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Bharat Steel Tubes Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)13ITD108(Delhi)
AppellantBharat Steel Tubes Ltd.
Respondentincome-tax Officer
Excerpt:
1. these two appeals, one by the assessee and the other by the revenue, were heard together. they are disposed of by this common order.2. the assessee is a company engaged in the business of manufacture and sale of steel pipes. the accounting year ended on 31-3-1974. the method of accounting is mercantile.the first objection in this appeal by the revenue is that the commissioner (appeals) erred in holding that the claim of the assessee-company for deduction of liability amounting to rs. 26,52,610 on account of increase in price of steel consumed was admissible and thereby deleting the said amount from the total income.4. shri r.n. dave, the departmental representative, took us through the facts of the case. we find that the facts are discussed in paragraph nos. 2 to 2.4 of the.....
Judgment:
1. These two appeals, one by the assessee and the other by the revenue, were heard together. They are disposed of by this common order.

2. The assessee is a company engaged in the business of manufacture and sale of steel pipes. The accounting year ended on 31-3-1974. The method of accounting is mercantile.

The first objection in this appeal by the revenue is that the Commissioner (Appeals) erred in holding that the claim of the assessee-company for deduction of liability amounting to Rs. 26,52,610 on account of increase in price of steel consumed was admissible and thereby deleting the said amount from the total income.

4. Shri R.N. Dave, the departmental representative, took us through the facts of the case. We find that the facts are discussed in paragraph Nos. 2 to 2.4 of the Commissioner (Appeals)'s order. Briefly, the relevant facts were as follows.

5. The assessee bought imported goods from Hindustan Steel Ltd. (HSL) at prices fixed from time to time by the Joint Plant Committee (JPC). A notification was issued on 15-10-1973 (Announcement No. 116 of JPC) raising the price of steel goods including imported goods sold by HSL with effect from 15-10-1973. It was explained before us that imported steel was sold through HSL to registered exporters under a scheme announced by public notice on 18-6-1972 (Notice No. 56) by the Central Government. As noted above, the supply price of the imported steel was also increased under the said notification of 15-10-1973. The Export Engineering Promotion Council consisting of the members of the trade affected by the said increase represented to the authorities concerned against the increase. The matter was still under discussion with the authorities when the assessee's relevant previous year here ended on 31-3-1974.

6. In the meantime, there was a second JPC notification, effective from 1-8-1974 (No. 137). This date fell in the next accounting year of the assessee being relevant for the assessment year 1975-76. All the invoices received by the assessee from 15-10-1973 to 31-3-1974 from HSL were marked 'provisional' and the prices charged were the prices that prevailed before 15-10-1973. From 1-8-1974 the invoices received from HSL were on the basis of price increase announced on 1-8-1974. The dispute between the industry and the Government ended only in October 1977 when HSL informed the assessee that the provisional invoices raised by them for the goods supplied during the period 15-10-1973 to 1-8-1974 (the date of the second notification) may be treated as final.

This meant that the prices raised by the notification of 15-10-1973 were ultimately not enforced and the lower 'provisional' prices charged for goods supplied during the aforesaid period became final. In other words, the goods purchased by the assessee between 15-10-1973 and 31-3-1974 (the previous year end) had been debited in its books at the correct price.

7. The ITO noticed, in the course of the assessment proceedings that the assessee had claimed an amount of Rs. 26,52,610 as deduction on account of increase in the price of steel consumed. He disallowed this claim after scrutiny. In doing so he recorded the following: (a) In the return of income the above claim was made. The amount stood debited to the trading account prepared by the assessee vide page 612 of the paper book filed before the ITO. The assessee was asked to explain the 'revaluation of steel consumed'. The assessee's explanation was that following the JPC Announcement No. 116 of 15-10-1973, the price of particular quality of steel used by the company was enhanced after the mid-night of 14-10-1973/15-10-1973 from Rs. 1,369 per M.T. to Rs. 1,800 per M.T. (b) The claim was not admissible because the increase in liability was provided for by the assessee in the accounts for the next accounting year which ended on 31-3-1975 and not during the relevant previous year.

(c) HSL started sending its invoices on the basis of increased price only from 1-8-1974, i.e., after the close of the present accounting year.

(d) It was also admitted that though the JPC price was increased with effect from 14-10-1973/15-10-1973 till the assessment for this year was completed, the assessee had not received any advice or invoice for the alleged increase for the period up to 31-3-1974.

HSL, a public undertaking, would not forego such a huge amount or even fail to intimate its intention to recover the said amount even after a lapse of more than four years.

(e) The above position would clearly show that the deduction claimed by the assessee did not represent a settled liability. It was a 'liability' that was not enforced even after four years, due to reasons known to the assessee only. Perhaps, the whole matter had been in dispute either on a representation from the assessee or from the industry concerned.

In appeal, the Commissioner (Appeals) allowed the assessee's claim and, hence, the revenue is aggrieved.

8. Shri Dave relied on the above reasoning of the ITO. In his view, so far as the accounting year before us was concerned, there was neither a statutory nor a contractual liability that came to lie on the assessee with regard to the above alleged increase in the price of steel consumed and, hence, the claim was rightly disallowed.

9. Shri G.C. Sharma, the learned Counsel for the assessee, emphasized that when JPC increased the prices with effect from 15-10-1973, the assessee's method of accounting being mercantile, a liability stood foisted on the assessee. The subsequent remission cannot wash away the liability which did come into existence during the accounting year. The counsel referred us to page 17 of the paper book. This is a public notice (No. 56 dated 18-4-1972). This was issued by the Chief Controller of Imports and Exports of the Ministry of Foreign Trade. The subject of the notice was supply of imported steel for export production during April 1972 to March 1973. The notice made it clear that the Government would make necessary supplies of imported steel through HSL 'at the JPC or the ruling HSL price where the JPC price is not available plus 2 per cent thereof'. Applications were to be made by interested parties in line with the above notice. The counsel submits that when the assessee made the application for such steel, it was bound to pay the JPC or the ruling HSL price where the JPC price was not available. Attention was also invited by the counsel to a booklet published under the caption 'Announcements of Joint Plant Committee' (page 149 of paper book). Announcement No. 1 of 2-3-1964 at page 1 of the said booklet concerns steel prices for 'decontrolled categories'.

This announcement refers to the need for the formation of JPC, its composition and its role in implementing the Government's proposals announced by the Minister of Steel, Mines and Heavy Engineering in the Parliament on 2-3-1964, with regard to decontrol and fixing of new prices for certain categories of steel. Thus, the submission for the assessee is that there was a contractual liability fixed on the assessee with regard to such increase in price and since that subsisted up to the end of the previous year, the assessee was correct in claiming deduction therefor. If there was a subsequent remission, Section 41(1) of the Income-tax Act, 1961 ('the Act') would become applicable but that should not govern the assessment for this year.

