COMMISSIONER OF INCOME-TAX vs. GUJARAT STATE EXPORT CORP LTD

ITR/237/1993HC GujaratGJHC24021272199305 July 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI10 pages
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What were the facts?

The assessee, Gujarat State Export Corporation Ltd., for Assessment Year 1979-80, claimed weighted deduction under Section 35B of the Income Tax Act, 1961. The Assessing Officer (AO) initially allowed deductions on 15 items totaling Rs. 22,80,051/-. Subsequently, the AO initiated rectification proceedings under Section 154, proposing to disallow weighted deduction on six specific items amounting to Rs. 16,61,849/-. The Commissioner of Income-tax (Appeals) dismissed the assessee's appeal. The Income-tax Appellate Tribunal (ITAT) allowed the assessee's appeal, holding that the rectification order was not sustainable. The revenue sought a reference to the High Court on this decision.

What did the High Court hold?

The High Court held that the Tribunal was justified in concluding that the rectification order was not sustainable. The Court noted that the AO had not specified the sub-clauses of Section 35B(1)(b) under which the deductions were originally allowed in the assessment order. It was only during the rectification proceedings that the AO identified the deductions as falling under sub-clauses (i) and (iii). The Court emphasized that a mistake apparent on record must be obvious and patent, not something requiring extensive reasoning or where two opinions are conceivable. Given that items like commission on sales to overseas distributors could potentially fall under other sub-clauses (e.g., sub-clause (viii)) besides sub-clauses (i) and (iii), the issue was debatable. Therefore, the AO could not delve into the true scope of Section 35B in rectification proceedings under Section 154. The question referred was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and on facts in holding that the order of rectification made by the Income Tax Officer in respect of specific items (Commission of sale to overseas Distributors, Stationery & Printing, E.C.G.C. Promotion Exp., Expenses for participation in international Trade Fare, Salary, and Rent) is not sustainable in view of the Supreme Court judgment in the case of Vokart Bros. (82 ITR 50)? Assessee's contention: The assessee argued that the issue was highly debatable, and therefore, rectification under Section 154 was not permissible, citing the Supreme Court judgment in T.S. Balaram, Income-Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers & Ors. The assessee also referred to this Court's decision in CIT Vs. Cadila Laboratories (P.) Ltd. to support the claim for commission paid to foreign agents. Revenue's contention: The revenue contended that the amendment to Section 35B was clear and unambiguous, and any expenditure incurred after April 1, 1978, falling within sub-clauses (i) and (iii) of Section 35B(1)(b) could not be allowed. The revenue argued that if a mistake was apparent on record based on a plain reading of the provision, the AO was within jurisdiction to rectify it, and the ITAT was wrong in holding the issue as debatable.

Which sections of the Income-tax Act were involved?

Section 256(2),Section 35B,Section 154,Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

O­ITR­237­1993­Y­1 :   Judgement Dated : 05.07.2005                                      ­ 1 ­ IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.237 of 1993 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI ======================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation

of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ======================================================== COMMISSIONER OF INCOME-TAX - Applicant(s) Versus GUJARAT STATE EXPORT CORPN. LTD - Respondent(s) ======================================================== Appearance : MS. M.M. BHATT for Applicant No(s).: 1. MRS SWATI SOPARKAR for Respondent No(s).: 1. ======================================================== CORAM :HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI Date : 05/07/2005 ORAL JUDGMENT

The order continues below.

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