TaxTMI 
TaxTMI 
1985 (6) TMI 200
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.... provisions of section 35B(1)(a) coming into effect in respect of expenditure incurred from 1-4-1978. 3. The assessee claimed weighted deduction under section 35B on various items of expenditure as below : Himson Textile Engg. Industries PannaKnittingIndustries Rs. Rs. Export freight 1,00,472* 1,13,465* Bank commission 17,894* - Foreign travelling 1,15,308 x 17,241 x Export service charges - 3,000 x Export commission 1,46,662 x 1,12,188 x (possibly Exhibition expenses 1,08,049 x 1,22,188) The ITO accepted the claim of the assessees on items marked ';x'; and rejected the claim on items marked ';';. In respect of the items on which the ITO disallowed the weighted deduction, the assessee went in appeal to the Commissioner (Appeals), who by his order dated 4-6-1982 confirmed the ITO';s action. The Commissioner was not, however, made aware of the existence of the order of the Commissioner (Appeals), even in reply to the show-cause notice issued. Before us, it was explained that this omission on the part of the assessee was on account of genuine oversight....
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....d by the ITO could perhaps have been withdrawn by the Commissioner (Appeals) himself if the Commissioner (Appeals) could record his satisfaction on merits after hearing the assessee that such weighted deduction is in fact not admissible. Actually in this case, the Commissioner (Appeals) rejected the claim of the assessee in respect of items marked ';x'; in paragraph 2 above, whereas present section 263 action is in respect of items marked ';';. The Commissioner (Appeals) confirmed the action of the ITO on the ground that the provisions of section 35B(1) themselves even without section 35B(1A) being attracted. Thus, the question of further examining the restrictions on allowances under section 35B(1A) did not and could not have arisen before the Commissioner (Appeals). The question of applicability of section 35B(1A) was, therefore, purely academic as far as the Commissioner (Appeals) was concerned. In other words, the Commissioner (Appeals) had no occasion to examine the applicability of section 35B(1A) which is precisely the provision looked into by the Commissioner in the course of section 263 action. Thus, both in respect of provisions of law and inclusion of ite....
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.... Ltd. v. Union of India (1982) 134 ITR 385. It was held that that Commissioner has no jurisdiction and that the Jaora Sugar Mills Ltd.';s case (supra) does not lay down correct law. This judgment was delivered on 25-2-1982. 7. Later on, another Full Bench was constituted by the same Madhya Pradesh High Court and the entire gamut of merger was re-examined threadbare by the Full Bench in CIT v. R.S. Banwarilal (1983) 140 ITR 3 in the judgment dated 8-3-1982. In this case, it was held in no uncertain terms that the ITO';s order merges with the appellate order of the AAC only to the extent it was considered and decided by the AAC but the matters which are not covered by the appellate order of the AAC are left untouched and to that extent the ITO';s assessment order survives, keeping open exercise of revisional jurisdiction under section 263 in such matters. It was further held that only specific items considered and decided by the AAC in his appellate order are beyond the scope of section 263. 8. In R.S. Banwarilal';s case (supra), the Madhya Pradesh High Court had occasion to critically examine the case law on which the Special Bench of the Tribunal had based its....
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.... subject-matter covered by the appellate decision. Does ';a point'; cover all items covered by a particular section of the Act irrespective of sub-sections or other overriding sections, or does it confine itself to a particular item of receipt or expenditure in respect of which the matter has been adjudicated upon by the ITO/AAC ? The word ';point'; would suggest that one cannot consider a provision of law in general and cover in its sweep all independent and disjoined items of expenditure on which the assessee had claimed a particular relief. One has to consider each class of expenditure separately. In this case, as mentioned above, the assessee claimed under section 35B weighted deduction on certain classes of itemwised expenditure and there is no single class or item of expenditure examined both by the Commissioner (Appeals) and the Commissioner. I, therefore, hold that in this case there is no merger so as to oust the jurisdiction of Commissioner under section 263 and that Commissioner has correctly assumed jurisdiction. In the above reasoning I have incorporated the arguments of the departmental representative. 12. On merits, the learned representative submi....