10. After hearing the parties we find that the Commissioner (Appeals)'s action cannot be questioned. His reasoning and conclusions are set down in paragraphs 2.05 and 2.06 of his order. Briefly, they are as under: (a) The assessee follows the mercantile method of accounting. The liability, if at all, accrued in the relevant previous year. The liability ceased in October 1977 when HSL informed the assessee that the provisional bills be treated as final, i.e., the price increase announced was not insisted upon, it was not to be recovered.

(b) Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) is of help in considering a claim of this nature. No doubt, that case concerned a statutory liability. It should, however, equally apply to any other specific and ascertainable trade liability.

(c) When did the liability accrue This was the crucial point. The assessee's relation with HSL was that of a buyer vis-a-vis seller.

It was a contractual relationship arising in the course of business.

HSL acted as an agent of JPC, in enforcing the decision of JPC. This decision itself was based on the Government policy and announcements. Resistance to such increase in JPC prices by the assessee could result either in the cancellation of the contract or delisting from the list of buyers or for civil proceedings for recovery. The buyer had no option but to submit to the price increase and could refuse only at the peril of forfeiting supplies.

This might result in closure of business.

(d) It was certainly not a contingent liability as taken by the ITO. The assessee no doubt did not provide for such a liability in its accounts for this year. However, it provided for it in its accounts for the assessment year 1975-76, but claimed it in the return for the assessment year 1974-75. Ultimately, of course, the liability did not materialise. Even after the liability stood remitted, reduced or became non-existent, the admissibility of such liability in the year of accrual would not stand affected. Hence, it had to be held that the liability though not statutory did come to rest upon the assessee for this year and, hence, the deduction claimed had to be allowed. The liability on remission, when subsequently credited to profit and loss account can be taxed under Section 41(1). That section is meant for such eventualities.

11. We find that the Commissioner (Appeals) is correct when he says that the amount in question was not a contingent liability. In our view, it was clearly a contractual liability. The assessee had already applied for allotment of imported steel in terms of the public notice No. 50, dated 18-4-1972 (supra). The application was made with the full agreement and consciousness of the assessee that it would be bound to pay for such steel at HSL or JPC prices, as the case may be. When it made the application, it bound itself to do this. Hence, when the price increase was announced by JPC, the assessee's method of accounting being mercantile, corresponding higher liability, accrued to the assessee. It was perfectly valid for the assessee to make such an additional claim as a deduction before the assessment was completed even though no specific provision had been made therefor in the accounts. No doubt, the liability ceased to exist after the end of the accounting year. It is, therefore, arguable that the issue should not be decided wearing some kind of judicial blinkers, and after all the function of the Tribunal is to determine the true tax liability and not make a fetish of legalism. But, in view of the direct authority of the Delhi High Court's decision in CIT v. Delhi Publicity Corpn. [1967] 66 ITR 20 (Sh. n), we have no option in the matter. We would follow with respect the said ruling and doing so confirm the order of the Commissioner (Appeals) on this point.

12. The next ground relates to a disallowance of Rs. 22,90,327 made by the ITO but deleted by the Commissioner (Appeals). The ITO noted that the above amount was claimed by the assessee as selling agency commission payable to Raunaq & Co. (P.) Ltd. ('Raunaq'). The ITO asked the assessee to show cause as to why it should not be disallowed following the prior assessment orders. The assessee pointed out that the Tribunal had, for the assessment years 1970-71 to 1972-73 upheld the assessee's claim for deduction of such selling agency commission as allowable business expenditure. The ITO was not inclined to accept the Tribunal's decision as reference proceedings had been taken out for these years. He looked into the details of the claim for this year and disallowed it. The disallowance is based on the following reasons briefly; (a) Raunaq was approved as sole selling agents by the Government for the period 7-11-1970 to 6-11-1975. This was by the Government's letter dated 24-7-1975 (this letter was issued by the Deputy Secretary to the Company Law Board, Department of Company Affairs, Ministry of Law, Justice and Company Affairs). In paragraph No. 2 of the said letter, it was clearly stated that the sole selling agents shall not receive any remuneration on sales made directly by the assessee including sales to the Government and corporations or bodies controlled by the Government.

(b) In the subsequent letter of 24-12-1976 of the same Ministry, this condition was relaxed in respect of direct sales only for the period of 24-7-1975 to 6-11-1975 provided such sales were attributable to the efforts of the sole selling agents. The assessee, however, claimed that the condition imposed in paragraph No.2 of the letter of 24-7-1975 (supra) was effective only from 24-7-1975. This was not correct. It was effective right from 7-11-1970 to 6-11-1975 except for the specific relaxation allowed for the period 24-7-1975 to 6-11-1975. There was, thus, no justification for charging of commission on all sales including sales to the Government corporations and bodies controlled by the Government.

(c) In any case, there was no justification for payment of any sole selling agency commission. This has been the stand of the department in the earlier years. This year also, there was no justification shown for such a payment.

13. The Commissioner (Appeals) allowed the claim. In doing so, various relevant circumstances were noted by him. These were: Raunaq promoted the assessee-company. It had offices in different parts of the country.

It had vast experience and expertise. In the past, such commission was disallowed on the ground that Raunaq was not rendering services that entitled it to commission; that the assessee and Raunaq were controlled by the same person or the same family; and that income was being siphoned off from a public company to a private company. But these reasons did not hold good. The Tribunal held such commission to be allowable for all the years up to the assessment year 1972-73.

14. The Commissioner (Appeals) then went on to note the several reasons given by the ITO in his order. He looked into the letter from the Ministry of Law, Justice and Company Affairs, dated 24-7-1975 (supra).

The relevant portion of the said letter noted by the Commissioner (Appeals) was as under: Your company is requested to confirm that the said agents shall (a) neither pledge or hypothecate or otherwise give as security of any of your goods, and (b) nor receive any remuneration on sales made directly by the company including the sales to the Government and corporations or bodies controlled by Government.

He also took note of a subsequent letter from the same authority dated 24-12-1976. In this letter, condition (b) [emphasised above] was relaxed in the following terms: With reference to your Letter No. PB dated 29-7-1976, I am directed to say that on a careful reconsideration of the case in the light of submissions made by you in your letter referred to above, the Company Law Board has been pleased to decide in partial modification of para 2 of this Board's letter of even number dated 22-6-1976 that the commission may be paid to the sole selling agents on direct sales from 24-7-1975 to 6-11-1975 provided you are satisfied that such sales are attributable to the efforts of the sole selling agents. This is without prejudice to the view the Company Law Board may take in regard to the continuation of sole selling agency for any subsequent period.

