G. Sivarajan, J.
1. The matter arises under the Income-tax Act, 1961. The assessment year concerned is 1979-80. At the instance of the Revenue, the following question of law is referred to this court for decision :
'Whether, on the facts and in the circumstances of the case, is the Tribunal justified in cancelling the order passed by the Income-tax Officer under Section 154 of the Income-tax Act ?'
2. The assessee is a company engaged in the business of export of tea and spices. It does not own any estate. For the purpose of export of tea and spices, the assessee purchased the same from various sources. For the assessment year 1979-80, the assessee, inter alia, claimed weighted deduction under Section 35B in respect of certain items of expenditure. The total of these expenses came to Rs. 22,67,542.34 and the weighted deduction came to Rs. 7,55,847. The assessing authority completed the assessment for the said year under Section 143(3) of the Act by its order dated February 26, 1980. In the assessment, the assessing authority allowed deduction under Section 35B in respect of certain items, the details of which are furnished herein below :
Itemof expenses
Amount(Rs.)
Clauseunder which exemption is claimed under section 35B(l)(b)
1. Exportcommission
1.94,441
(viii)
2. ECGCpremia
25,510
(ii)&(viii)
3. Postage onsamples
13,831
(vi)
4. Foreigncable charges
11,433
(ii),(v) and (vi)
5. Trunk callcharges (Overseas)
5,618
do..
6. Telexcharges
4,032
do..
7. Foreigntour expenses
58,291
(vii)
8. Salary tomanager and head clerk
47,523
(v)and (vi)
3. The deductions claimed with respect to certain other items were disallowed. Later, the assessing authority issued a notice under Section 154 of the Act stating that a sum of Rs. 1,20,160 has been granted by way of weighted deduction under Section 35B of the Act due to non-application of the provisions of Sub-section (1A) of Section 35B of the Act. The asses-see objected to the same ; but the assessing authority by proceedings dated August 19, 1982, rectified the assessment order dated February 26, 1980, as modified by order dated September 8, 1981, whereby the weighted deduction of Rs. 1,20,160 granted in the original order was withdrawn. The assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals), Ernakulam, who by his order dated March 14, 1984, confirmed the order passed by the assessing authority and dismissed the appeal. On further appeal, the Income-tax Appellate Tribunal cancelled the order under Section 154 passed by the assessing authority and allowed the appeal filed by the assessee. The reference application filed by the Department was originally dismissed and pursuant to the judgment dated August 2, 1984, passed by this court in Original Petition No. 4687 of 1991, the Income-tax Appellate Tribunal referred the question set out in paragraph 1 supra (page 702) for decision by this court.
4. Learned senior Central Government standing counsel appearing for the Revenue contended that while passing the assessment order datedFebruary 26, 1980, granting deduction under Section 35B of the Act, the assessing authority omitted to consider the provisions of Section 35B(l)(b) of the Act. Learned senior standing counsel submitted that this Sub-section (1A) was inserted by the Finance Act, 1978, with effect from April 1, 1978, but the same was not noticed by the assessing authority while making the original assessment. Learned senior standing counsel further submitted that the assessee was not a small scale trader nor a holder of an export house certificate and the assessee was only engaged in the purchase and export of tea and spices which did not involve any manufacture at all. Learned senior counsel further submitted that in order to qualify for exemption under Section 35B of the Act, in view of the provisions of Sub-section (1A) inserted with effect from April 1, 1978, the assessee must either be a small scale exporter or a holder of an export house certificate. Since the assessee did not satisfy either of the two conditions the assessee was not entitled to claim weighted deduction under Section 35B of the Act. Learned senior standing counsel accordingly submitted that weighted deduction has been granted to the assessee only because the assessing authority omitted to notice the provisions of Sub-section (1A) introduced with effect from April 1, 1978. If the assessing authority had in mind the provisions of Sub-section (1A) of the Act, he would not have granted any weighted deduction. Learned senior standing counsel further submitted that the very approach made by the Appellate Tribunal is faulty as according to him, the Tribunal thought that this is a case of reassessment under Section 147 of the Act. Learned senior standing counsel took us through the Tribunal's order particularly paragraph 6 of the said order which reads as follows :
'We find that there was full application of mind by the Income-tax Officer when he made the assessment on February 26, 1980, and there is no evidence to show that he was not aware of the provisions of Sub-section (1A) of Section 35B as being on the statute book. We have abstracted supra the manner and method in which the Income-tax Officer proceeded to consider the claim of the assessee under Section 35B of the Act at the time of original assessment to show that the Income-tax Officer fully applied his mind and then only allowed weighted deduction under Section 35B to a limited extent after considering the entire expenditure. The fact that the assessee is doing business in tea and spices is also recorded by the Income-tax Officer in his original assessment order. There was nothing new that the Income-tax Officer came to know of either any law or fact that could bring to his notice a mistake apparent from record in the original order made by him on February 26, 1980, as made out in the order under Section 154 made by the Income-tax Officer on August 19, 1982.'
