B.P.Jeevan Reddy, C.J. - (1.) The Income-tax Appellate Tribunal has stated the following two questions under Section 256(2) of the Income-tax Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that it was mandatory on the part of the Income-tax Officer to allow deduction under Section 35B of the Income-tax Act, 1961, even though the assessee failed to claim such deduction in the returns filed for the assessment years 1969-70 to 1972-73 or during the course of the assessment proceedings ?
(2.) Whether, on the facts and in the circumstances of the case, there was material on record justifying the Tribunal's finding that there was an obvious mistake which could be rectified under Section 154 of the Income-tax Act, 1961 ?" The assessee is a private limited company. The assessment years concerned are 1969-70 to 1972-73. On the basis of the returns filed by the assessee, assessments were made for all these four years on August 3, 1971, September 27, 1971, November 23, 1971 and November 30, 1972, respectively. No weighted deduction was claimed or allowed by these assessment orders. On September 8, 1973, the assessee moved applications under Section 154 for allowing weighted deduction under Section 35B on account of export expenses for all these four years. The Income-tax Officer rejected the applications on two grounds : (i) That no such deduction was claimed in the returns filed by the assessee, and (ii) That the mistake pointed out does not attract the power of rectification under Section 154. On appeal, the Appellate Assistant Commissioner agreed with the Income-tax Officer. He too found that in the returns relating to the assessment years 1969-70 and 1970-71, no such claim was made. In the return for the assessment year 1971-72, the deduction was not claimed at the appropriate place ; at a different place, this claim was made. He found that this was a subsequent interpretation. In the return relating to the assessment year 1972-73 again, the assessee did not make this claim at the appropriate place in the return but at a different and inappropriate place. Even on merits, the Appellate Assistant Commissioner found that the Income-tax Officer's orders of assessment did not suffer from any mistake apparent from the record and, therefore, the power of rectification was not available. He further found that the assessee had as a trade practice paid commission on all the sales effected abroad to the foreign agent and it could not be said that the assessee had incurred any expenditure wholly and exclusively on performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India, as required by Clause (b) of Section 35B(1). He found that the expenditure claimed does not specify any of the sub-clauses in Clause (b) of Section 35B(1). The assessee carried the matter in further appeal to the Tribunal. The Tribunal allowed the appeal holding that even though the assessee had not claimed the said weighted deduction in his returns, the Income-tax Officer was under an obligation to allow the same if it was allowable. While assessing business income, the Tribunal observed that the Income-tax Officer has to keep in mind the provisions contained in Sections 30 to 43A. The Tribunal observed further : "In regard to certain allowances or deductions in some specific conditions have been provided in the Act itself, for instance, allowance of depreciation and development rebate. As f6r the export markets development allowance, no specific conditions have been provided. What Clause (b) of Sub-clause (i) provided is only specified heads under which the revenue expenditure for development of export markets should have been incurred. In the present case, there is no dispute that the Department by allowing 100 per cent. of the export expenses has admitted that these expenses were incurred for the purposes of business. It was in the knowledge of the Department that they were expenses incurred in the development of export markets. In our opinion, therefore, it was an obvious and apparent mistake which could be rectified under Section 154 of the Act." It is the said view of the Tribunal which is challenged by the Department in this reference. We are of the opinion that the Tribunal has misdirected itself in law in directing that rectification applications be allowed straightaway. 2. It is evident from the statement of facts that out of four assessment years concerned herein, no claim for weighted deduction was made for two years. For the third year, it has been found to be an interpolation by the Appellate Assistant Commissioner which finding has not been set aside by the Tribunal. In the return for the fourth year, the claim was made at an inappropriate place. Evidently, no such plea was raised, nor any such deduction claimed at the time of the assessment. It is long after the assessment orders were passed that rectification applications were filed claiming the said deduction. Even though copies of the rectification applications have not been enclosed with the statement of the case, we called upon learned counsel for the assessee to produce a copy of the applications. Counsel has also accordingly placed before us a copy of the application filed by the assessee under Section 154 relating to the assessment year 1971-72. (We are told that rectification applications for the other assessment years were in identical terms.) All that the application states is this : "We have to invite your kind attention to the fact that the above assessment has been completed and we have received the assessment order and the relative demand has already been paid. On going through the computation of the total income, we find that we have not been allowed deduction under Section 35B of the Income-tax Act, 1961, on account of the export expenses of Rs. 68,460 incurred in respect of the jute goods exported during the assessment year. The mistake being apparent from the record, we request you to please rectify the said mistake under Section 154 of the Income-tax Act, 1961, for which act of kindness, we shall ever remain grateful." Neither is the Sub-clause of Clause (b) of Section 35B(1) under which this particular deduction was claimed specified, nor does the application state specifically the nature of the expenditure. It does not even say that the payment was made outside India for any of the services specified in the said Clause (b). This application was rejected by the Income-tax Officer under a short order, saying that the assessment was completed on November 23, 1971 (for the assessment year 1971-72) whereas the rectification application has been made only on September 8, 1973, and that since no such rebate was claimed by the assessee in its return, the mistake pointed out does not come under the provisions of Section 154. The Appellate Assistant Commissioner has gone into the matter elaborately and found that the claim is not tenable even on merits, apart from the fact that the circumstances of the case did not attract the power under Section 154. The Tribunal, on the other hand, took the view that even though the claim was not made in the return, the Income-tax Officer was bound to grant the deduction if it was allowable.
