Jammu & Kashmir H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the leviability and the quantum of interest charged under ss. 139(8) and 217 of the IT Act can be challenged by the assessee in appeal filed under s. 246(1)(c) of the Act ?

High Court Of Jammu & Kashmir

CIT vs. Indo Carpet Factory

Sections 35B, 246(1)(c)

Asst. Year 1978-79

Dr. B.P. Saraf, C.J. & Syed Bashir-Ud-Din, J.

IT Ref. No. 18 of 1983

14th November, 2000

Counsel Appeared

Anil Bhan, for the Revenue : A.K. Malik, for the Assessee

JUDGMENT

DR. B.P. SARAF, C.J.:

By this reference under s. 256(1) of the IT Act, 1961 (“the Act”), the Tribunal, Amritsar Bench, Amritsar (“the Tribunal”), has referred the following two questions of law to this Court for opinion at the instance of the Revenue

: “1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the leviability and the quantum of interest charged under ss. 139(8) and 217 of the IT Act can be challenged by the assessee in appeal filed under s. 246(1)(c) of the Act ?

2. Whether, on the fats and in the circumstances of the case, the Tribunal was right in holding in the manner it has done that weighted deduction was allowable on : (1) establishment expenditure; (2) rent, rates and taxes expenditure; (3) stationery and printing expenditure, postage, telegram, telephone and telex expenditure; (4) export sale promotion expenditure; and (5) commission ?”

2. This reference pertains to the asst. yr. 1978-79. The assessee is a registered firm engaged in the business of manufacture, purchase and sale of carpets. The assessee also exports carpets outside the country. The head office of the assessee is at Srinagar. It has also a branch at Delhi. By this reference the Tribunal has referred two questions of law to this Court for opinion. The controversy in the first question pertains to the right of appeal under s. 246(1)(c) of the Act against charge of interest under s. 139(8) and s. 217 of the Act. The Tribunal has held that the assessee can also challenge the leviability and quantum of interest charged under s. 139(8) and s. 217 of the Act. Aggrieved by the decision of the Tribunal, the Revenue applied for reference of question No. 1 to this Court for opinion which the Tribunal has done. The controversy in the second question pertains of the allowability of weighted deduction in respect of certain items of expenditure. The Tribunal has allowed weighted deduction to the assessee in respect of the following items of expenditure : (1) Establishment expenditure; (2) rent, rates and taxes expenditure; (3) stationery and printing expenditure, postage, telegram, telephone and telex expenditure; (4) export sale promotion expenditure; and (5) commission.

The grievance of the Revenue is that the Tribunal could not have allowed weighted deduction in respect of the above items of expenditure without specifying as to under which sub-clause of cl. (b) of s. (1) of s. 35B of the Act the expenditure in question would be covered and without having any relevant material to show that the expenditure under consideration did fall under any of any of those sub-clauses.

3. So far as the first question is concerned, the controversy raised therein now stands concluded by the ratio of the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 160 ITR 961 (SC). In that case, the question before the Supreme Court was whether orders levying interest under sub-s. (8) of s. 139 and under s. 215 are appealable under s. 246 of the IT Act, 1961. The Supreme Court held (p. 966) : “Clause (c) of s. 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment under sub-s. (3) of s. 143 or s. 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed. Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.” The ratio of the above decision would also apply to appeal against levy of interest under s. 217 of the Act.

4. We are supported in our above conclusion about the maintainability of appeal against levy of interest under s. 217 of the Act, by the decision of the Bombay High Court in Fort Properties Pvt. Ltd. vs. CIT (1994) 208 ITR 232 (Bom). In that case also, the controversy before the Court was whether he AAC was justified in entertaining the ground against the levy of interest under s. 217 of the Act. The contention of the assessee was that no advance tax being payable by the assessee on capital gains, the dispute regarding levy of interest under s. 217 for non-payment of the same was not a dispute in regard to the quantum of interest but a challenge to the levy of interest under s. 217 of the Act. The High Court held (p. 256) : “…….the decision of the Supreme Court in Central Provinces Managanese Ore Co. Ltd. vs. CIT (1986) 160 ITR 961 (SC) will apply and the appeal will be maintainable. It will be open to the assessee to dispute the levy of interest in appal subject to the limits laid down by the Supreme Court in the above decision.”

In view of the above we are of the opinion that levy of interest being a part of the process of assessment, it is open to the assessee to dispute the levy in an appeal under s. 246(1)(c) of the Act provided he limits himself to the ground that he is not liable to the levy at all. Question No. 1 is answered accordingly.

5. The controversy in the second question pertains to allowance of weighted deduction under s. 35B of the Act in respect of various items of expenditure. The grievance of the Revenue is that there is nothing in the order of the Tribunal to show under which sub-clauses of cl. (b) of s. 35B(1) of the Act, according to the Tribunal, the expenditure in respect of which weighted deduction has been allowed, is covered nor is there any material to show that the expenditure would fall under any of the sub-clauses of cl. (b) of s. 35B(1). Learned counsel for the Revenue submits that in such circumstances allowance of weighted deduction in respect of the various items of expenditure cannot be sustained.

6. We have given our careful consideration to the above submission of learned counsel for the Revenue and perused the provisions of s. 35B of the Act. It is clear from a plain reading of the above section that weighted deduction is permissible only if the expenditure is laid out wholly and exclusively for the purposes mentioned in cl. (b) of s. 35B(1). It is the assessee’s duty to prove facts, which will bring the case within any of the sub-clauses of cl. (b). In other words, the onus is on the assessee to prove that he is entitled to weighted deduction. Unless that is done, the assessee will not be entitled to get this deduction. This legal position has been well-settled now by the decisions of the Supreme Court in CIT vs. Stepwell Industries Ltd. (1997) 142 CTR (SC) 345 : (1997) 228 ITR 171 (SC) : TC S15.1492 and CIT vs. Hero Cycles (P) Ltd. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC) : TC 69R.351, S15.1494, S.19,2160.

7. In CIT vs. Stepwell Industries Ltd. (1997) 228 ITR 171 (SC), the controversy before the Supreme Court was whether the Tribunal was justified in allowing weighted deduction in respect of various items of expenditure. The Supreme Court interpreted s. 35B of the Act and held (at p. 175) : “In order to get this deduction, the assessee will not to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in cl. (b) of s. 35B(1). There cannot be any balnket 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 in 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 or 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.” The Supreme Court considered the facts of that case, in the light of the legal position set out above and observed (at p. 177) : “It appears that the Tribunal did not examine the claim of the assessee by reference to any of the sub-clauses of s. 35B(1)(b). No expenditure can be allowed under s. 35B generally. The assessee must be able to establish the facts to prove that the expenditure falls within the ambit of sub-cls. (i) to (ix) of cl. (b) of s. 35B(1). This has not been done….” In view of the above finding, the Supreme Court set aside the order of the High Court as also the Tribunal and remanded the case back to the Tribunal with the following direction (at p. 177) : “We are of the view that the appellate order of the Tribunal has to be set aside. We set aside the order of the High Court as also the appellate order of the Tribunal and remand the case back to the Tribunal. The assessee will have an opportunity of proving the nature of the expenditure and establishing that the expenditure falls within any one of the sub-clauses of s. 35B(1)(b). It has to be remembered that the onus is on the assessee to establish the facts to obtain the deduction claimed. The appeal is allowed with the above observations. There will be no order as to costs.”

8. The legal position in regard to the allowability of weighted deduction under s. 35B of the Act has been reiterated by the Supreme Court in CIT vs. Hero Cycles Pvt. Ltd. (1997) 228 ITR 463 (SC) in the following words (at p. 468) : “The deduction is permissible if the expenditure is laid out wholly and exclusively for the purposes mentioned in cl. (b) of s. 35B(1). It is for the assessee to prove that the entire expenditure involved was exclusively for the purposes mentioned in cl. (b) of s. 35B(1). The Tribunal has also to give a finding as to the entitlement of the assessee with reference to the assessee with reference to the particulars of cl. (b) of s. 35B(1). The Tribunal has also to give a finding as to the entitlement of the assessee with reference to the particulars of cl. (b) of s. 35B(1). The facts have to be found out and the law has to be applied to those facts.”

On a perusal of the facts of the case before it, the Supreme Court observed that the Tribunal was unmindful of the various sub-clauses of s. 35B(1)(b) and had allowed the deduction without verifying or examining the sub-clauses under which the deduction claimed by the assessee could be allowed. The Supreme Court, therefore, set aside the order of the Tribunal and set the matter back to the Tribunal to dispose of the same after examining the facts afresh.

9. We have examined the order of the Tribunal in the light of the law laid down by the Supreme Court. We find that the Tribunal has allowed the deduction without verifying or examining the sub-clauses under which it could be allowed. There is no material on record to show that any of the expenditure in respect of which weighted deduction has been allowed fall under any sub-clauses of cl. (b) of s. 35B(1) of the Act. In that view of the matter we set aside the order of the Tribunal and remand the matter back to the Tribunal for re-examination of the case in the light of the law laid down above.

For the foregoing reasons question No. 2 is answered in the negative, i.e., in favour of the Revenue and against the assessee.

This reference is disposed of accordingly with no order as to costs.

[Citation : 247 ITR 777]

Scroll to Top
Malcare WordPress Security