5. He submitted that the Tribunal was of the view that unless the Income-tax Officer came to know either of any law or fact subsequently it cannot be said that there is a mistake apparent on record in the original order. Learned senior standing counsel also submitted that the decision of the Supreme Court in T.S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) has no application to the facts of the case.
6. Learned counsel appearing for the assessee submitted before us that the assessing authority had allowed the claim under Section 35B in regard to items Nos. 1 to 8 mentioned in the original assessment order only after due consideration of the facts and the provisions of Section 35B of the Act. He specifically referred to the discussion of the claim in paragraph 3 of the assessment order dated February 26, 1980, and the observation made by the assessing authority which reads : 'Of the above, items Nos. 1 to 8 pose no difficulty ; they qualify for weighted deduction.' Learned counsel submitted that the above will clearly show that the assessing authority had in mind the relevant provisions of Section 35B including Sub-section (1A) thereof which came into force with effect from April 1, 1978, and it is only after considering the matter that the claim regarding weighted deduction in respect of items Nos. 1 to 8 referred to in paragraph 3 was allowed. Learned counsel also submitted that in order to apply the provisions of Sub-section (1A) of Section 35B it is necessary for the assessing authority to find further facts by conducting an investigation without which it will not be possible for him to conclude that the assessee is not entitled to weighted deduction. According to learned counsel, this is beyond the scope of the provisions of Section 154 of the Act. Learned counsel in support of his contentions relied on the decision of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) and also the decision of this court in N. Rajamoni Amma v. Deputy CIT : [1991]192ITR90(Ker) .
7. We have considered the matter. The admitted facts in this case are that the assessee is an exporter of tea and spices, that it does not own any estate and that in order to meet the export requirements, the assessee purchased tea and spices from various sources. It is also an admitted fact that the assessee was not a holder of an export house certificate. The assessee contended that it is a small scale industrial unit registered with the Directorate of Industries and, therefore, it can be considered as a small scale exporter. However, the fact that at the relevant time the assessee was not a small scale industrial unit was not disputed.
8. Section 35B(l)(b) provides that where an assessee, being a domestic company or a person, who is resident in India, has incurred after February 29, 1968, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), heshall, subject to the provisions of this Section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year. Clause (b) of Sub-section (1) of Section 35B provides that the expenditure referred to in Clause (a) is that wholly and exclusively incurred on the items mentioned as Sub-clauses (i) to (ix). Sub-Section (1A) inserted by the Finance Act, 1978, with effect from April 1, 1978, reads as follows :
'(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 of technical know-how, to persons outside India ; and
(b) the expenditure referred to in that Sub-section is incurred by the assessee wholly and exclusively for the purposes of the business referred to in Sub-clause (i) or, as the case may be, Sub-clause (ii) of Clause (a).