(3.) The correct position in this behalf has been stated by the Supreme Court in its recent judgment in Anchor Pressings (P.) Ltd. v. CIT [1986] 161 ITR 159. Dealing with a similar situation, the Supreme Court observed (at p. 161) : "It is contended that an obligation was imposed on the Income-tax Officer by the statute to grant such relief and it could not be refused merely because the appellant had omitted to claim the relief. While we believe that the appellant is right in his contention, we do not think that the mere existence of such an obligation on the Income-tax Officer is sufficient. Before the Income-tax Officer can grant relief, there must be clear data in the assessment record sufficient to enable him to consider whether the relief should be granted. In the absence of such material, no fault can be found with the Income-tax Officer for not making an order under Section 84 favouring the assessee. It will be noticed from the provisions of Section 84 that several conditions must be satisfied before the grant of relief can be considered. The industrial undertaking should not have been formed by the splitting up of, or the reconstruction of, a business already in existence. It should not have been formed by the transfer to a new business of building, machinery or plant previously used for any purpose. It should manufacture or produce articles in any part of India, which manufacture or production should have begun at any time within 23 years next following April 1, 1948, or such other further period as the Central Government may specify. An industrial undertaking manufacturing or producing articles should be found to employ 10 or more workers in a manufacturing process carried on with the aid of power or to employ 20 or more persons in a manufacturing process carried on without the aid of power. These are some of the conditions which need to be fulfilled before relief under Section 84 can be granted. It is apparent that precise factual material must be contained in the record in order to enable the Income-tax Officer to discharge his obligation to grant relief under Section 84. It has not been shown to us that the record before the Income-tax Officer contained all that information." Applying the above test, let us examine whether the record before the Income-tax Officer did establish all the ingredients of the appropriate Sub-clause (b) of Section 35B(1). Section 35B(1) reads as follows : "(1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), he shall, 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 : Provided that in respect of the expenditure incurred after the 28th day of February, 1973, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words 'one and one-third times', the words 'one and one-half times' had been substituted. (b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business ; (ii) obtaining information regarding markets outside India for such goods, services or facilities ; (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit ; (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities ; (v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto ; (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities ; (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India ; (viii) performance of services outside India in connection with, or incidental to, the execution pf any contract for the supply outside India of such goods, services or facilities ; (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed." A perusal of the section shows that weighted deduction is permissible only in respect of certain specified types of expenditure. The several sub-clauses show that all such expenditure must have been incurred outside India. The further requirement is that such expenditure must have been incurred wholly and exclusively on the specified activities. The Appellate Assistant Commissioner has found that the trade commission paid by the assessee on the sales effected by it abroad to its foreign agent cannot be called expenditure incurred wholly and exclusively on performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities ; evidently, he was referring to Sub-clause (viii) of Clause (b). On the other hand, the Tribunal has not taken care to specify the Sub-clause under which the expenditure in question falls so as to qualify for weighted deduction. It has more or less proceeded on the bland assumption that "export markets development allowance" automatically qualifies for such deduction and that no specific condition need be satisfied therefor. We are afraid the Tribunal was not right. It must be remembered that the original expenditure claimed has been allowed as a deduction under Section 37. We are now concerned with the question whether any additional deduction to the extent of one-third of the expenditure incurred should be allowed as provided in Section 35B. For claiming this special benefit, the conditions specified have to be satisfied. Each of the sub-clauses of Clause (b) sets out the condition which must be satisfied before the deduction can be allowed. None of the sub-clauses expressly speaks of "export markets development allowance" (referred to in the Tribunal's order). We are inclined to believe that the approach adopted by the Tribunal is rather cavalier. It ought to have devoted more attention to the case, particularly in view of the findings recorded by the Appellate Assistant Commissioner. From the Appellate Assistant Commissioner's order, it is clear that the assessee claimed this deduction under Sub-clause (viii) of Clause (b) of Section 35B(1) and he opined that the conditions prescribed in the sub-clause were not satisfied. In such a case, it was obligatory upon the Tribunal to say either that the conditions specified in the said sub-clause are satisfied or that the conditions of any other sub-clause of Clause (b) are satisfied. Without saying so, the Tribunal could not have said in general terms that the "export markets development allowance" is not hedged in by any conditions and that it automatically qualifies for weighted deduction under Clause (b) of Section 35B(1).;