9911796707
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 2,97,438 Rent : 75 per cent of Rs. 83,100 62,325 Electricity and Water charges : 80 per cent 14,250 Membership : 100 per cent 2,000 Books and Periodicals : 100 per cent 1,629 Car maintenance (41,216 - 13,739 = 27,477) : 50 per cent allowed 13,738 Staff welfare (11,103 - 1,000 = 10,103) : 50 per cent allowed 5,052 Licence and renewal fees 928 Advertisement : 50 per cent of Rs. 5,360 2,980 Samples : full 82,337 Business promotion 57,180 Postage and Telex : 80 per cent of 64,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed ---- General expenses : 50 per cent 1,496 --------- 11,26,019 --------- 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 1,91,193 Service charges on export sales : 100 per cent 1,46,605 Samples : 100 per cent 1,39,101 Business promotion expenses (foreign tour, etc.) : 80 per cent allowed 1,16,574 Car maintenance : Total claimed at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 (Bom.) be held that 75 per cent of Rs. 1,75,679 was eligible for weighted deduction. This resulted in enhancement of the assessment by a sum of Rs. 27,000. The Commissioner further held that no part of the expenditure on commission amounting to Rs. 2,97,438 was eligible for weighted deduction. According to him, the whole of the commission had been paid to Banaras House Ltd. and that since the commission had been paid for the purpose of procuring orders from foreign buyers, it was ineligible for weighted deduction. According to the Commissioner, the allowance had been wrongly granted by the ITO and that the weighted deduction on expenditure incurred by way of commission could not be allowed, in view of the Madras High Court decision in the case of CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855. Since the ITO had allowed deduction of Rs. 99,146 (one-third of Rs. 2,97,438), the Commissioner withdrew this allowance resulting in enhancement of assessment by a sum of Rs. 99,146. In respect of expenditure on rent and electricity charges on which weighted deduction had been allowed by the ITO, the Commissioner held that the allowance granted by the ITO was excessive, inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Apart from generally describing the orders passed by the Commissioner as attempts on review of the orders passed by the predecessor-in-office in the preceding assessment year and alleging that the orders passed were bad in law, Shri Agarwal has raised certain specific objections against the impugned orders. First of all it is contended by him, that the Commissioner had proceeded to take action under section 263 not on the basis of any objective opinion formed by him on the examination of the record of proceedings before the ITO. It is next contended by Shri Agarwal that in fact the Commissioner had been coaxed to pass the three orders by the audit party and, therefore, the orders passed were bad in law. It is next contended by him that the weighted deduction having been allowed by the ITO in accordance with the decision of the Tribunal in the case of J. H. Co., no error or prejudice against the revenue could be alleged on the part of the ITO. Referring to the certificates issued by Banaras House Ltd. which are placed at pages 58 and 76 of the paper book, the learned counsel submits that the commission paid to Banaras House Ltd. in the three assessment years was on account of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT v. Jagadhri Electric Supply Industrial Co. [1983] 140 ITR 490 other authorities on which Shri Agarwal has placed reliance are in Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal.) and Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 (SC). These two authorities have been relied upon by the learned counsel for contending that the orders passed by the Commissioner being not based on any independent application of mind or any objective consideration of material on record, should be quashed. Reliance has also been placed on an order passed by the Tribunal, which is in Mettur Beardsell Ltd. v. ITO [1985] 11 ITD 631 (Mad). According to him, the Special Bench has held in the abovementioned case that the decision of the Hon'ble Madras High Court in the case of Southern Sea Foods (P.) Ltd. does not overrule the decision of the Special Bench of the Tribunal in the case of J. H. Co. and, therefore, when the Tribunal had held while deciding the case of J. H. Co. that the commission payment to a party, which brings about the export sales or which furnishes information to the assessee about the foreign buyers, or which advertises the assessee's goods abroad or which br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner in the three impugned orders passed under section 263. We have also gone through the voluminous paper book submitted by Shri Agarwal. As desired by Shri C.S. Agarwal, we have also scrutinised the record of the Commissioner in order to find out as to whether the exercise of jurisdiction by the Commissioner under section 263 in the three assessment years was on the basis of an objective examination of the record of the ITO or was based on the report of the audit party as alleged. After examining the matter in all aspects, we will hold as follows. 7. A close scrutiny of the record of the Commissioner in respect of the three orders passed under section 263 shows that the proceedings had not been initiated by the Commissioner on the basis of any audit report. The IAC (Assessment) Range-I, New Delhi had brought certain facts to the notice of the Commissioner and thereafter, the Commissioner had called the IAC (Assessment) for discussion and a report had also been obtained by the Commissioner from the IAC (Assessment). The records of assessment as maintained by the ITO had been examined by the Commissioner and thereafter the Commissioner had decided to issue notices un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manager, checkers, helpers and cutters, etc., who were employed in the factory of the assessee. The salary paid to such staff amounted to Rs. 85,769. Besides, bonus and provident fund, etc., paid to the factory staff was rightly allocated by the Commissioner at Rs. 24,500. The total of the two amounts of Rs. 85,769 and Rs. 24,500, i.e., Rs. 1,10,269 was not eligible for weighted deduction as this part of the expenditure on salary, etc., did not relate to exports but related to the production of garments. After deducting Rs. 1,10,269, the balance, i.e., Rs. 1,55,679 was eligible for weighted deduction. The Commissioner ought to have directed the grant of weighted deduction on this amount but we find that he has directed the grant of weighted deduction on an amount of Rs. 1,75,679. In other words, he has erred on the side of the assessee as far as determination of the quantum of expenditure on salary eligible for deduction under section 35B is concerned. As far as the percentage of deduction, which was fixed at 75 per cent seems to be quite in order. 