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2005 DIGILAW 139 (PNJ)

Commissioner Of Income Tax v. Bhagat Bros

2005-01-25

N.K.SUD, SATISH KUMAR MITTAL

body2005
Judgment N.K.Sud, J. 1. In pursuance to the direction of this Court, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal"), has referred the following common question of law arising out of its order dt. 9th May, 1985 relating to asst. yrs. 1978-79 and 1979-80, for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction under Section 35B of the IT Act, 1961, on the amount of service charges paid to M/s Handicraft Handloom Export Corporation ?" 2. The assessee-firm derived income from manufacture and sale of woollen hosiery in India and also in foreign markets. During the accounting period relevant to asst. yrs. 1978-79 and 1979-80 under consideration the assessee, inter alia, claimed deduction under Section 35B of the IT Act, 1961 (for short "the Act"), on service charges of Rs. 89,540 and Rs. 13,256, respectively, paid to M/s Handicrafts Handloom Expert Corporation (for short "HHEC"). The claim of the assessee was disallowed by the AO on the ground that the assessee could not point out the relevant clause of Section 35B under which the relief claimed could be allowed. On an appeal preferred by the assessee, the AAC, B-Range, Ludhiana, allowed the claim of the assessee. On further appeal by the Revenue, the order of the AAC was confirmed by the Tribunal. In doing so, the Tribunal relied on the decision of the Special Bench in the case of J. Hem Chand & Co. V/s. ITO (1982) 1 SOT 150 (Bom)(SB). 3. From the factual position as noticed above, it is clear that the claim of the assessee has been allowed merely on the basis of decision of the Special Bench in the case of J. Hem Chand & Co, (supra). This is clearly contrary to the law laid down by the apex Court in CIT V/s. Stepwell Industries Ltd. Etc. Etc. and CIT V/s. Hero Cycles (P) Ltd. Etc. Etc. 4. In the case of Stepwell Industries Ltd. (supra), the Supreme Court (at p. 175) has held as under : "... When a claim for weighted deduction is made, it is for the assessee to satisfy the ITO that the expenditure falls in any of the Sub-clauses of Clause (b) of Section 35B(1). Etc. 4. In the case of Stepwell Industries Ltd. (supra), the Supreme Court (at p. 175) has held as under : "... When a claim for weighted deduction is made, it is for the assessee to satisfy the ITO that the expenditure falls in any of the Sub-clauses of Clause (b) of Section 35B(1). The onus is on the assessee to prove that he is entitled to the weighted deduction allowed under Section 35B. In order to get this deduction, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in Clause (b) of Section 35B(1). There cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the sub-clauses. If the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. Some of the sub-clauses provide that if the expenditure is incurred in India, it cannot be allowed but in some of the sub-clauses this requirement is not there. In such cases, the expenditure may nor may not be incurred in India. Every case will have to be examined in the light of the provisions of the sub-clauses and the facts proved by the assessee." 5. Applying the aforesaid test, the Supreme Court set aside the order of the Tribunal granting deduction under Section 35B on various items including commission paid to HHEC. The Tribunal was directed to decide the matter afresh after granting an opportunity to the assessee to prove the nature of expenditure and establishing that the expenditure fell within any of the sub-clauses of Section 35B(1)(b) of the Act. 6. Similarly, in the case of Hero Cycles (P) Ltd. (supra), the order of the Tribunal allowing deduction under Section 35B on expenses on services rendered by HHEC was set aside and the matter remitted to the Tribunal for fresh adjudication. The Tribunal was required to record a finding as to the entitlement of the assessee with reference to the particulars of Clause (b) of Section 35B(1). 7. The Tribunal was required to record a finding as to the entitlement of the assessee with reference to the particulars of Clause (b) of Section 35B(1). 7. In view of the above, in the present case also, the question for grant of weighted deduction under Section 35B on service charges paid to HHEC needs to be determined by the Tribunal afresh in the light of the observations of the Supreme Court. 8. Accordingly, the question is answered in the negative i.e., against the assessee and in favour of the Revenue. The matter shall now go back to the Tribunal for fresh adjudication in the light of the observations made above. Since no one has put in appearance on behalf of the assessee, there shall be no order as to costs.