Explanation.--For the purposes of this Sub-section,--
(a) 'small-scale exporter' means a person who exports goods manufactured or produced in any small-scale industrial undertaking or undertakings owned by him :
Provided that such person does not own any industrial undertaking which is not a small-scale industrial undertaking ;
(b) 'Export House Certificate' means a valid Export House Certificate issued by the Chief Controller of Imports and Exports, Government of India ;
(c) 'provision of technical know-how' has the meaning assigned to it in Sub-section (2) of Section 80MM ;
(d) 'small-scale industrial undertaking' has the meaning assigned to it in Clause (2) of the Explanation below Sub-section (2) of Section 32A.'
9. From a reading of the aforesaid Sub-section it is clear that no deduction under Sub-section (1) shall be allowed in relation to any expenditure incurred after March 31, 1978, unless the assessee 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 theprovision of technical know-how and the expenditure is incurred by the assessee wholly and exclusively for the purposes of the business referred to in Sub-clause (i), or Sub-clause (ii) of Clause (a). The Explanation provides that 'a small-scale exporter' means a person who exports goods manufactured or produced in any small-scale industrial undertaking or undertakings owned by him. It also provides that such person does not own any industrial undertaking which is not a small-scale undertaking. Clause (b) of the Explanation also provides that export house certificate means a valid Export House Certificate issued by the Chief Controller of Imports and Exports, Government of India.
10. As already stated, the assessee-company is only engaged in the export of goods purchased by it from various sources. It does not manufacture any goods for export. It does not own any manufacturing units either. As such the assessee-company does not fall under the category of 'small-scale exporter'. It also, does not hold any export house certificate. The fact that the assessee-company had subsequently obtained registration as a small-scale industrial unit is of no consequence. Even assuming, that by itself is not sufficient to qualify itself as a small-scale exporter. Admittedly, no manufacturing activity is conducted by the assessee-company. Though the claim for deduction under Section 35B allowed by the assessing authority in the original assessment satisfied the requirements of Sub-section (1) thereof, the assessee-company did not satisfy the requirement of Sub-section (1A) of Section 35B introduced by the Finance Act, 1978. Hence, the assessee-company was not entitled to the deduction provided under Section 35B of the Act. It is clear from the above that, if the assessing authority had in mind the provisions of Sub-section (1A) of Section 35B introduced by the Finance Act, 1978, at the time of completing the original assessment, he would not and could not have granted the deduction under Section 35B. It is, therefore, clear that the grant of relief under Section 35B in the instant case in the original assessment is patently illegal.
11. Now, the only question to be considered is as to whether the assessing authority acted with jurisdiction and was justified in invoking the provisions of Section 154 of the Act for correcting the aforesaid mistake committed by him. Section 154 of the Income-tax Act enables the assessing authority to amend any order passed by it under the provisions of the Act with a view to rectify any mistake apparent from the record. The scope and ambit of the expression 'mistake apparent from the record' has come up for consideration before the Supreme Court of India and before various other High Courts in a large number of cases. One of the earliest decisions of the Supreme Court is M.K. Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) . That was a case where the Income-tax Officer assessed the respondent company to tax forthe assessment year 1952-53 by his assessment order made on October 9, 1952, in which he gave credit for Rs. 50,063 being interest at 2 per cent, on tax paid in advance under Section 18A(5) of the Indian Income-tax Act, 1922. Section 13 of the Indian Income-tax (Amendment) Act, 1953, which was passed subsequently, inserted a proviso to Section 18A(5) to the effect that an assessee was entitled to interest not on the whole of the tax paid in advance but only on the difference between the tax so paid and the amount of tax determined on regular assessment. This amending Section was deemed to have come into force on April 1, 1952. Under Section 18A(5) as amended the respondent was only entitled to a sum of Rs. 21,157 as interest. The Income-tax Officer, thereafter, exercised his power under Section 35 of the 1922 Act and rectified the mistake in the order of assessment and demanded payment of the sum of Rs. 29,446. On the application of the respondent, the High Court issued a writ of prohibition against the respondent on the ground that there was no mistake apparent from the 1 record as the order of assessment was valid judged in the light of the law as it stood on the date of the order. On appeal, the Supreme Court held that the effect of the provisions of Section 13 of the Amendment Act was that the amendment to Section 18A must be deemed to have been included in the principal Act as from April 1, 1952, for all purposes, and, therefore, the proviso must be deemed to be part of Section ISA on the date of the passing of the, assessment order ; consequently, the assessment order w's inconsistent with the proviso to Section 18A and must be deemed to suffer from a mistake apparent from the record and the Income-tax Officer was therefore, justified in exercising his power under Section 35 and rectifying the mistake. In that context, the Supreme Court observed as follows (page 149) :
'At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake, there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent for Rs. 50,603.15 is plainly and obviously inconsistent with a specific and clear provision of the statute and that must inevitably be treated as a mistake of law apparent from the record. If a mistake of fact apparent from the record of the assessment order can be rectified under Section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie, it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of Section18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. That is why we think that the Income-tax Officer was justified in the present case in exercising his power under Section 35 and rectifying the said mistakes.'
