessee's goods abroad, we are not prepared to accept his ipse dixit in the face of a specific certificate issued by Banaras House Ltd., one of which stands reproduced in an earlier portion of the order and which clearly shows that the expenditure was incurred in order to get the goods inspected by Banaras House Ltd. In the above view of the matter, the orders passed by the Commissioner withdrawing weighted deduction on so-called commission expenses are upheld. Rent : 10. In respect of expenditure on rent, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the electricity had been consumed in the process of production of garments, he held that deduction was allowable to the extent of 30 per cent of the expenses which could at the best be related to the assessee's activity of export. No fault can be found with this finding of the Commissioner in the assessment years 1979-80 and 1980-81. Car expenses : 12. In the three assessment years under appeal, the ITO had allowed weighted deduction to the extent of 50 per cent on car expenses. We find that in the assessment year 1978-79 when the Commissioner had fixed the weighted allowance in respect of car expenses at 5 per cent in an order passed under section 263, the assessee had not objected to the order passed by him. In the three assessments under appeal the Commissioner has directed the grant of allowance at 25 per cent of the car expenses. We do not see any infirmity in the weighted allowance thus fixed by the Commissioner. Export expenses : 13. In respect of the export expenses, the ITO had while making the assessment orders for the assessment years 1979-80 to 1981-82 granted weighted allowance under section 35B at 100 per cent of the expenses. The Commissioner examined the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Bench of the Tribunal in which it was held that the commission paid by the assessee in that case to the State Trading Corpn. for services rendered by way of obtaining market information abroad and fixing up of foreign buyers was eligible for weighted deduction under section 35B. This case also does not in any way help the case of the assessee. We would have also allowed weighted deduction on expenditure described as 'commission' in case it was for obtaining market information and for rendering other services which fall under the specified categories of section 35B(1)(b). Since we have found as a fact on the basis of evidence produced by the assessee itself that the expenditure described as commission was in fact nothing but inspection fees paid in respect of shipments we have held it to be inadmissible under the provisions of section 35B. This decision of the Special Bench of the Tribunal relied upon by the learned authorised counsel of the assessee cannot, therefore, be said to be of any assistance to the assessee. In the third decision of the Tribunal in Industrial & General Products' case on which reliance has been placed by the assessee, it had been held that the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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