H M SONS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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U.T. Shah, Judicial Member -
(1.) THE only point involved in this appeal pertains to the assessee's claim for weighted deduction of Rs. 64,040 under Section 35B of the Income-tax Act, 1961 ('the Act').
(2.) The assessee is a firm and exports bed-spreads, scarves, garments, etc. The assessment year is 1979-80 and the relevant previous year ended on 31-3-1979.
In its return of income as well as at the time of the assessment proceedings, the assessee claimed deduction of Rs. 64,040 on account of the following expenditure incurred by it:
While framing the assessment on 29-4-1981, the ITO ignored the assessee's claim for weighted deduction in the following manner:
During the course of hearing it was observed that the assessee has not been carrying on Export Certificate for the year under consideration but it was only granted to him for the assessment year 1980-81. When required to explain as to why the claim under Section 35B may not be disallowed, it was stated that the relief is admissible to them as they are small scale exporters coming within the purview of Section 35B(a) as they are exporting goods manufactured by them. The contention of the assessee is not correct. The assessee printed bed-spreads, scarves and garments etc., and this process cannot come under the definition of Industrial Undertaking as defined in Explanation 1 to Section 35B. No mechanical provision is involved in the nature of the business in which the assessee is involved. No machinery for carrying on any processing has been installed by the assessee and by no stretch of imagination the business of the assessee can be brought into the ambit of an Industrial Undertaking. Had it been a base as put in by the assessee himself he would have not missed his claim under Section 80J in the past where his income was ranging from 1 to 2 lakhs of rupees. It is simple after he has failed to establish himself as a Export House for the accounting period under consideration that a half-hearted case has been made out by taking a recourse to the alternative provisions. Since the assessee's case does not fall under either of the clauses to Section 35B the claim under Section 35B is ignored.
(3.) IN appeal before the Commissioner (Appeals) it was submitted, on behalf of the assessee, that, since it was an 'INdustrial Undertaking' as defined in Section 35B(1A), read with Section 32A(2), of the Act, it was entitled for weighted deduction as claimed by it. It was also submitted that the assessee, being a small scale exporter, comes within the definition of Small Scale INdustrial Undertaking, the ITO ought to have allowed the assessee's claim for weighted deduction of Rs. 64,040. The Commissioner (Appeals), however, upheld the action of the ITO as under:
I have gone through the facts and circumstances of the case and heard the Counsel for the appellant. For the purposes of this provision the term 'Small Scale Exporter' means a person who exports goods manufactured or produced in any 'Small Scale INdustrial Undertaking' has the same meaning as assigned to it in Clause (2) of the Explanation below Section 32A(2) of the INcome-tax Act, 1961. The expression 'Export House Certificate' means a valid 'Export House Certificate' issued by the Chief Controller of Imports & Exports. Admittedly, the assessee does not hold any certificate of the Chief Controller of Imports and Exports, Government of INdia. So far as the question of 'small scale exporters' is concerned, the assessee had to export goods manufactured or produced in any 'Small Scale INdustrial Undertaking'. As has been observed by the ITO, the assessee has never claimed the benefit of the weighted deduction under Section 35B of the Act because, according to the assessee, the claim did not fall within the ambit of Section 35B. The assessee only prints the bedspreads, scarves and garments. Prima facie, it does not involve any manufacturing in the real sense of the term. The process involved is also not at all mechanical which could produce any goods and it cannot take the shape of a 'Small Scale INdustrial Undertaking'. As has been discussed in detail by the ITO in his assessment order, I do not think that the assessee's case falls within the definition of 'Small Scale INdustrial Undertaking' for claiming the benefit of a 'Small Scale Exporter' of goods under Section 35B(1A) of the Act.
6. The items of expenditure on which the deduction has been claimed also do not merit for allowance under Section 35B of the Act. I, therefore, hold that the ITO was justified in not allowing the benefit of the claim under Section 35B for an amount of Rs. 64,040.;
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