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.... a power to confirm, reduce or annul the assessment but has also a power to enhance the assessment. The ITO had accepted the assessee';s claim for weighted deduction under section 35B on certain items mentioned in the order of my learned brother. When the ITO had framed the assessments on 6-8-1980 and 16-8-1980, sub-section (1A) of section 35B had already been brought on the statute by the Finance Act, 1978 with effect from 1-4-1978. For the sake of completing the narration of the facts, it may be mentioned that the said sub-section was omitted by the Finance Act, 1979, with effect from 1-4-1980. However, since the year under appeal is 1979-80, the provisions of the said sub-section were very much there when the ITO framed the assessments on the dates mentioned above. That provision reads as under : "(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 exporte....
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....nsideration. The Commissioner (Appeals), however, gave his decision without considering the provisions of section 35B(1A), which he ought to have considered. Therefore, in my opinion what the Commissioner had done in the instant case is to sit in judgment over the orders of the Commissioner (Appeals). It is in this situation I am of the opinion that the assessment orders of the ITO had merged with the orders of the Commissioner (Appeals). It is for this limited purpose I am of the view that the assessee';s cases are covered by the orders of the Special Bench of the Tribunal referred to in the order of my learned brother. Again, I am of the view that the ratio laid down in the case of Karsandas Bhagwandas Patel (supra), more particularly, the relevant paragraph reproduced by my learned brother in paragraph No. 9 of his order has no application on the facts and circumstances obtaining in the instant case. For all these reasons, I am, therefore, of the view that the Commissioner had no jurisdiction to initiate the proceedings under section 263. In view of the conclusion, thus, arrived at by me, it is not necessary to go into the merits of the case. 5. In view of what is stated ....
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.... opinion that the claim of the assessees for weighted deduction under section 35B was not tenable. He, therefore, for the reasons recorded in his order dated 10-8-1982, directed the ITO to withdraw the relief allowed to both the assessees in course of the original assessment. 3. As against the said orders as made by the learned Commissioner in case of the respective assessees, the assessees came up in appeal before the Tribunal. It was pointed out that the assessees had claimed weighted deduction on various items of expenditure as indicated below : Himson Textile Engg. Industries Panna Knitting Industries Export freight 1,00,472 1,13,465 Bank commission 17,894 Foreign travelling 1,15,308 x 17,241 x Export service charges 3,000 x Export commission 1,46,662 x 1,12,188 x (possibly 1,22,188) The ITO had accepted the claim of the said assessees in regard to the items marked ';x'; and had rejected the claim in regard to the items marked ';';. The assessees had challenged the decision of the ITO to disallow the claim for weighted dedu....
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....regard to the items marked ';x'; above whereas action under section 263 in revision was in regard to the items marked ';';. Thus, it was clear that the question of examining the restrictions on allowance under section 35B(1A) did not and could not have arisen before the Commissioner (Appeals). In other words, the Commissioner (Appeals) had no occasion to examine the applicability of the said provisions and that was precisely the reason why the learned Commissioner was required to take recourse to section 263. To put it differently both the Commissioner (Appeals) and the learned Commissioner have functioned in mutually exclusive fields. The learned Accountant Member thereafter considered the decision of the Special Bench in the case of Shree Arbuda Mills Ltd. (supra). In that case, the Special Bench had concluded that the earlier Special Bench decision in the case of Dwarkadas & Co. (P.) Ltd. (supra) was correctly decided in the light of the ratio of Tejaji Farasram Kharawala';s case (supra) and the said decision had a binding effect in the Gujarat High Court. The Special Bench had also considered two other judgments of the Gujarat High Court in the cases of Kars....
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....then observed that section 251(1)(a) empowers the Commissioner (Appeals) not only to confirm, reduce or annul the assessment but has also power to enhance the assessment. Now in the instant case, the ITO had accepted the assessees'; claim for weighted deduction under section 35B on certain items (as stated earlier) when he made the respective assessment. Now the provisions of section 35B(1A) were already on the sta-tute book and were operative for the assessment year under appeal though the same stood deleted with effect from 1-4-1980. Thus, in spite of the provisions contained in section 35B(1A), the ITO had allowed weighted deduction on certain items as aforesaid. However, in respect of the items on which the assessees'; claim stood rejected, the assessees went in appeal before the Commissioner (Appeals) who confirmed the order of the ITO by his order dated 4-6-1982. Thus, it was clear that both the ITO as well as the Commissioner (Appeals) had failed to take into con-sideration the provisions of section 35B(1A). If the Commissioner (Appeals) had felt that by virtue of the said provisions the assessee was not entitled to weighted deduction inasmuch as they were not ';....