15. On a reading of the above two letters, the Commissioner (Appeals) found that the ITO's interpretation of the letters was not correct. He observed as under: It is not disputed by the ITO that condition (a) was satisfied. The letter dated 24-12-1976 relaxed condition (b) in respect of direct sales by the company. Such relaxation was given for the specific period from 24-7-1975 to 6-11-1975 because the approval of the agreement by the Ministry was given on 24-7-1975 giving effect from 7-11-1970. The use of the word 'shall' in para 2 of the letter dated 24-7-1975 makes it very clear and logical that the company must follow the conditions (a) and (b) from 24-7-1975 to 6-11-1975 and since the agreement was to end on 6-11-1975 neither of the two conditions could be given effect in the gone by period prior to 24-7-1975. The reason for relaxing the condition (b) for the period 24-7-1975 to 6-11-1975 is for the obvious reasons that the conditions could be enforced only from 14-7-1975 which is the date of the letter of approval and it was effective up to 6-11-1975 because the agreement was to run up to 6-11-1975. There does not appear to be any intention, express or implied, to give retrospective effect to the two conditions. In fact condition (a) was impossible of enforcement as the effect was to be given from 7-11-1970. Moreover, the word 'shall' in para 2 of the Ministry's letter dated 24-7-1975 governs both (a) and (b) and indicates compliance in future only. If retrospective effect was intended, the Ministry would have very well mentioned in their letter dated 24-12-1976. Under the circumstances, the ITO's interpretation does not appear to be correct. The disallowance made by the ITO was therefore, not justified, hence, it is deleted. The assessee gets relief of Rs. 22,90,327.

16. While Shri Dave relied on the interpretation of the two letters recorded by the ITO, the learned Counsel for the assessee relied on the order of the Commissioner (Appeals). He also pointed out that the Government issued the letter of 24-7-1975 following the assessee's application dated 26-6-1975 (at page 36 of paper book 1). It was in response to this letter that the Government granted its approval by its letter of 24-7-1975. Condition (b) referred to above, stated in the said letter, could not but be prospective looking to the language of paragraph No. 2 carrying the word 'shall'.

17. We have heard the parties. First of all, we may say that looking to the record and in the light of the Tribunal's orders up to the assessment year 1972-73, we are unable to agree with the ITO's view that the sole selling agency commission paid to Raunaq was not allowable as business expenditure. The nexus between the services of the sole selling agents and the commission payment has to be accepted as evident on the facts on record, following the prior order of the Tribunal on this question. As regards the special reason given by the ITO for this year, we find ourselves in agreement with the interpretation recorded by the Commissioner (Appeals). The Commissioner (Appeals) is right in holding that the prohibition and subsequent relaxation were only for the period 24-7-1975 to 6-11-1975. We decline to interfere.

18. The next objection relates to the deletion of an addition of Rs. 1,01,231 on account of value of work-in-progress. The assessee values the work-in-progress in respect of an incomplete contract (excess of receipts over expenditure) by the close of the accounting year.

Two-third of the said surplus is the value taken, if the contract is fairly advanced, i.e., more than 50 per cent. If the contract has been executed to the extent of less than 50 per cent, then one-third of such surplus is taken into account for valuation of work-in-progress. This method was approved by the Tribunal for the assessment year 1972-73.

However, this year there was a deficit in a contract, i.e., expenditure on an incomplete contract was more than the value of bills tendered.

The ITO noticed this contract (Job No. 10003) where expenditure was Rs. 13,42,744 and the value of the bills raised was Rs. 10,39,049. The assessee valued the work-in-progress of this contract at the value of the bills so raised. This was less than the expenditure, i.e., work-in-progress was valued at lower than cost. The ITO found that 59.3 per cent of the job had been completed. Hence, following the assessee's own method of valuation of contracts where there was a surplus, the ITO took into account two-third of the deficit and added this (Rs. 1,01,231) to the value of work-in-progress shown at Rs. 10,39,049. The assessee appealed.

19. The Commissioner (Appeals) was not satisfied that the ITO's approach was correct. It was submitted before the Commissioner (Appeals) for the assessee that the assessee's method of accounting was to value the stock at market value or cost, whichever was lower, and that this had been followed in the past. In the aforesaid contract, the value of the incomplete contract, i.e., work-in-progress, represented by the receipts was less than the cost and as such, the assessee was entitled to value it in the manner it has done. The Commissioner (Appeals) upheld the assessee's claim and in doing so recorded the following: (a) It is a well-known principle of accountancy that in valuing stock, a margin has to be kept for possible loss that may arise in the incomplete contracts. It is, therefore, not prudent for a businessman to offer the full surplus of the receipts over the cost of incomplete contract for taxation.

(b) In the reverse case, valuing the closing stock of work-in-progress, it is an accepted practice to value such work-in-progress at cost or market value, whichever is lower, the guiding principle being the same, i.e., possible profits on the stocks should not form part of the profits of the year.

(c) In this case, according to the method of accounting followed by the assessee, the work-in-progress has been rightly valued. The cost of the incomplete contract was higher than the receipts in respect of the contract. Hence, the principle of two-third of the surplus of receipts over the cost of the incomplete contract was not applicable where such an incomplete contract showed that cost thereof was higher than the actual receipts.

20. The revenue is, therefore, in appeal. While Shri Dave supported the order of the Commissioner (Appeals), the learned Counsel for the assessee relied on the Commissioner (Appeals)'s reasoning and conclusion.

21. We find that there is no dispute about the method of valuation regularly followed by the assessee where there is a surplus in an incomplete contract. In our view, it would not fit in with settled accountancy principles to apply the same method in a reverse case also, i.e., where the expenditure is more than the receipts, as held by the Commissioner (Appeals) the assessee has the option of valuing the stock at cost or market value, whichever is lower, and we, therefore, do not see any strong reason for interfering with the method of valuation adopted by the assessee in this regard. The method is not seen to be unreasonable. The objection for the revenue is rejected.

22. The next objection is that the Commissioner (Appeals) erred in allowing weighted deduction under Section 35B of the Act to the extent of Rs. 6,66,742 as against Rs. 85,179 allowed by the ITO. Shri Dave submits that for the reasons stated by the ITO in his order, the relief given by him under Section 35B should be upheld as correct and the order of the Commissioner (Appeals) should be reversed in this regard.

The assessee's counsel, on the other hand, pointed out that the assessee was not satisfied with even the relief granted by the Commissioner (Appeals) and that further relief is being sought in the assessee's appeal filed before the Tribunal for the same assessment year [IT Appeal No. 2557 (Delhi) of 1979].

23. We would first of all notice the factual background regarding this claim as recorded by the Commissioner (Appeals). It appears before the assessment was completed, the assessee claimed deduction of Rs. 39,90,266 as weighted deduction allowable. Out of this entire claim, the ITO allowed Rs. 75,179 as deduction. The matter came up in appeal.

The Commissioner (Appeals) then recorded the actual details of the various items of expenditure on which weighted deduction was claimed before the ITO. It appears that another chart was submitted giving the particulars of the total expenditure on which weighted deduction was claimed. The Commissioner (Appeals) noticed that the total of the expenditure in the chart so given amounted to Rs. 36,39,914. It is this expenditure which the Commissioner (Appeals) considered for necessary relief. Further points made by the Commissioner (Appeals) in this regard are as follows: (a) As regards the expenditure in the Bombay branch, apportionment was in the ratio of exports to domestic sales through that branch.

As regards the head office expenses, the apportionment was in the ratio of total exports to total domestic sales. As regards other expenses, the total came to Rs. 11,86,484.

(b) Salaries and benefits and rent were claimed on proportionate basis only in respect of the Bombay branch and head office where exports were looked after. No proportion of such expenditure at the works and at other branches was included in presenting the claim for weighted deduction.

24. The Commissioner (Appeals) then proceeded to note the various submissions of the assessee in support of its claim. He then dealt with each of them as under: (a) In the case of J.H. & Co. v. Second ITO [1982] 1 SOT 150 (Bom.) (SB) [IT Appeal Nos. 3255 and 3330 (Bom.) of 1976-77 dated 17-6-1978], the criteria for allowing weighted deduction claims have been elaborately discussed. The assessee's claim had to be considered in the light of this decision, this being a decision of the Special Bench of the Tribunal. At the same time, the question will remain regarding the quantification of the actual expenses that may fall under the various sub-clauses of Section 35B(1)(b), where the accounts are kept in composite manner, the expenses being bifurcated according to the ratio of the domestic turnover and exports. Where expenses cannot be segregated, an estimate has to be made on the facts of each case.

(b) The assessee was unable to segregate the total expenses on exports from the total expenses incurred at the head office, as well as at the branch. It was also not able to segregate expenses on activities relating to export promotion covered by Section 35B from the expenses of other activities relating to exports. The first claim put up was based on weight of products sold in India and abroad and in the revised claim the basis adopted was with reference to the proportionate value of domestic sales and exports. The total value of exports was Rs. 4.02 crores and that of domestic sales was Rs. 7.54 crores making a total turnover of Rs. 11.56 crores. The proportion worked out to 35 per cent (exports) and 65 per cent (domestic sales). The entire exports were routed through the Bombay branch. This branch also looked after total domestic sales to the extent of Rs. 3.26 crores out of Rs. 7.54 crores of total domestic sales, i.e., 55 per cent. In view of this, the proportion worked out by the assessee was reasonable.

(c) Out of 'export expenditure' so worked out, a further portion was estimated as relating to export promotion and development to the extent of 75 per cent as covered by Sub-clauses (ii), (v) and (viii) of Section 35B(1)(b). These were in respect of printing and stationery, telegrams, telex, etc., conveyance expenses, salaries and rent. Thus, according to the assessee, such 75 per cent related to the export promotion and development expenses and the balance of 25 per cent for procurement, supply, distribution and other incidental expenses covered by Sub-clause (iii). But this proportion is 'not balanced on the facts of the case'.

25. The Commissioner (Appeals) then went on to discuss the items claimed individually. He recorded the following in this regarded: (a) Commission paid outside India: Rs. 6,16,763, and paid in India: Rs. 54,154: This was allowable under Sub-clauses (i) and (ii) of Section 35B(1)(b) as held by the Special Bench in para 28 of its order dated 17-6-1978 in J.H. & Co.'s case (supra) The ITO allowed Rs. 5,000 as covered under Section 35B(1)(b). Export promotion calls for considerable correspondence, for information, for publicity and for contracting foreign agents and importers. It also involves preparation and submission of tenders for purposes covered by sub- Clause (v) and also by Sub-clauses (vi) and (viii).

It is also true that such expenditure is incurred for procurement, distribution, and supply of goods and for carrying goods within India covered by Sub-clause (iii). Out of a total expenditure of Rs. 92,654 the assessee claimed Rs. 69,490, being 75 per cent thereof as allowable under Sub-clauses (ii), (v) and (viii) and the balance of 25 per cent as related to activities in India covered by sub- Clause (iii). This claim was not acceptable. However, taking all the circumstances into consideration, 50 per cent of the expenses under this head would be eligible for weighted deduction. Accordingly, Rs. 46,327 will be considered for weighted deduction in place of Rs. 5,000 allowed by the ITO. For the reasons mentioned above, 50 per cent of the expenditure would be attributable to export promotional activities and eligible for weighted deduction in place of Rs. 15,000 so considered by the ITO. The local conveyance and travelling expenses (Rs. 2,00,347 of which details were not available (to show that they were incurred for purposes covered by the various sub-clauses) are inadmissible, in view of the decision of the Special Bench in J.H. & Co.'s case (supra). That Bench held that expenditure incurred on journeys within the country for export sales and export buying or supplies was not allowable vide para 37 of its order. The entire claim would be disallowed.

The nature of such expenses was clarified neither by the ITO nor by the assessee. The Special Bench has clearly held that bank commission (which would include bank charges) in connection with the realisation of sale proceeds or for discounting facilities are inadmissible vide para 36 of its order. Hence, the assessee's claim would be disallowed fully.

The assessee has claimed 75 per cent of the total expenditure on export activities to be promotional and development expenses. They include salaries and rent paid in respect of head office and Bombay branch. The entire exports are routed through the Bombay branch. It also looks after the domestic sales. The assessee operates export business 'from both the places'. It was not shown that the activities relating to the aspects covered by Sub-clauses (ii), (v) and (viii) were carried out both at the Bombay branch and at the head office and if so, the proportionate extent thereof. It is obvious that the Bombay branch staff meant for exports would be mostly looking after the shipping formalities after the goods have reached Bombay for despatch outside India and activities incidental to them. The services rendered by that branch would be mainly under Sub-clause (viii) and to a very small extent under Sub-clauses (ii) and (vi). At the same time, there is a larger concentration of staff and accommodation at the head office for the purpose of procurement, distribution and supply of the goods and other activities excluded by sub- Clause (iii). Hence, on an overall view and after considering the relative export sales and domestic sales at the head office and the branch, the expenditure eligible for weighted deduction would be as under:of Rs. 5,89,582, i.e.

Rs. 2,94,791Branch office at the rate of 25 per centof Rs. 1,29,623, i.e.

Rs. 32,406 ____________of Rs. 1,32,835, i.e.

Rs. 66,417Branch office at the rate of 25 per centof Rs. 84,537, i.e.

Rs. 21,134 __________ Accordingly, the expenses eligible under the above heads would be Rs. 4,14,748 (Rs. 3,27,197 plus Rs. 87,551), both for the head office and the branch office.

The expenses are for outward railway freight, bidding charges, packing, export sales expenses, ocean freight and insurance. All were claimed under Sub-clauses (ii) and (viii). The case for the assessee was: These expenses, incurred in connection with the exports, would have to be allowed, even if incurred in India. But the decision of the Special Bench in J.H. & Co.'s case (supra) was that such expenditure fell under Sub-clause (iii) and was not eligible vide para 35 of its order. Hence this expenditure cannot be allowed.

