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TMI Blog1997 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The facts arising from the order of the Tribunal relating to the assessment year 1976-77 shall be discussed hereunder. The return of income, originally filed for the assessment year 1976-77, showed income of Rs. 41,670. However, in the revised return, the assessee declared a loss of Rs. 10,60,653. The assessee claimed, in the revised return, deduction at an enhanced amount under section 35B of the Income-tax Act, 1961 (for short "the Act"). The Assessing Officer proposed additions exceeding Rs. 1,00,000 and he, therefore, forwarded a draft assessment order, to the assessee under section 144B of the Act. The assessment was thereafter made making various additions and disallowances. The assessee had claimed weighted deduction under section 35B of the Act in the original return on expenditure of Rs. 91,427 which represented one-third of the total expenditure amounting to Rs. 2,74,280. In the revised return, weighted deduction was claimed at Rs. 12,04,681 which was one-third of the expenses amounting to Rs. 36,14,065. The total expenditure this time included export expenses of Rs. 3,37,778 and bank commission of Rs. 13,033. The Assessing Officer allowed weighted deduction on commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation so that the purpose behind it could be properly achieved. The expenditure had first to be localised with reference to the sub-clauses of section 35B(1)(b) of the Act and then it was to be determined whether the expenditure had been wholly and exclusively incurred for any of the purposes listed therein. Each sub-clause of sub-section (1)(b) was to be read entirely. The condition specified in any of the sub-clauses had to be satisfied. Weighted deduction could be allowed only where it was specifically claimed by the assessee in his return. Though a direct nexus between expenditure and promotion of exports was necessary, the expenditure had to be incurred outside India except in the case of expenditure falling under sub-clause (iii) of clause (b). If no claim for allowance was made and there was no evidence as to qualifying expenditure, there was no question of granting allowance. The burden of proof was on the assessee. If there was no evidence to show that the assessee was entitled to the weighted deduction in respect of the entire expenditure incurred by him, the Tribunal would be justified in allowing this deduction proportionately. Shri A. C. Jain, learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while in transit were specifically excluded from the purview of sub-clause (iii). Any deduction on freight and insurance was thus not available under sub-clause (iii) as there is a specific and clear bar against such expenditure in that sub-clause. The allowance under sub-clause (iii) was withdrawn with effect from April 1, 1978, by the Finance Act, 1978. This sub-clause along with certain other sub-clauses were omitted from clause (b) by the Finance (No. 2) Act, 1980. The assessment years in the case of the assessee in hand are 1976-77, 1977-78 and 1978-79. Thus, the assessee is not entitled to seek weighted deduction under sub-clause (iii) for the assessment year 1978-79. Shri A.C. Jain, learned counsel for the assessee, has argued that expenditures on sea freight and marine insurance were eligible expenditures under sub-clauses (viii) as held in CIT v. Roadmaster Industries of India Pvt. Ltd. [1993] 202 ITR 968 (P H). In that decision, a Division Bench of this court drew a distinction between inland freight and inland insurance on the one hand and sea freight and marine insurance on the other. Though the expenditures on carriage of goods to their destination outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut allowing admissibility of expenditure on sea freight and marine insurance with a direction to the Tribunal to verify from the assessee if expenditure had been incurred on sea freight and marine insurance. If that was so, weighted deduction should be allowed on sea freight and marine insurance in the light of the decisions of this court. Shri B. S. Gupta, learned senior counsel for the Department, has opposed the plea put forward on behalf of the assessee for the examination or verification of the nature of expenditure. Shri Gupta has argued that the onus lay on the assessee for claiming the export markets development allowance by placing necessary evidence in this behalf. If the assessee failed to discharge the onus, there was no need to direct the Tribunal to look into the nature of expenditure. From the facts, it is not at all clear whether the assessee had claimed weighted deduction on sea freight and marine insurance and whether there was a subsisting contract between the assessee and the foreign buyer for the supply of goods. The question, whether the Tribunal may be required to verify the nature of expenditure, need not be decided against the assessee unless it is foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons v. CIT [1986] 157 ITR 807 (Mad), a question regarding the admissibility of freight, insurance, packing and coolie charges incurred in India, was examined and it was held that none of the expenditures was an eligible expenditure within the meaning of sub-clause (iii) because those had been incurred in connection with the carriage of goods to their destination outside India. Thus, coolie charges were also treated to be part of the expenditure on the carriage of goods. In M. H. Daryani v. CIT [1993] 202 ITR 731, the Bombay High Court disallowed expenditures on freight and forwarding charges under sub-clause (iii) of clause (b) of section 35B(1) of the Act on the ground that these expenditures had been incurred on the carriage of goods. The Gujarat High Court in Parshuram Pottery Works Co. Ltd. v. CIT [1993] 204 ITR 458, examined expenditures incurred on inspection fees, dock dues, transport and octroi, and held that these expenditures were part of transport expenses and the assessee was, therefore, not entitled to weighted deduction in respect of them. Expenses on duty and clearing charges as well as delivery charges have been held to be ineligible under sub-clause (iii) of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing expenses ordinarily debitable to the trading or manufacturing account and not to the profit and loss account." Though the above Explanation was inserted by way of substitution with effect from April 1, 1981, the effect of the Explanation appears to be clarificatory. The provision in Explanation 2 was incorporated "for the removal of doubts" in respect of expenditures which were in the nature of purchasing and manufacturing expenses. It would thus be apparent that Explanation 2 intended to remove doubts with regard to the inadmissibility of purchasing and manufacturing expenses. In this light, Explanation 2 shall be treated to be clarificatory and explanatory in nature and would thus be applicable with retrospective effect. The earlier Explanation related to certain expenditures incurred by an assessee engaged in the business of operation of any ship, vessel, aircraft or vehicle or carriage of passengers, livestock, mail or goods. The earlier Explanation went out of the section with effect from March 31, 1981, and was substituted by the new Explanation with effect from April 1, 1981, as reproduced above. It is, therefore, the Explanation substituted by the Finance (No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Forbes Forbes Campbell and Co. Ltd. v. CIT [1994] 206 ITR 495 ; and (iii) Mafatal Fine Spg. and Mfg. Co. Ltd. v. CIT [1994] 206 ITR 578. Since the assessee incurred expenditure on payment of inspecting agency charges and the service was not performed outside India but inside the country, this expenditure does not attract sub-clause (viii) of clause (b) of section 35B(1) and is, therefore, not eligible for weighted deduction. (v) Bank commission.---Shri A. C. Jain, learned counsel for the assessee, has explained that the assessee paid bank commission in the execution of the contract for the supply of goods to foreign countries and thus sub-clause (viii) was attracted. The argument does not carry any weight, as expenditure under sub-clause (viii) is allowable in a situation where any service is performed outside India in connection with the execution of any contract for the supply of goods. In the absence of any evidence on record that the bank commission was paid for any service performed by the bank outside India, clause (viii) is not attracted. The Madhya Pradesh Court in CIT v. Vippy Solvex Product Pvt. Ltd. [1986] 159 ITR 487, has held that interest paid for the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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