12. Again, the scope of the expression was considered by the Supreme Court in Maharana Mills (Pvt.) Ltd. v. ITO : [1959]36ITR350(SC) , with reference to the provisions of Section 35 of the Indian Income-tax Act, 1922, and the Supreme Court observed that (headnote) : 'The power under Section 35 of the Income-tax Act is no doubt limited to the rectification of mistakes which are apparent from the record. Mistake contemplated by the Section is not one which is to be discovered as a result of an argument but it is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error provided that if the result is enhancement of assessment or reducing the refund then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard.' Again the Supreme Court in ITO v. Asok Textiles Ltd. : [1961]41ITR732(SC) , considered the. meaning of the expression 'mistake apparent from the record'. After adverting to the earlier decisions of the Supreme Court in M. K. Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) and Maharana Mills (Pvt.) Ltd. v. ITO : [1959]36ITR350(SC) , the Supreme Court observed as follows (page 736) : 'This court has held that the discovery of an error on the basis of assessment due to an initial mistake in determining the written down value is a mistake from the record and so is a misapplication of the law even though the law came into operation retrospectively. The Income-tax Officer can, under Section 35 of the Act, examine the record and if he discovers that he has made a mistake, he can rectify the error and the error which can be corrected may be an error of fact or of law.' Again, the Supreme Court considered the scope of the expression 'mistake apparent from the record' occurring in Section 154 of the Income-tax Act, 1961, in the often quoted decision in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) , and observed that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. It was also observed that it was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Act.
13. This court had occasion to consider the scope of the said expression 'occurring' in Section 154 of the Act in CIT v. Quilon Marine Produce Company : [1986]157ITR448(Ker) ^ That was a case where the Income-taxOfficer while making the original assessment, had disallowed the benefit of Section 35B claimed by the assessee in respect of an amount of Rs. 3,21,965. In appeal, the Appellate Assistant Commissioner allowed the benefit. Subsequently, on the basis of an audit note that a portion of the above said amount which was taken into account by the Appellate Assistant Commissioner for allowing the benefit was only trade discount and hence would not-qualify for 'weighted deduction' within the meaning of Section 35B of the Income-tax Act, the Income-tax Officer filed a petition under Section 154 of the Act before the Appellate Assistant Commissioner seeking rectification of his order, who dismissed the same.
14. This court in that context referred to the provisions of Section 35B and observed that trade discount was not an expenditure within the meaning of Section 35B. Non-consideration of the provision was a glaring, obvious and self-evident mistake apparent from the record and the Appellate Assistant Commissioner had ample jurisdiction to amend his order. The Appellate Assistant Commissioner, however, refused to exercise his jurisdiction wrongly and, therefore, it was held that he should have amended his order and rectified the mistake. For taking the said view, this court relied on the decision of the Supreme Court in M, K. Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) . From the aforesaid decisions of the Supreme Court and this court it is clear that overlooking a mandatory provision of law which allows no discretion in the taxing authorities is a mistake apparent from the record. It is also a settled position that a decision on a debatable point of law or where the law confers on the taxing authorities a discretion such decision cannot be corrected under Section 154 of the Act.
