allowed export market development allowance under r. 6AA for the asst.
yr. 1981-82.
Inspecting Assistant Commissioner's order allowing expenses to assessee on account of maintenance of agency and warehouses outside India was erroneous and prejudicial to the interests of revenue as rule 6AA was introduced w.e.f. 1-8-1981.
Rule 6AA was inserted by the Income Tax (8th Amendment) Rules, 1981 with effect from 1-8-1981.The assessment year involved is 1981-82. The assessee's accounting year ended on 30-6-1980. It cannot therefore be said that the above rule 6AA would be applicable to the assessment year 1981-82 as being the case here. In that view of the matter, the Commissioner cannot be said to have acted without any jurisdiction or authority in coming to the conclusion that order of assessment was erroneous and prejudicial to the interests of revenue. It may be mentioned that after introduction of rule 6AA with effect from 1-4-1981, certain assessees may be entitled to such relief in respect of warehousing expenses incurred outside India. In other words, the above rule would not effect the assessment year 1981-82. Thus, the order of the Commissioner under section 263 was quite justified and valid and has to be sustained.
Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Export market development allowance allowed on maintenance of agency and warehouses outside India.
Inspecting Assistant Commissioner's order allowing expenses by assessee on account of maintenance of agency and warehouses outside India, was erroneous and prejudicial to the interest of revenue.
Rule 6AA was inserted by the Income Tax (8th Amendment) Rules, 1981, with effect from 1-8-1981. The assessment year involved is 1981-82. The assessee's accounting year ended on 30-6-1980. It cannot, therefore, be said that the above rule 6AA would be applicable to the assessment year 1981-82 as being the case here. In that view of the matter, the Commissioner cannot be said to have acted without any jurisdiction or authority in coming to the conclusion that order of assessment was erroneous and prejudicial to the interests of revenue.
1. The appeal by the assessee is directed against the order of the Commissioner of Income-tax under Section 263 for the year under consideration. To begin with, the facts of the case are as follows: 2. The Commissioner of Income-tax in his order mentioned that it was seen that deduction under Section 35B was allowed by the IAC (Assessment) wrongly in respect of the expenses incurred on warehousing maintenance outside India. He noted that in view of the Notification of the Government, deduction under Section 35B under such 'head' would be allowable from 1-8-1981 as prescribed by Rule 6AA. He considered that the assessment order was erroneous and was prejudicial to the interests of revenue. He initiated proceedings and issued notice to the assessee.
The counsel of the assessee appeared and submitted a written submission and urged that the provision regarding deduction of such expenses w.e.f. 1-8-1981 was only of clariflcatory nature. It was submitted that the above rule should be applied in all pending assessments and in view of that matter, the order of assessment was not erroneous.
3. The Commissioner of Income-tax considered the submissions and the facts of the case and set aside the assessment to be framed afresh, in accordance with law read with the relevant rule because the IAC (Assessment) has failed to bring on record all relevant materials nor has the IAO (Assessment) made proper enquiry in this regard. He directed the IAC (Assessment) to give the assessee reasonable opportunity of being heard. Hence, this appeal before us.
4. We have heard both the sides at length and we have gone through the orders of the authorities below for our consideration. At the outset, it may be mentioned that a similar situation has cropped up in an appeal before us in the case of Assam Co. (India) Ltd. [IT Appeal No.218 (Gauhati) of 1986] for the assessment year 1981-82, in which a similar order was passed by the Commissioner of Income-tax. In that earlier case, one substantial issue was also involved regarding merger of the assessment order with the order of the Commissioner of Income-tax (Appeals), at that time when the Commissioner of Income-tax passed the impugned order under Section 263. On the facts and on the reasons recorded by the Appellate Tribunal in that case, the Appellate Tribunal noted that there was no discussion by the Assessing Officer in respect of the expenditure in foreign currency relating to export sales vis-a-vis warehousing charges. As far as merger of assessment order is concerned, the Tribunal considered the decision of the Tribunal Special Bench in the case of Dwarkadas & Co. (P.) Ltd. v. ITO [1982] 1 SOT 495 (Bom.). But the Bench sitting at Gauhati, felt bound by the decision of the Hon'ble Gauhati High Court in the case of CIT v. Buildwell Assam (P.) Ltd. [1982] 133 ITR 736 and came to the conclusion that there was no merger of the point not dealt with by the ITO, with the appellate order dealing with other issues. The Commissioner of Income-tax in that earlier case had not given a final finding or the admissibility of the assessee's claim, but simply restored the matter to the file of the Assessing Officer for making proper enquiries and to dispose of the matter afresh in accordance with law.