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 ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him the commission had been paid for the purposes of procuring orders from foreign buyers and consequently inadmissible for weighted deduction as per the decision of the Hon'ble Madras High Court in the case of Southern Sea Foods (P.) Ltd. We find from a close scrutiny of the records maintained by the ITO and the Commissioner that before both these authorities only a photostat copy of a general certificate entitled 'To whomsoever it may concern' issued by Banaras House Ltd. had been furnished. In this certificate, Banaras House Ltd. had mentioned the various activities which they performed in assisting an Indian exporter. This certificate was brushed aside by the Commissioner as according to him it was a general certificate and as it did not in any way show that the commission had been paid to Banaras House Ltd. for the purposes of obtaining information regarding markets outsideIndiaand for advertisement and publicity abroad, etc. The correct nature of the commission paid has now been made known to us as per specific certificates which have now been furnished by the assessee at pages 77 to 85 of the paper book. All these certificates mentioned that the commission which had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, we are of the view that the so-called expenditure on commission was not allowable under section 35B in any one of the three assessment years. The conclusion of the Commissioner has, therefore, to be upheld as far as the expenditure described as commission is concerned. The point that we have now to examine is as to whether the Tribunal can uphold the decision of the Commissioner on the basis of the abovementioned facts found and as to whether the decision of the Hon'ble Punjab and Haryana High Court in the case of Jagadhri Electric Supply Industrial Co. comes in the way of the Tribunal in upholding the order of the Commissioner so far as he has withdrawn section 35B allowance on the so-called commission expenditure. After carefully studying the decision of the Hon'ble Punjab and Haryana High Court, it appears to us that the facts in that case were materially different. There the Additional Commissioner had found that the assessee-firm had been wrongly allowed continuation of registration and, therefore, the order of the ITO had been cancelled. According to the Additional Commissioner the allocation of shares between the partners as made in the books of account was diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny one of the three assessment years, we would uphold the finding of the Commissioner withdrawing the allowance wrongly granted by the ITO. Even if the expenditure was on commission for procuring orders for exports (which in fact it was not), the Commissioner would be justified in invoking his powers under section 263 and proceeding to withdraw the allowance wrongly granted by the ITO in accordance with one and the only one High Court's decision---Southern Sea Foods (P.) Ltd.'s case---which was available to him and in which it had been held that commission for procuring orders from foreign buyers was not an admissible deduction under section 35B. Be that as it may in the present case the facts found clearly show that the expenditure of Rs. 2,97,438, Rs. 3,32,939 and Rs. 1,91,193 incurred in the assessment years 1979-80, 1980-81 and 1981-82, was not eligible for weighted allowance under any one of the clauses of section 35B(1)(b) as these existed on the statute book in the three assessment years. We would, therefore, uphold the identical orders passed by the Commissioner in this regard and according to us while we do so we are acting in accordance with the provisions of section 254( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was eligible for weighted deduction. In the order passed by the Commissioner under section 263 also there is no discussion in this regard. In the three impugned orders, the Commissioner has given cogent reasons for restricting the allowance of weighted deduction on rent to the extent of 30 per cent. We would agree with the findings given by him and uphold his orders in that regard also. Electricity and water charges : 11. Allowance of weighted deduction on electricity/water charges had been granted by the ITO to the extent of 80 per cent in the assessment years 1979-80 and 1980-81. In the assessment year 1981-82, no allowance had been granted in respect of expenditure on electricity/water charges and we are given to understand that in that assessment year the assessee had not raised any objection against the ITO's order not allowing any weighted deduction in respect of electricity expenses. The Commissioner found that the weighted deduction granted by the ITO to the extent of 80 per cent of the expenditure was excessive. Having regard to the fact that most of the electricity had been consumed in the process of production of garments, he held that deduction was allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 35B in respect of so-called commission expenses is that those expenses were in fact incurred by way of certification charges or inspection fees and, therefore, inadmissible for weighted allowance as per the law laid down by the Special Bench in the case of J.H. Co. We have also held that those expenses are not eligible for weighted deduction as they do not fall in any one of the categories of expenses prescribed in the provisions of section 35B(1)(b) as these prevailed in the assessment years 1979-80 to 1981-82. We have also held that the decision in the case of Southern Sea Foods (P.) Ltd. being the only one decision of the Hon'ble High Court which was available to the Commissioner, he was justified in disallowing the weighted deduction on expenses under the head 'Commission' in case those were incurred for the purposes of procuring orders from foreign buyers. In these circumstances, we do not see as to how the decision in Mettur Beardsell Ltd.'s case advances the case of the assessee. The decision in Bharath Skin Corpn.'s case is another decision of the Special Bench of the Tribunal in which it was held that the commission paid by the assessee in that case to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
