Inherent power to recall a reference order exists to prevent palpable error, but weighted deduction failed for lack of proof.

A High Court dealing with a reference under section 256 of the Income-tax Act retains limited inherent power under section 151 CPC to recall or set aside an earlier order where necessary to prevent miscarriage of justice or correct a grave and palpable error, even though a review under Order XLVII Rule 1 is not maintainable in that jurisdiction. The commentary also states that weighted deduction under section 35B was not available on commission paid in India to Indian agents because the record did not establish that the expenditure was incurred for obtaining information about foreign markets or that the statutory conditions were otherwise proved. The corrective power exists in principle, but interference is unwarranted absent a legally cognisable error.

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Issues: (i) Whether the High Court had inherent power to entertain an application under section 151 of the Code of Civil Procedure, 1908, to set aside an earlier order made in a reference under section 256(1) of the Income-tax Act, 1961, on the ground of palpable error or miscarriage of justice; (ii) Whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act, 1961, on the commission paid within India to Indian agents for obtaining information regarding foreign markets in connection with export business.

Issue (i): Whether the High Court had inherent power to entertain an application under section 151 of the Code of Civil Procedure, 1908, to set aside an earlier order made in a reference under section 256(1) of the Income-tax Act, 1961, on the ground of palpable error or miscarriage of justice.

Analysis: A review under Order XLVII, Rule 1 of the Code of Civil Procedure, 1908, was held not maintainable in reference jurisdiction under section 256 of the Income-tax Act, 1961. However, the Court held that the High Court, being a court of plenary jurisdiction, was not rendered functus officio after disposing of a reference and could exercise inherent power in appropriate cases to recall an earlier order where necessary to prevent miscarriage of justice or correct a grave and palpable error. The Court treated the absence of an express or implied prohibition in the Act as permitting such corrective intervention.

Conclusion: The application could be entertained in principle under the High Court's inherent power, and the answer on this issue was in favour of the assessee.

Issue (ii): Whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act, 1961, on the commission paid within India to Indian agents for obtaining information regarding foreign markets in connection with export business.

Analysis: The earlier order was examined on the footing that the Tribunal had no adequate factual material or recorded finding showing that the expenditure was incurred for obtaining information regarding markets outside India for export promotion. The Court found that the Tribunal had proceeded on assumptions and that there was no clear proof or separate accounts establishing entitlement to the weighted deduction. On that basis, the earlier conclusion against the assessee was not shown to suffer from any palpable error.

Conclusion: The assessee was not entitled to the claimed weighted deduction, and the issue was decided against the assessee.

Final Conclusion: Although the Court recognised a limited inherent power to correct an earlier reference order in an appropriate case, the facts of the present matter did not justify interference because no palpable error or miscarriage of justice was established in the earlier decision on weighted deduction.

Ratio Decidendi: A High Court exercising reference jurisdiction under section 256 of the Income-tax Act, 1961, retains inherent power to recall or set aside an earlier order to prevent miscarriage of justice or correct a grave and palpable error, but such power is not to be exercised unless the applicant shows a legally cognisable error warranting interference.

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