5. In the appeal before us by the present assessee, there are other issues as well as discussed in the succeeding paragraphs. The first point of contention of the assessee's learned counsel is that the order of the Commissioner of Income-tax under Section 263 was bad in law and should be quashed. It is argued very forcefully by the assessee's learned counsel that the Commissioner of Income-tax had no jurisdiction at all to infer that the assessment order was erroneous and prejudicial to the interests of the revenue whereas the Assessing Officer has examined the various aspects of the matter along with other claims before allowing the above claim of the assessee, in the computation of the income as well as the calculation of the relief allowable under Section 35B. It is urged that the very fact that the Assessing Officer took into account the Board's Circular dated 1-8-1981 by itself indicated that the Assessing Officer had not only applied his mind but had also considered the relevant facts of the case and after making proper enquiry. It is urged, therefore, that it was wrong for the Commissioner of Income-tax to say that the Assessing Officer has not made enquiry nor bring correct facts on record. It may be mentioned here that the Assessing Officer has noted in the order, amongst other things, that the assessee claimed export development allowance under Section 35B at Rs. 1,42,49,717 @ 1/3rd thereof in respect of the expenditure outside India on account of maintenance of agency and warehouses. He mentioned that it was submitted by the assessee's representative that the expenditure pertaining to maintenance of agency outside India was allowable in terms of Clause (iv) of Section 35B(1)(6). He also mentioned that in respect of warehouse maintenance charges incurred outside India, it was submitted before the Assessing Officer that the same was admissible under Clause (ix) in view of the Notification dated 1-8-1981 issued by the Central Board of Direct Taxes. Thus, it could be seen that this was the main plank for the Commissioner of Income-tax to take the above action. The assessee's contention is that the Assessing Officer had applied his mind and examined the facts of the case before allowing the claim as available for the year under consideration. It is also submitted by the assessee's learned counsel that the Commissioner of Income-tax has not given a finding that the order of assessment was erroneous and prejudicial to the interests of revenue as he had only set aside the order of the Assessing Officer and leaving the matter entirely to him, without giving any finding on fact or law. This is the other aspect of the matter urged strongly by the assessee's learned counsel before us.
In fact, it is the assessee's appeal that the order of the Commissioner of Income-tax has been passed in a mechanical manner and cannot be sustained. It is submitted that the Assessing Officer had interpreted the provisions reasonably and the Commissioner of Income-tax cannot substitute his own opinion in respect of the applicability of the relevant provisions to the assessment year without any conclusive foundation of law. It is also submitted vehemently by the assessee's learned counsel that the Commissioner of Income-tax has not stated in what manner the Assessing Officer has gone wrong in coming to the conclusion that Rule 6AA was applicable, whereas the Commissioner of Income-tax himself has not come to any firm conclusion that the allowance given by the Assessing Officer was prejudicial to the interests of revenue.
6. The assessee's" learned counsel goes on to submit that the order of the Commissioner of Income-tax in such a situation cannot be sustained.
It is urged that the Commissioner of Income-tax in this case has simply set aside the order of assessment without himself examining whether the claim for relief under Section 35B by the assessee in respect of warehousing charges outside India was allowable. It is urged that the Commissioner of Income-tax should give reasons in support of his conclusion that the assessment order was erroneous and prejudicial to the interests of revenue and in the instant case, the Commissioner of Income-tax has failed to do so and, therefore, the order under Section 263 was vitiated. In this connection, the assessee's learned counsel refers to the decision of the Hon'ble Allahabad High Court in the case of CIT v. Kashi Nath & Co. [1988] 170 ITR 28 in order to support the contentions made on behalf of the assessee and urges that the order of the Commissioner of Income-tax in the present case should be quashed on the basis of the above failure of the Commissioner of Income-tax.
7. The other contentions are also that Rule 6AA was made effective from 1-8-1981 as per the Notification dated 1-8-1981. It is submitted that it has been categorically stated that the rule shall come into force on the date of their publication in the Official Gazette. It is submitted that in such a situation the above rule would be applicable and has to be applied to assessment of a year pending as on 1-8-1981, which is the only possible view of the law in that respect. In support of his contentions, the assessee's learned counsel draws our attention to the decision of the Appellate Tribunal, Madras Bench 'C in the case of Rayalaseema Passenger & Goods Transports (P.) Ltd. v. IAC [1984] 7 ITD 111. In that Madras case, the assessee was allowed depreciation for the assessment year 1980-81 @ 30 per cent on motor vehicles. The assessee applied for rectification so as to allow enhanced depreciation of 40 per cent which was the rate laid down in the Income-tax (Fifth Amendment) Rules, 1980, which was brought into effect from 24-7-1980.
The department rejected the claim of the assessee on the ground that enhanced rate is applicable only from 1981-82 onwards. It was also pleaded that at any rate, the issue was debatable. The Appellate Tribunal, Madras Bench held that the principle that the law as on 1-4-1980 alone is applicable in the assessment year 1980-81 is not absolute but subject to clarification. It pointed out that where any provision expressly states the date from which it is effective, it must be given effect to accordingly and would apply to all assessments which were completed after the date. It was also observed that avowed intention of the amendment could not be a matter of debate since the Board being the rule-making authority, had made the expressed provision about the date. The Appellate Tribunal on reasonings in the said case has come to the conclusion that the fact that the Board expressly provided that the amendment would take effect from 24-7-1980 showed that they wanted to apply it to all assessments pending on 24-7-1980.
The claim of that assessee was allowed. It is, therefore, submitted by the assessee's learned counsel in the present case before us that in view of the analogy of the Madras case above, it cannot be said that the order of assessment made by the Assessing Officer on 26-3-1984, i.e., after 1-4-1981, was erroneous or prejudicial to the interests of revenue as the action of the Assessing Officer was quite justified keeping in view the intention of the amendment. It is urged, therefore, that having regard to the entirety of the facts and circumstances of the case, the order of the Commissioner of Income-tax having no legs to stand, may be cancelled.
8. The learned Departmental Representative, on the other hand, resists the submissions made on behalf of the assessee. He supports the order of the Commissioner of Income-tax. It is submitted that it is wrong to say that the Commissioner of Income-tax has not given a finding that the order of assessment was erroneous and prejudicial to the interests of revenue, in view of the fact that the Commissioner of Income-tax himself at the first paragraph has given a finding that the order of assessment was erroneous as the IAC (Assessment) allowed the expenses on the basis of the Notification which takes effect from 1-8-1981 only and that assessment order was prejudicial to the interests of revenue.
It is submitted, therefore, that the contention of the assessee on this point cannot be accepted. It is also urged that for the purpose of Section 35B, it is not the date of assessment which has a material bearing as sought to be made out by the assessee's learned counsel before us. It is submitted that the facts of the Madras case related to the assessee's claim for higher rate of depreciation, whereas the facts of the present case were distinguishable, and was in a different context. It is also urged that on the other hand, Section 35B provides relief to be given in respect of expenditure incurred by the assessee outside India. It is contended that it is the expenditure which has to be taken as the base for working out relief under Section 35B and in such a situation when Rule 6AA was brought into effect from 1-8-1981, the said rule cannot be applied to the assessment year 1981-82 in the case of the assessee where the previous year ended on 30-6-1980 and expenditure have already been incurred. It is repeatedly urged that for matter of relief under Section 35B, it is the expenditure which has to be taken as a base and not the date of assessment. Briefly speaking, it is urged that the order of the Commissioner of Income-tax being proper and valid, may be maintained.
9. We have gone through the orders of the authorities below for our consideration along with the rival submissions made by both the sides.
It is seen that the Commissioner of Income-tax has given his opinion that the Assessing Officer has wrongly allowed expenses on warehousing maintenance outside India for the year under consideration. To support that conclusion, the Commissioner of Income-tax referred to the Notification dated 1-8-1981 under which Rule 6AA was given effect to.
We agree with the submissions made on behalf of the revenue that the Commissioner of Income-tax has given his finding rightly that the assessment order was erroneous and prejudicial to the interests of revenue. Thus, after considering the relevant facts available on record and as submitted by both the sides, we come to the conclusion that the order of the Commissioner of Income-tax under Section 263 cannot be said to be vitiated as the Commissioner of Income-tax in the instant case has given the reason to come to the above conclusion. Thus, the ratio of the decision in the case of Kashi Nath & Co. (supra) would not be applicable.
10. Depreciation is allowable on assets which were used during the year, even if it is used for a single day, depreciation would be admissible under the relevant provisions. When the enhanced rate was raised to 40 per cent w.e.f. 24-7-1980, the claim of the Madras assessee has been rightly sustained by the Tribunal. But that decision has got no bearing with the case before us, except possibly to the extent that such amendment which is being given effect from a particular date should be made applicable to all assessments as pending for that particular date. Unless, there is expressed provision in the Act or in the rules, we are not free to take the view as urged by the assessee's learned counsel before us. As far as the enhanced rate of depreciation is concerned, the CBDT have given a Circular which has to be given effect at once as noted by the Appellate Tribunal, Madras Bench. That circular could be treated as a benevolent circular which resulted in benefits of the assessee. Such circular would be binding on the Assessing Officer and other Income-tax authorities although it might be against the provisions of the Act.