15. In the instant case, we have already found that for the assessment year 1979-80 an assessee who claims relief under Section 35B of the Act in order to qualify for such relief must satisfy the mandatory requirements contained in Sub-section (1A) of Section 35B. Admittedly, the assessee did not satisfy the said requirements. The assessing authority while completing the original assessment has overlooked the mandatory requirements contained in Sub-section (1A) of Section 35B. This is a patent mistake. No discussion or debate was necessary for arriving at the above conclusion. A mere perusal of the return and the profit and loss account accompanying the said return would be sufficient to arrive at the conclusion that the assessee did not satisfy the requirements of Subsection (1A) of Section 35B. This mistake is a mistake apparent from the record and attracts the provisions of Section 154 of the Act.
16. The decision of this court in Rajamoni Amma v. Deputy CIT : [1991]192ITR90(Ker) is of no assistance to the assessee. In that case this court after adverting to the relevant portion of Section 154 of the Act and also the decision of the Supreme Court considered the matter thus (page 93) :
'The Commissioner of Income-tax is one of the authorities mentioned in Section 116 and therefore he, under Section 154, has the power to rectify any obvious mistake {whether it be a mistake of law or mistake of fact) and amend any order passed by him provided it is established that the mistake is one apparent from the record, (see M. K. Venkatachalam, ITO v. Bombay Dyeing and Mfg, Co. Ltd. : [1958]34ITR143(SC) ). The power thus conferred is confined to rectifying mistakes in the order passed by the Commissioner himself. To say that a mistake is apparent from the record, the same must, therefore, be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. Thus, a decision on a debatable point of law cannot be said to be a mistake apparent from the record, (see Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, : [1960]1SCR890 and T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 60 ). Viewed from another angle the principle can be stated thus : The mistake must be something which appears to be so ex facie and is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification. Alongside we have to keep in view what the word 'record' means and implies in the context. From the plain and unambiguous language employed in the Section, it is clear that the record contemplated thereunder only means the record of the particular proceeding dealt with by a particular income-tax authority. For instance, if the Commissioner in exercise of his revisional jurisdiction considers the validity of an order of assessment, then undoubtedly he has the power to look into the entire record pertaining to the assessment while dealing with a petition for rectification of an order revising the order of assessment under Section 154. These are some of the well-established principles that should be borne in mind while considering a petition under Section 154.'
17. The principles discussed above clearly support the view taken by us. Absolutely no further investigation was required to be made by the assessing authority for applying the provisions of Section 154 of the Act. What was required to be done by the assessing authority was only to peruse the records and to apply the provisions of Sub-section (1A) of Section 35B. This is what the assessing authority has done in proceedings under Section 154 of the Act.
18. The Income-tax Appellate Tribunal in this case referred to the principles laid down in Volkart Brothers' case : [1971]82ITR50(SC) and said that what is attempted to be done by the assessing authority is exactly what the Supreme Court held to be impermissible in proceedings under Section 154 of the Act, viz., to rectify a mistake that could be establishedonly by a long drawn process of reasoning. The Appellate Tribunal also appears to have taken the view that the provision of Sub-section (1A) of Section 35B is not mandatory and that under the said Sub-section the assessing authority has only to apply his mind and either allow or not to allow the relief. The Appellate Tribunal also held that it cannot be said that the assessing authority had overlooked a mandatory provision of law.
19. We are of the view that the very approach made by the Income-tax Appellate Tribunal for deciding the issue involved in the case is faulty. We hold that the Appellate Tribunal was not justified in law in holding that the proceeding under Section 154 of the Act is invalid.
20. We, accordingly, answer the question set out in paragraph 1 (page 702) above in the negative, that is, against the assessee and in favour of the Revenue.
21. A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench.