- (1.) FOLLOWING questions of law have been referred for opinion of this Court by the Tribunal, Chandigarh Bench, Chandigarh, "1. Whether, on the facts and in the circumstances of the case, on a proper interpretation of s. 35B of the IT Act, 1961, the Tribunal was right in law in allowing weighted deduction under s. 35B on the following items : (a) Subscription paid to Hosiery Exporters Association and Export Promotion Council. (b) salary and bonus. (c) salary, security and guard. (d) printing and stationery. (e) postage, telephone and telegrams. (f) advertisement. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing weighted deduction under s. 35B in respect of packing credit interest -
(2.) THE assessee is a firm engaged in the business of manufacturing, sale and export of hosiery goods. Accounts are maintained on the mercantile basis. For the relevant year, the assessee claimed weighted deduction in respect of subscription to Hosiery Exporters Association and to the Export Promotion Council, salary and bonus, salary, security and guard, printing and stationery, postage, telephone and telegrams and advertisements, etc.
(3.) THE AO disallowed the said claim, but the CIT(A) allowed the same, which was upheld by the Tribunal. The Tribunal also allowed weighted deduction under s. 35B of the IT Act, 1961 (for short, "the Act") in respect of packing credit interest. The issue has been examined by the Hon'ble Supreme Court of India in CIT vs. Hero Cycles (P) Ltd. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC), wherein it was held that deduction is permissible if expenditure is laid out wholly and exclusively for the purposes mentioned in cl. (b) of s. 35B(1). It was observed : "The CIT (A) as well as the Tribunal allowed this claim of the assessee without examining the facts of this case. The deduction is permissible if the expenditure is laid out wholly and exclusively for the purposes mentioned in, cl. (b) of s. 35B(1). It is for the assessee to prove that the entire expenditure involved was exclusively for the purposes mentioned in cl. (b) of s. 35B(1). The Tribunal has also to give a finding as to the entitlement of the assessee with reference to the particulars of cl. (b) of s. 35B(1). The facts have to be found out and the law has to be applied to those facts. It appears that generally a certain percentage of the claim has been allowed under s. 35B without adverting to any of the sub - clauses of cl. (b) of s. 35B(1). Under those circumstances, we think it fit to set aside the order of the Tribunal and send the matter back to the Tribunal to dispose of it after examining the facts afresh. The appeals are allowed. The order of the High Court as well as the appellate order of the Tribunal are set aside. There will be no order as to costs.";