9911796707
TMI Blog1985 (6) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into effect in respect of expenditure incurred from 1-4-1978. 3. The assessee claimed weighted deduction under section 35B on various items of expenditure as below : Himson Textile Engg. Industries PannaKnittingIndustries Rs. Rs. Export freight 1,00,472* 1,13,465* Bank commission 17,894* - Foreign travelling 1,15,308 x 17,241 x Export service charges - 3,000 x Export commission 1,46,662 x 1,12,188 x (possibly Exhibition expenses 1,08,049 x 1,22,188) The ITO accepted the claim of the assessees on items marked ';x'; and rejected the claim on items marked ';';. In respect of the items on which the ITO disallowed the weighted deduction, the assessee went in appeal to the Commissioner (Appeals), who by his order dated 4-6-1982 confirmed the ITO';s action. The Commissioner was not, however, made aware of the existence of the order of the Commissioner (Appeals), even in reply to the show-cause notice issued. Before us, it was explained that this omission on the part of the assessee was on account of genuine oversight and should not be taken as acquiescence in the matter of vesting of legal jurisdiction in the Commissioner which the law does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his satisfaction on merits after hearing the assessee that such weighted deduction is in fact not admissible. Actually in this case, the Commissioner (Appeals) rejected the claim of the assessee in respect of items marked ';x'; in paragraph 2 above, whereas present section 263 action is in respect of items marked ';';. The Commissioner (Appeals) confirmed the action of the ITO on the ground that the provisions of section 35B(1) themselves even without section 35B(1A) being attracted. Thus, the question of further examining the restrictions on allowances under section 35B(1A) did not and could not have arisen before the Commissioner (Appeals). The question of applicability of section 35B(1A) was, therefore, purely academic as far as the Commissioner (Appeals) was concerned. In other words, the Commissioner (Appeals) had no occasion to examine the applicability of section 35B(1A) which is precisely the provision looked into by the Commissioner in the course of section 263 action. Thus, both in respect of provisions of law and inclusion of items of expenditure the Commissioner (Appeals) and the Commissioner have been functioning in mutually exclusive fields. 5. The Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.';s case (supra) does not lay down correct law. This judgment was delivered on 25-2-1982. 7. Later on, another Full Bench was constituted by the same Madhya Pradesh High Court and the entire gamut of merger was re-examined threadbare by the Full Bench in CIT v. R.S. Banwarilal (1983) 140 ITR 3 in the judgment dated 8-3-1982. In this case, it was held in no uncertain terms that the ITO';s order merges with the appellate order of the AAC only to the extent it was considered and decided by the AAC but the matters which are not covered by the appellate order of the AAC are left untouched and to that extent the ITO';s assessment order survives, keeping open exercise of revisional jurisdiction under section 263 in such matters. It was further held that only specific items considered and decided by the AAC in his appellate order are beyond the scope of section 263. 8. In R.S. Banwarilal';s case (supra), the Madhya Pradesh High Court had occasion to critically examine the case law on which the Special Bench of the Tribunal had based its decision. It was held by their Lordships that Tejaji Farasram Kharawala';s case (supra) and CIT v. Amritlal Bhogilal & Co. (1953) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective of sub-sections or other overriding sections, or does it confine itself to a particular item of receipt or expenditure in respect of which the matter has been adjudicated upon by the ITO/AAC ? The word ';point'; would suggest that one cannot consider a provision of law in general and cover in its sweep all independent and disjoined items of expenditure on which the assessee had claimed a particular relief. One has to consider each class of expenditure separately. In this case, as mentioned above, the assessee claimed under section 35B weighted deduction on certain classes of itemwised expenditure and there is no single class or item of expenditure examined both by the Commissioner (Appeals) and the Commissioner. I, therefore, hold that in this case there is no merger so as to oust the jurisdiction of Commissioner under section 263 and that Commissioner has correctly assumed jurisdiction. In the above reasoning I have incorporated the arguments of the departmental representative. 12. On merits, the learned representative submitted that the appellant is still a small-scale industry and has been registered as such With the Directorate of Industries, Gujarat. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 35B on certain items mentioned in the order of my learned brother. When the ITO had framed the assessments on 6-8-1980 and 16-8-1980, sub-section (1A) of section 35B had already been brought on the statute by the Finance Act, 1978 with effect from 1-4-1978. For the sake of completing the narration of the facts, it may be mentioned that the said sub-section was omitted by the Finance Act, 1979, with effect from 1-4-1980. However, since the year under appeal is 1979-80, the provisions of the said sub-section were very much there when the ITO framed the assessments on the dates mentioned above. That provision reads as under : "(1A) Notwithstanding anything contained in sub-section (1), no deduction under this section shall be allowed in relation to any expenditure incurred after the 31st day of March, 1978, unless the following conditions are fulfilled, namely : - (a)the assessee referred to in that sub-section is engaged in- (i)the business of export of goods and is either a small-scale exporter or a holder of an Export House Certificate ; or (ii)the business of provision of technical know-how, or the rendering of services in connection with the provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on what the Commissioner had done in the instant case is to sit in judgment over the orders of the Commissioner (Appeals). It is in this situation I am of the opinion that the assessment orders of the ITO had merged with the orders of the Commissioner (Appeals). It is for this limited purpose I am of the view that the assessee';s cases are covered by the orders of the Special Bench of the Tribunal referred to in the order of my learned brother. Again, I am of the view that the ratio laid down in the case of Karsandas Bhagwandas Patel (supra), more particularly, the relevant paragraph reproduced by my learned brother in paragraph No. 9 of his order has no application on the facts and circumstances obtaining in the instant case. For all these reasons, I am, therefore, of the view that the Commissioner had no jurisdiction to initiate the proceedings under section 263. In view of the conclusion, thus, arrived at by me, it is not necessary to go into the merits of the case. 5. In view of what is stated above, I would allow the appeals. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Difference of opinion has arisen amongst the Members, who constituted the Bench. The fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO to withdraw the relief allowed to both the assessees in course of the original assessment. 3. As against the said orders as made by the learned Commissioner in case of the respective assessees, the assessees came up in appeal before the Tribunal. It was pointed out that the assessees had claimed weighted deduction on various items of expenditure as indicated below : Himson Textile Engg. Industries Panna Knitting Industries Export freight 1,00,472 1,13,465 Bank commission 17,894 Foreign travelling 1,15,308 x 17,241 x Export service charges 3,000 x Export commission 1,46,662 x 1,12,188 x (possibly 1,22,188) The ITO had accepted the claim of the said assessees in regard to the items marked ';x'; and had rejected the claim in regard to the items marked ';';. The assessees had challenged the decision of the ITO to disallow the claim for weighted deduction before the Commissioner (Appeals) who by his order dated 4-6-1982 had confirmed the action of the ITO. It is an admitted fact that the learned Commissioner who had initiated the revisionary proceedings was not made aware of the existence of the orders of the Commissioner (Appeals). However, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals). In other words, the Commissioner (Appeals) had no occasion to examine the applicability of the said provisions and that was precisely the reason why the learned Commissioner was required to take recourse to section 263. To put it differently both the Commissioner (Appeals) and the learned Commissioner have functioned in mutually exclusive fields. The learned Accountant Member thereafter considered the decision of the Special Bench in the case of Shree Arbuda Mills Ltd. (supra). In that case, the Special Bench had concluded that the earlier Special Bench decision in the case of Dwarkadas & Co. (P.) Ltd. (supra) was correctly decided in the light of the ratio of Tejaji Farasram Kharawala';s case (supra) and the said decision had a binding effect in the Gujarat High Court. The Special Bench had also considered two other judgments of the Gujarat High Court in the cases of Karsandas Bhagwandas Patel (supra) and Poonjabhai Vanmalidas (supra). The Special Bench had held that the said two judgments did not affect the conclusion reached in Dwarkadas & Co. (P.) Ltd.';s case (supra). The learned Accountant Member then observed that the Special Bench did not have an occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respective assessment. Now the provisions of section 35B(1A) were already on the sta-tute book and were operative for the assessment year under appeal though the same stood deleted with effect from 1-4-1980. Thus, in spite of the provisions contained in section 35B(1A), the ITO had allowed weighted deduction on certain items as aforesaid. However, in respect of the items on which the assessees'; claim stood rejected, the assessees went in appeal before the Commissioner (Appeals) who confirmed the order of the ITO by his order dated 4-6-1982. Thus, it was clear that both the ITO as well as the Commissioner (Appeals) had failed to take into con-sideration the provisions of section 35B(1A). If the Commissioner (Appeals) had felt that by virtue of the said provisions the assessee was not entitled to weighted