11. But in the instant case before us, the date on which Rule 6AA has been brought into statute has effected by the amendment itself which may or may not be beneficial to a particular assessee. That apart, if we read the wordings and provisions of Section 35B, it would be seen clearly that the rebate which can be allowed to the assessee should be only on the basis of the expenditure incurred for those specified purposes, during the year under consideration. It has been specifically provided that export markets development allowance would be allowed in respect of expenditure incurred during the previous year to the extent of one-third time of the amount incurred. Thus, in our view, there is no escape but only to come to the conclusion that the rebate under Section 35B would have to be allowed on the basis of the expenditure incurred. In that view of the matter, the date of completion of the assessment would not at all be relevant. The Assessing Officer may have genuinely formed the opinion that the relief was admissible to the assessee in respect of warehousing charges outside India under Section 35B in view of the Notification dated 1-8-1981 since he was to complete the assessment after the date, i.e., sometime 1984 for the assessment year 1981-82, in the absence of clear provision which could have been made by the Departmental Circular or by the authority framing the rules as to which assessment year such rule or amendment would be applicable.
But in view of what we have discussed above rebate authorised by Section 35B has to be co-related or computed on the basis of the expenditure incurred during the previous year and not otherwise. Thus, the view that the rebate has to be allowed on the basis that the assessment was made after 1-8-1981 cannot be supported. The provisions of Section 35B under which the assessee would be entitled to rebate are substantive provision of law. It is not noticed anywhere that the above rule would have to be given a retrospective effect, in the absence of which we cannot import things which are not there, otherwise we would not interpret the law but we would amend the law, which we cannot do.
12. In this connection, it is useful to refer to the decision of the Hon'ble Supreme Court of India in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, in which on the facts of that case and particularly at page 613 (middle), it has been observed that in terms the proviso though it came into force on 5-5-1946, was really intended to operate from April 1, 1946, as contended by the revenue in that case. It was held that the proviso which came into force after April 1, 1946 was not retrospective, It was also observed that Court cannot import into its construction points which are ad extra legis and thereby alter its true fact. The facts of the present case before us are similar.
13. It would be useful again to refer the decision of the Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 in which on the facts of that case, it was held that it is well settled that Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year and that as amendment which came into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. The facts of that case were similar to the present one before us. In that decided case Surcharge on Taxes Act, 1957, was brought into force from 1-9-1957 by the Kerala Government which was found not being retrospective in operations by express, intendment or necessary implication, cannot be made applicable from April 1, 1957. Sub-section (3) of Section 1 of Kerala Act provided that such amendment shall come into force on such date as the Government may, by Notification in the Gazette, appoint. Similarly, in the instant case before us, the provision of Section 35B(1)(b)(ix) provides relief under Section 35B in respect of such other activities for promotion of the sale outside India of such goods, services or facilities as may be prescribed. Rule 6AA prescribes what were such other activities which would have to be considered for allowing export markets development allowance under Section 35B. But this Rule 6AA was inserted by the Income-tax (8th Amendment) Rules, 1981, w.e.f.
1-8-1981, as mentioned earlier. The assessment year involved before us is 1981-82. As indicated earlier, the assessee's accounting year ended on 30-6-1980.
14. In view of the background noted above and keeping the ratio enunciated by the Hon'ble Supreme Court in the decisions mentioned earlier, it cannot be said that the above Rule 6AA would be applicable to the assessment year 1981-82 as being the case before us. In that view of the matter, the Commissioner of Income-tax cannot be said to have acted without any jurisdiction or authority in coming to the conclusion that order of assessment was erroneous and prejudicial to the interests of revenue. It may be mentioned that after introduction of Rule 6AA w.e.f. 1-4-1981 certain assessees may be entitled to such relief in respect of warehousing expenses incurred outside India. In other words, the above rule would not effect the assessment year 1981-82. Thus, in our opinion, the order of the Commissioner of Income-tax under Section 263 was quite Justified and valid and has to be sustained. We have considered the background of the case and the facts available vis-a-vis the submissions made on behalf of the assessee that the Commissioner of Income-tax had not formed his opinion nor given his finding as to what the Assessing Officer should do and what was the correct law. In our opinion, this contention is empty as the Commissioner of Income-tax had already given his opinion although he had not mentioned in so many words as to what relief had been wrongly allowed by the Assessing Officer. In fact, it was not necessary for the Commissioner of Income-tax to make enquiry before revising the order which he considered to be erroneous. For this proposition, we may refer to the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375.
15. After considering the directions and the conclusion of the Commissioner of Income-tax given in the impugned order, we are of the opinion that the direction given by the Commissioner of Income-tax to the assessing authority was quite proper. In fact, he has directed the assessing authority to bring on record relevant materials and to make proper enquiry and also to give the assessee opportunity to explain the case. In other words, the conclusion of the Commissioner of Income-tax would not prejudice the case of the assessee who has to be given reasonable opportunity to explain the case before the assessing authority.
16. Having regard to the entirety of the facts and circumstances of the case and the reasonings adopted by us, we find that the order of the Commissioner of Income-tax under Section 263 impugned before us requires to be sustained, which we hereby do.