26. The Commissioner (Appeals) then summed up the position of expenditure eligible for weighted deduction as under:1. As allowed by the ITO Rs. 1,70,358 Less: expenses allowed in respect of6. Salaries and rent (head office and branch) Rs. 4,14,748 ____________Relief under Section 35B at the rate of 50 per cent Rs. 6,66,742 _____________ The allowance of Rs. 85,179 by the ITO in his order as reported to be rectified shall be substituted by Rs. 6,66,742. The relief works out to Rs. 5,81,563.

27. The revenue's objection is that the relief given by the ITO was correct and should be restored. For the assessee, a chart was filed (pages 112 and 113) and the claim was pressed in full. We heard the parties also. It was common ground that relief should be granted on the basis of the guidelines laid down by the Special Bench in J.H. & Co.'s case (supra). (This decision has been accepted by the CBDT also). The revenue has not made it clear in its grounds of appeal, the objections to the Commissioner (Appeals)'s order on an item wise basis. The objection taken is general. The assessee also in its appeal [IT Appeal No. 2557 (Delhi) of 1979] has raised objections of a general nature giving the overall figure of its claim for weighted deduction. We would, therefore, examine each item considered by the Commissioner (Appeals) hereinbelow: This expenditure has been rightly held to be eligible for weighted deduction. The Special Bench observed in para 28 of its order in J.H. & Co.'s case (supra) that such expenditure would be allowable under Sub-clauses (i) and (ii) of Section 35B(1)(b).

Here we are in agreement with the Commissioner (Appeals) when he points out that the ITO was not correct in restricting the relief under Section 35B to only Rs. 5,000. The assessee's learned Counsel pointed out from the chart placed before us [item No. 7(i)] that total expenditure was Rs. 2,64,725 and 35 per cent thereof was considered as relating to export. This amounted to Rs. 92,654, 75 per cent of this amounted to Rs. 69,490. This is the basis for the assessee's claim for relief. The submission is that the department itself has accepted this for the assessment years 1977-78 and 1978-79 as fair allocation and granted relief under Section 35B, accordingly. It is also pointed out that for the assessment years 1973-74 and 1975-76 also, the same relief was granted by the Commissioner (Appeals) and the decision was accepted by the department. The Commissioner (Appeals) for this year, it is submitted, has not indicated any specific reason for allowing only 50 per cent as eligible for relief. It was not in dispute before us that the department itself had allowed relief at 75 per cent of 35 per cent of the total expenditure on printing and stationery for the assessment years 1973-74, 1975-76, 1977-78 and 1978-79. We do not see that any distinction should be made for this assessment year. We would, therefore, allow the assessee's claim in this regard. The assessment shall be modified accordingly.

(c) The next concerns various items of expenditure regarding which the assessee's chart (pages 112 and 113) gives details as under (The expenses covered are postage, telegrams, telephones and telex, salaries and rent): Sl. No. Particulars Total expenditure Considered as incurred for export Claimed for export markets development allowance Allowed by the ITO vide order dated 1-3-78 Allowed after order dt. 19-4-79 of CIT(A) Allowed on the basis of order of CIT(A) VIII in Appeal Nos. 307/79-80 and 248/79-80 in the appellants's case for the asst. years 1973-74 and 1975-76 respectively 1. Postage, telegrams, telephones and telex 3,49,340 35 1,22,269 75 91,702 15,000 61,134 91,702 Bombay office 2,35,678 57 1,34,336 75 1,00,752 32,406 1,00,752 Head office 16,84,521 35 5,89,582 75 4,42,187 10,000 2,94,791 4,42,187 Bombay office 1,53,703 57 87,611 75 65,708 - 21,134 65,708 Head office 3,79,528 35 1,32,835 75 99,626 - 66,417 99,626 There is no special reason shown why relief should be on different lines this year. The ITO is directed to verify the above figures and allow relief under Section 35B on the same basis as shown in column 8 supra.

(d) The next concerns relief on conveyance expenses. Here we are in agreement with the Commissioner (Appeals) as he has merely followed J.H. & Co.'s case (supra) in this regard. We decline to interfere.

(e) The next is finance charges. Here again, the Commissioner (Appeals) has followed J.H. & Co.'s case (supra). We are, therefore, in agreement with his order.

(f) Then comes expenditure on carriage and insurance of goods exported. Here also, the Commissioner (Appeals) negatived the claim following J.H. & Co.'s case (supra). We decline to interfere.

28. The next objection relates to the deletion of disallowance of Rs. 23,200 under Section 40(c) of the Act made by the ITO. This was on account of expenditure incurred by the assessee-company on the provision of servants and car maintenance to the directors of the company for their personal use. The ITO noted that Raunaq Singh, the Managing Director of the assessee-company, was paid Rs.1,20,000 as salary and other perquisites such as rent-free furnished accommodation 'use of car against recovery of expenses, etc.' The ITO then made the following disallowance:Total payment including value of perquisites as per Rs. Rs.statement (p. 124) 1,41,133Add:Expenditure incurred on provision of services ofservants as held in his individual assessment 10,000Expenditure on maintenance of car as held in hisindividual assessment after deducting recovery ofRs. 1,800 from him (Rs. 15,000 - 1,800) 13,200 23,200 ______ ________Less: Statutory deduction allowable 72,000 ________ 29. Before the Commissioner (Appeals) it was submitted that the servants and the car's expenditure on which loan was paid for by the company were not used by the directors for their personal purposes.

Reference was made to the assessment and appellate orders in the case of one of the directors wherein it was held that the company's car and servants were not proved to have been used for personal purposes by the director. The addition of Rs. 23,200 was, therefore, deleted by the Commissioner (Appeals) and this has become final. The revenue is, therefore, in appeal.

30. It was not in dispute before us that the very basis of the ITO's addition disappeared with the deletion (in first appeal) of the addition made as perquisite on car and servants in the assessment of the director concerned. We decline to interfere.

31. The next objection relates to the relief given by the Commissioner (Appeals) allowing the claim of the assessee for development rebate on a tractor used by the assessee for its business. The ITO disallowed the claim. He thought the tractor was a 'road transport vehicle' and, hence, was disqualified for development rebate in terms of Section 33(1)(a) of the Act. The Commissioner (Appeals) was unable to agree. It was pointed out for the assessee before him that the tractor was used for hauling of goods inside the factory premises. It was not used as a road transport vehicle outside the premises. There was no dispute about this and, hence, (the assessee claimed) the tractor was plant or machinery on which development rebate was admissible.

32. The Commissioner (Appeals) allowed the assessee's claim for the following reasons briefly: (a) The Act does not define a 'road transport vehicle'. However, the Motor Vehicles Act was of some help in the matter. Sections 2(33), 2(25), 2(8) and 2(3) of the said Act were relevant. According to the definitions therein, (of 'transport vehicle' 'public service vehicle', 'goods vehicle' and 'tractor') there was a difference between a tractor on the one hand and a transport vehicle, goods vehicle and public service vehicle on the other. A tractor means a motor vehicle which is not itself to carry any load other than equipment used or the purpose of propulsion but excludes a road-roller. As regards the other types of vehicles, they are used or adapted to be used for the carriage of passengers or goods or both.

(b) Motor tax is payable on tractor at rates different from the rates charged on public and private vehicles. A tractor is not essentially meant for carrying load or passengers. When it is permitted to carry a load, a trailer has to be attached to it for which a separate authorisation is necessary from the Road Transport Authority.

(c) There was no dispute that the tractor was used within the assessee's factory premises for inter-departmental haulage of goods.

Merely because a tractor is propelled by a motor, it would not be disqualified for development rebate as a road transport vehicle. It cannot be described as one on the facts of the case for this year.

33. While the departmental representative supported the ITO's order, for the assessee reliance was placed on the Commissioner (Appeals)'s order. It was also pointed out that this claim was accepted in the subsequent assessment. After hearing the parties and on the facts on record, we find ourselves in agreement with the reasoning and conclusion recorded by the Commissioner (Appeals). In our view, a tractor, as in the instant case, and on the facts on record for this year, cannot be denied development rebate on the ground that it was a road transport vehicle. We decline to interfere.

34. The next objection relates to the deletion of a sum of Rs. 2,16,25,470 added by the ITO as 'on money' received by the assessee on its sales, in the assessment for this year. It was pointed out before us that this ground of objection was linked with the next and last ground of objection of the revenue, which is to the effect that the Commissioner (Appeals) erred in deleting an addition of Rs. 53,070 made by the ITO on account of undervaluation of stock. We, therefore, proceed to consider both the objections together.

35. Shri Dave referred to para 7 of the ITO's order which deals with the addition on account of 'on money'. As observed by the ITO himself, the addition of Rs. 2,16,25,470 was made on the following basis: Total quantity sold to parties other than sales to DSG & D (page 864) 18107.73 M.T. Less: bodies, etc. (p. 1022) 73,17 M.T. Net sale to domestic parties--18034.56 x 1000 Rs. 1,80,34,560(ii) 'On money' on rejected pipe (p. 866)921.83 X 1000 Rs. 9,21,830(iii) 'On money' on sale of steel scrap (p. 243)2035.47 X 1000 Rs. 20,35,470(iv) 'On money' on sale of zinc ash/dust/dress Rs. 6,33,610 ____________ Shri Dave relied on the order of the ITO to contend that the addition was rightly made. The learned Counsel for the assessee, on the other hand, relied on the order of the Commissioner (Appeals) and contended that there was no case for such an addition.

36. The Commissioner (Appeals) noted first (briefly) the basis for the above addition. This was: the ITO believed that the assessee had not disclosed 'on money' charged on its sales. Accounts of the assessee were not correct and complete and hence the book version had to be rejected. Provisions of Section 145(2) of the Act had to be applied.

There was a general practice of charging of 'on money' on sales of all types of pipe-goods as well as rejected pipes and scrap generated in the manufacturing process. One of the important distributor of BST (Bharat Steel Tubes) goods, viz., the Surekha Group had been charging 'on money' on goods purchased by it directly from the assessee as well as on its purchase of BST brand goods from other sources by two of its concerns, viz., Shri Narain Raj Kumar and Jeet Mal Sita Ram. The Surekha group had been sharing the 'on money' with the assessee-company.

37. For his conclusion that there was a general practice of charging 'on money' as noted above, the ITO relied on the report of his Inspector for the period 1971 to 1974. This report was submitted in the course of the proceedings for the assessment year 1972-73. The ITO to quote the Commissioner (Appeals) also "relied on the evidence of Surekhas controlling the firms Shri Narain Raj Kumar and Jeet Mal Sita Ram which indicated charging of 'on money' on the sale of goods purchased by them from others as well as" the assessee. The ITO also relied on the evidence relating to Jindal Industries (P.) Ltd. engaged in similar business, indicating charging of 'on money' on their products. The books and records of Surekhas and Jindals which were seized in the course of a search, confirmed according to the ITO the general practice of charging 'on money' on sales of all types of pipes and tubes as noted above. The ITO also relied on the seized records of the Surekha group of firms. Some of these firms were distributors of BST goods. Their records also indicated that they had charged 'on money' on goods purchased from the assessee directly as well as on goods purchased from other dealers which included BST goods and other brand of goods. The ITO further took note of the seized records (of Surekhas) particularly registers marked B-5 and A-7. These registers gave details of dates of transactions, specification of goods, price billed, price actually charged on Surekhas, the resultant 'on money' particulars regarding rates and types of goods purchased from BST and others during the period 2-4-1973 to 21-10-1973. Purchase of goods from the assessee by Surekhas recorded in B-5 and A-7 registers tallied with the transactions recorded in their regular account books as also in the regular books of the assessee. The ITO, therefore, inferred that the entries in such seized books relating to payment of 'on money' should also be taken as authentic. These payments in cash were not accounted for in the regular books of account of either party. But they were accounted for in the seized records and hence the assessee should also be taken as having received such payments.

38. The Commissioner (Appeals) considered the above reasoning of the ITO. He was, however, not satisfied that any addition was called for in the assessee's case. He found that the ITO had not only relied on the seized books of Surekhas in this regard but also on the testimony of various others (such as Sita Ram Surekha, H.R. Gupta, Vice President of the assessee-company, Raunaq Singh, Managing Director, and S.S. Kanwar, Director of the assessee-company and P.P. Ohri, the Sales Manager of the assessee-company) for his conclusion that 'on money' had been received by Surekhas on their sales which they shared with the asses-see. Other material relied on by the ITO comprised the Inspector's report (supra) and the testimony of Vasu Dev Agarwal of Jindal Industries (P.) Ltd. and the entries in the seized books of Surekhas referred to above. The Commissioner (Appeals) also noted the actual basis of the calculations made by the ITO in working out the figure of addition of Rs. 2,16,25,470.

39. The Commissioner (Appeals) then noted that the ITO had relied on the same evidence on which a similar addition was made in this case for the assessment year 1972-73. This addition amounted to Rs. 1,05,47,111.

This was deleted by the Tribunal by its order in IT Appeal Nos. 311 and 4991 (Delhi) of 1978 and 1976-77, respectively, dated 30-6-1977. The Tribunal had considered the Inspector's report (supra) in that order as well as the relevance of the disclosures made by Jindals and Surekhas and all other material relied on by the ITO. It then held that it could not be said that there was any general practice prevalent in such types of goods in the market and that none was established. The Tribunal also held in that order that the department had failed to discharge the onus that lay on it to prove that 'on money' was paid to the assessee even on the rejected pipes and scrap which were the only goods purchased by Surekhas from the assessee. Perfect pipes, zinc ash, etc., were never sold to Surekhas as found by the Tribunal. The Commissioner (Appeals) further noted that the Tribunal dismissed the departmental appeal in this regard confirming the deletion of the addition.

40. The Commissioner (Appeals) then took note of the following specific submissions made before him for the assessee, vide, paragraph 19.01 of his order: (i) The appellant-company has 400 to 500 dealers throughout the country to whom goods are sold. Details in this respect had been filed but the department did not examine any dealer, not only in the proceedings for the assessment year 1974-75 but also in the proceedings for the assessment year 1972-73 when 'on money' was alleged and additions were made for the first time.

(ii) The total turnover of the appellant was Rs. 12.28 crores including exports while Surekhas had purchased only rejected pipes worth Rs. 6,57,121 and scrap worth Rs. 4,48,952. No other types of goods were sold to Surekhas. There is no evidence of any sort for having charged 'on money' on goods other than those sold to Surekhas and whatever evidence was relied upon by the department in holding that Surekhas had charged on money and shared with the assessee, had been rejected by the learned Tribunal in the assessment year 1972-73. The same evidence was used in assessment year 1974-75 hence it should meet the same fate.

(iii) No defects in the books have been alleged in the primary, subsidiary and financial books. The correctness of the stock book, weight and quantity tally are not challenged by the ITO. The allegation is, therefore, not supported by any defects in the books.

(iv) The appellant has certified, on being asked by the Commissioner (Appeals) that there has been no infringement of any law connected with the industry. There has been no occasioned example for the Iron and Steel Controller to take any action for any infringement of law at any time. The sales tax assessments for the assessment year 1974-75 have been completed without disturbing the turnover. The copies of sales tax orders in respect of all the branches and head office have been submitted (p. 119 of Paper Book) and the department has not brought on surface any information to the contrary although specified opportunity was given by the Commissioner (Appeals) to the department for the purpose during the hearing.

(v) The company has disclosed a reasonable gross profit of 31.5 per cent on a turnover of Rs. 12.28 crores against 25.3 per cent on a turnover of Rs. 12.57 crores in the assessment year 1973-74 and 24.6 per cent on Rs. 11.48 crores in the assessment year 1972-73. The gross profit after adjustments to bring the calculation at par with others in similar business works out to 32.9 per cent against 31.5 per cent shown by Zenith Steel Pipes & Co. Ltd., 30.6 per cent shown by Gujarat Steel Tubes Ltd. and 25 per cent shown by Jain Tubes Ltd. The turnover of these three companies was Rs. 17,68,11.37 and 10.30 crores, respectively. If charging of 'on money' was allegedly to be a general practice, similar companies must have been charged with the same allegation which, according to the appellant's information, has not been done. It is anomalous that a company showing higher results and selling products at higher rates [section (vi)] below should be subjected to this allegation and not others.

(vi) The department has relied on the seized records of Jindal Industries (P.) Ltd. which are supposed to have indicated charging of 'on money'. The appellant has submitted a statement (p. 25 of Paper Book) showing the comparative prices charged by Jindals and BST for ten different varieties of goods picked up as samples. The assessee's prices in 8 items were higher by about 40 per cent to 50 per cent than the prices charged for identical goods sold by Jindals. In one item, the price was higher by 22.5 per cent and only one item, the price charged was lower than the price charged by Jindals by about 4 per cent. The department has not contradicted these facts nor brought any material to the contrary.

(vii) Referring to the point made at (vi) above, it was submitted that the prices charged by the assessee were the real market prices and there was no scope for charging 'on money'. Such scope to charge 'on money', if at all may be when the prices are charged at less than market rate, as Jindals are stated by the department to have done.

(viii) The fact that Jindals and Surekhas have made disclosure after search has no bearing on the appellant's case. The appellant has not been confronted with the details of disclosures, as such, this evidence cannot be used against the appellant. In any case the appellant cannot be asked to explain the entries in the books of others nor do they bind the appellant nor do they disprove the books of the appellant.

(ix) The statements of the persons recorded and cited by the ITO do not incriminate the appellant at all. On the other hand, even the second statement of Shri Sita Ram Surekha recorded during the proceedings for the assessment year 1974-75 not only fails to advance the case of the department but also makes it worse.

(x) All the statements of persons recorded and relied upon by the department in the proceedings for the assessment year 1972-73 have been thoroughly examined by the learned AAC and the Tribunal who have already held that on such evidence as well as on the evidence of the seized material of Surekhas, the department has miserably failed to prove the allegations and to discharge the onus which lay heavily on it. The very same statements have been relied upon by the department in the assessment year 1974-75 hence it should meet the same destiny.

(xi) The ITO has merely stated that the facts of the case in assessment year 1974-75 are distinguishable from those of the assessment year 1972-73 without specifying the distinction. The only new material used is a mere reference to the statement of Shri Sita Ram Surekha on 27-1-1978 during the proceedings for the assessment year 1974-75 and after the date of Tribunal's order. As stated above, this statement worsens the case of the ITO and that is why he has dismissed it with a cryptic sentence at the end of the last sub-para of para 7 of his order which reads, 'it is necessary to point out here that summons under Section 131 were issued to Shri Sita Ram Surekha and in fact these records were examined by me with the assistance of Shri Sita Ram Surekha and his authorised representative, Shri P. Salarpuria, in the presence of the assessee's representative, Shri Mohan Jit Singh, and when finally the statement of Shri Sita Ram Surekha was recorded on 27-1-1978, Shri Mohan Jit Singh, Junior Executive and representative of the company, was given the right of cross-examination also'. That is the only reference made by the ITO of the new material he brought on record. This means that the ITO could not draw any strength from the fresh statement of Surekha.

(xii) Shri Yograj, an employee of Raunaq & Co. (P.) Ltd., who figures in the depositions of Shri Sita Ram Surekha was examined by the ITO on 28-1-1977 (i.e., after the assessment for the assessment year 1972-73 was made). The ITO has made no mention thereof in his order as he did not find it useful for the department's case. His deposition was obviously unhelpful to the department and did not contradict the stand of the assessee. This statement was also not relied on even in the arguments at the Tribunal stage although it was recorded before the appeal for the assessment year 1972-73 was heard by the Tribunal.

41. It was also contended before the Commissioner (Appeals) that there being no new evidence brought on record and the evidence relied on being exactly the same for this year as for the assessment year 1972-73, there was no case for addition this year also. For this, the reply of the ITO who was present before the Commissioner (Appeals) in the appeal proceedings, was that so far as this year was concerned, there was evidence of specific entries in the books of Surekhas clearly indicating the payment of 'on money' to the assessee on transactions which fell within the relevant previous year. It was pointed out that Surekhas had made a disclosure after the search in respect of 'on money' received by them. The facts of duplicate books being found the entries wherein tallied with the entries in the regular books of Surekhas as well as the assessee was also emphasized.