deduction inasmuch as they were not ';small-scale exporters';, nothing prevented him to enhance the assessment in case of both the assessees. It is well settled that when an appeal comes before the Commissioner (Appeals), the entire assessment comes for his review and the Commissioner (Appeals) was required to pass his appellate order on the basis of the relevant prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a';s case (supra) was held to be no longer good law. However, the decision in Tejaji Farasram Kharawala';s case (supra) is not expressly overruled by any decision of the Gujarat High Court and as rightly observed by the Special Bench in the case of Shree Arbuda Mills Ltd. (supra), Tejaji Farasram Kharawala';s case (supra) is still good law and is binding as the said decision was rendered before the bifurcation of the erstwhile State of Bombay. He next pointed out that in Karsandas Bhagwandas Patel';s case (supra), the decision in Tejaji Farasram Kharawala';s case (supra) was not considered ; of course, there is a reference to provisions of section 33B. In that decision, the observations were in the nature of obiter dicta inasmuch as the revisional jurisdiction of the learned Commissioner did not call for consideration direct in that case. Again the decision of the Full Bench of the Madhya Pradesh High Court in the case of Mandsaur Electric Supply Co. Ltd. (supra) does not directly deal with the controversy. Therefore, so long as the decision in Tejaji Farasram Kharawala';s case (supra) holds the field in accordance with the decision of the Special Bench in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. The submission made on behalf of the assessee that the Karsandas Bhagwandas Patel';s case (supra) covered the case for rectification and not revision was without substance inasmuch as the consideration which applied to rectification proceedings would apply with equal force to revision proceedings also. In other words, their Lordships of the Gujarat High Court have placed both the proceedings on the same footing or the same pedestal. Now the decision in Karsandas Bhagwandas Patel';s case (supra) has been followed by the Full Bench of the Madhya Pradesh High Court in R.S. Banwarilal';s case (supra). Again the decision in Karsandas Bhagwandas Patel';s case (supra) was followed by their Lordships of the Gujarat High Court in the case of Poonjabhai Vanmalidas (supra). Therefore, according to the latest judicial trend, the position was quite clear that the decision of the lower authorities, namely, the ITO would merge with that of the appellate authority to the extent to which the items have been considered and decided upon by the appellate authority. The items which are left untouched by the appellate authority could be subjected to revisional jurisdiction by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good in the context of proceedings under section 263. That apart it was also decided that where an authority has power or discretion to do something for which appropriate circumstances exist. whether or not that authority has, as a matter of fact, exercised that power, such an authority should be deemed to have exercised that power. That apart, it was pointed out that if the view canvassed by the revenue were to be accepted, then it would lead to anomalous position as pointed out in paragraph No. 21 of the said order. Now to persuade me to take a different view, the learned departmental representative strongly relied on the following observations in Karsandas Bhagwandas Patel';s case (supra) : "It would thus be seen that for the purpose of determining the applicability of the principle of merger in a case like the present, the test which has to be applied is whether the decision of the Income-tax Officer on a particular point is the subject-matter of appeal before the Appellate Assistant Commissioner. It may not be the subject-matter of appeal for two reasons, either because the Appellate Assistant Commissioner has no jurisdiction to consider that subject-matter as in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndas Bhagwandas Patel';s case (supra) is a decision of the Special Bench (three Members) to which I was a party and, therefore, following the said decision and for the reasons recorded therein, I would hold that the Commissioner';s jurisdiction in the light of the facts which I shall presently state was clearly ousted. Now coming to the narrower aspect in the instant case, the facts show that the assessee had made claim for export development allowance in regard to four items (referred to earlier) and in respect of two items the claim was allowed by the ITO and in regard to other two items, the claim was rejected by the ITO and his decision was upheld in appeal by the Commissioner (Appeals). As rightly pointed out by the learned Judicial Member, the provision of section 35B(1A) is an overriding provision. In spite of the said provision, the ITO had allowed the claim for weighted deduction on certain items as aforesaid. The point at issue for decision of the Commissioner (Appeals) related to the claim for export markets development allowance under section 35B and the claim fell for examination related to the allowability of the claim in light of the provisions contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