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....over untouched by the AAC the ITO';s order would survive which would permit the Commissioner to exercise revisional jurisdiction under section 263. This decision of course deals with the partial merger of the order of the ITO to the extent the matter is considered and decided upon by the AAC. The decision in Tejaji Farasram Kharawala';s case (supra) was held to be no longer good law. However, the decision in Tejaji Farasram Kharawala';s case (supra) is not expressly overruled by any decision of the Gujarat High Court and as rightly observed by the Special Bench in the case of Shree Arbuda Mills Ltd. (supra), Tejaji Farasram Kharawala';s case (supra) is still good law and is binding as the said decision was rendered before the bifurcation of the erstwhile State of Bombay. He next pointed out that in Karsandas Bhagwandas Patel';s case (supra), the decision in Tejaji Farasram Kharawala';s case (supra) was not considered ; of course, there is a reference to provisions of section 33B. In that decision, the observations were in the nature of obiter dicta inasmuch as the revisional jurisdiction of the learned Commissioner did not call for consideration direct in th....
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.... decision. The real controversy is whether the provisions of sec- tion 263 were rightly invoked emphasising observations in the case of Karsandas Bhagwandas Patel (supra). The learned departmental representative pointed out that the said decision bearing a latter decision should be followed more so when the said decision was a binding decision. The submission made on behalf of the assessee that the Karsandas Bhagwandas Patel';s case (supra) covered the case for rectification and not revision was without substance inasmuch as the consideration which applied to rectification proceedings would apply with equal force to revision proceedings also. In other words, their Lordships of the Gujarat High Court have placed both the proceedings on the same footing or the same pedestal. Now the decision in Karsandas Bhagwandas Patel';s case (supra) has been followed by the Full Bench of the Madhya Pradesh High Court in R.S. Banwarilal';s case (supra). Again the decision in Karsandas Bhagwandas Patel';s case (supra) was followed by their Lordships of the Gujarat High Court in the case of Poonjabhai Vanmalidas (supra). Therefore, according to the latest judicial trend, the position....
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....ty v. Union of India AIR 1960 Guj. 40. It was also decided that the decisions in Karsandas Bhagwandas Patel';s case (supra) as also in the case of Poonjabhai Vanmalidas (supra) were distinguishable inasmuch as the said decisions dealt with rectification proceedings. Therefore, what is good in regard to rectification cannot be said to be good in the context of proceedings under section 263. That apart it was also decided that where an authority has power or discretion to do something for which appropriate circumstances exist. whether or not that authority has, as a matter of fact, exercised that power, such an authority should be deemed to have exercised that power. That apart, it was pointed out that if the view canvassed by the revenue were to be accepted, then it would lead to anomalous position as pointed out in paragraph No. 21 of the said order. Now to persuade me to take a different view, the learned departmental representative strongly relied on the following observations in Karsandas Bhagwandas Patel';s case (supra) : "It would thus be seen that for the purpose of determining the applicability of the principle of merger in a case like the present, the test which ....
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....ted. The above proposition is found in the decision of their Lordships of the Gujarat High Court in the case of CIT v. Madhukant M. Mehta (1981) 132 ITR 159 at p. 180. The decision in Shree Arbuda Mills Ltd.';s case (supra) which has preferred the view in Tejaji Farasram Kharawala';s case (supra) as against the decision in Karsandas Bhagwandas Patel';s case (supra) is a decision of the Special Bench (three Members) to which I was a party and, therefore, following the said decision and for the reasons recorded therein, I would hold that the Commissioner';s jurisdiction in the light of the facts which I shall presently state was clearly ousted. Now coming to the narrower aspect in the instant case, the facts show that the assessee had made claim for export development allowance in regard to four items (referred to earlier) and in respect of two items the claim was allowed by the ITO and in regard to other two items, the claim was rejected by the ITO and his decision was upheld in appeal by the Commissioner (Appeals). As rightly pointed out by the learned Judicial Member, the provision of section 35B(1A) is an overriding provision. In spite of the said provision, the I....