42. The Commissioner (Appeals) considered the above position. He agreed with the assessee's submissions and deleted the addition in question.

His reasoning is contained in paragraph Nos. 21 to 26. Briefly, the reasoning was as under: (a) There was no distinction in the facts and evidence for this year and the assessment year 1972-73 when the Tribunal deleted a similar addition. Definitely, as far as the conclusion of practice charging 'on money' was concerned, the ITO used the same evidence for 1974-75 (year in appeal here) as was done for the assessment year 1972-73.

(b) All the evidence considered by the ITO for this year, e.g., B-5 and A-7 registers of Surekhas, evidence of Sitaram Surekha, records of Jindal Industries (P.) Ltd., evidence of Vasu Dev Agarwalla, disclosures made by Jindals and Surekhas, statements of H.R. Gupta, Raunaq Singh, S.S. Kanwar, P.P. Ohri, etc., was there already. The Tribunal had already considered the above evidence for the assessment year 1972-73. It did not find such evidence as supporting an addition for 'on money' for that assessment year.

(c) Certain aspects required notice for the assessment year 1974-75 even though they have been indirectly considered by the Tribunal for the assessment year 1972-73. For instance, the seized books of account were not maintained in a regular manner even though entries tallied with those of the regular books of Surekhas as well as of the assessee. What the ITO perhaps meant was (by implication at least), that the seized books and records of Surekhas depicted the truth. Evidentiary value of the seized records had also been considered by the Tribunal for the assessment year 1972-73. This material was found to be inadequate by the Tribunal for assessing 'on money' in the hands of the assessee. Accounts of the assessee had been accepted by the department in toto. No trading account addition was made. Surekhas might have earned 'on money' but such money never reached the assessee. The assessee sold goods at a rate which was Rs. 1,000 to Rs. 1,661 per tonne more than the rates of Surekhas. Nor was the assessee responsible for the entries in the books of third parties. There was no one who testified that he personally brought the 'on money' for payment to the assessee. In fact, all these aspects were considered in first appeal for the assessment year 1972-73 and also by the Tribunal for that year. It was also seen from the evidence on record that certain entries did not find place in the seized books. There were transactions where no names were given. Pages were torn partly with the result that debit entries regarding payments to various parties were not available.

All these show that the seized books were not complete in themselves and it would not be correct to give so much credence to them as done by the ITO. (d) In the instant case, there was no witness who admitted having paid the 'on money' personally to the assessee. On the other hand, Shri Surekha admitted having received 'on money' and denied having paid 'on money' to the assessee personally himself. One Jagdish Prasad was stated to have passed on the 'on money' to Yograj, an employee of the sole selling agent of the assessee-company. That Jagdish Prasad was not alive for being examined and Yograj denied having received any such amount from Jagdish Prasad or anyone else.

It had to be reiterated that the entire evidence had been considered by the Tribunal for the assessment year 1972-73 and hence the finding of the Tribunal for that year had to be followed this year also. Even assuming, the findings of the Tribunal for 1972-73 were not binding for this assessment year, on merits also the evidence relied on by the ITO was not adequate and conclusive to support the case of payment of 'on money' to the assessee.

26.04. To sum up, it is not possible to support the addition made in respect of the alleged 'on money' on merits and in law. The only new evidence in the form of a fresh statement of Shri Surekha recorded on 27-1-1978 collected during the assessment proceedings for assessment year 1974-75 has not been pressed into service by the ITO who has just mentioned the fact of having examined him and no more.

The said statement does not advance the cause of the department at all and that is why perhaps this evidence has not been utilised.

There does not appear to be an attempt by Shri Surekha to avoid answering questions or committing to any positive statement in favour or against the appellant since he is the witness of the department and the said evidence in the form of the statement dated 27-1-1978 has not been relied upon by the ITO at all, the original bindings in respect of the total evidence are not affected by this statement. Under the circumstances, it has to be held that the allegation of the appellant having received 'on money' is not conclusively proved on merits and even in law. As a consequence the entire addition of Rs. 2,16,25,470 is deleted.

44. As regards the next ground of objection which, admittedly is linked with the above ground, the Commissioner (Appeals) disposed of the matter as under: 27.01 The ITO's view cannot find support on any ground. Even if the existence of premium on price is assured the realizable value plus the premium of Rs. 1,000 per tonne would raise the market price but he has not shown that the cost of the rejected pipes would still be lower. But the question is now of academic interest as it has already been held above, while dealing with ground No. 2, that the existence and receipt of 'on money' or premium on the goods sold by the appellant has not been proved and the addition made by the ITO has been deleted and the assessee's trading results have been accepted. Consequently, the additions to the value of the closing stock do not survive.

45. Shri Dave took us through the orders of the authorities below. He relied strongly on the ITO's order. We, however, asked him to show in what way the evidence considered by the ITO this year was qualitatively different from that considered by him for the assessment year 1972-73 and evaluated by the Tribunal in the appeal for that year. Shri Dave submitted that the material considered this year related to this year.

The learned Counsel for the assessee, however, referred to the detailed analysis of the Commissioner (Appeals) in his order on this point and contended that there was no difference in the evidence of this year and of the assessment year 1972-73 already looked into by the Tribunal.

46. After hearing the parties and on looking into the material on record we find that the Commissioner (Appeals) is correct in concluding that the ITO has acted on the same evidence this year as considered by him for the assessment year 1972-73. In this view of the matter, we find ourselves in respectful agreement with the conclusion reached by the Tribunal for the assessment year 1972-73. We would, therefore, maintain the order of the Commissioner (Appeals) for this year. In other words, we do not find any infirmity in his order in deleting the aforesaid sum of Rs. 2,16,45,470. For the same reasons, we also find that the Commissioner (Appeals)'s deletion of the addition of Rs. 53,070 on account of under-valuation of closing stock was also in order. Both these objections by the revenue are, therefore, rejected.

In this appeal by the assessee, the first objection is to the validity of the assessment itself. The contention is that the assessment was made beyond the limitation period in terms of Section 153(1)(c) of the Act. The prayer is that the assessment should be quashed as null and void.

48. Shri Sharma, the learned counsel for the assessee, pointed out the following facts on which the above fundamental objection is based: (a) return of income was filed under Section 139(1) of the Act on 31-7-1974; 49. The counsel then invited attention to Section 153(1)(c). This provision reads as under: (1) No order of assessment shall be made under Section 143 or Section 144 at any time after- (c) the expiry of one year from the date of the filing of a return or a revised return under Sub-section (4) or Sub-section (5) of Section 139; or 50. The counsel contends that on a reading of the various sub-sections of Section 139 as also Section 153(1), it would be clear that limitation begins to run as soon as a revised return is put in under Section 139(4) or under Section 139(5). In the instant case, Section 139(4) did not apply at all. That provision applies only in the case of a person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) of Section 139. In such a case he may file a return at any time before the assessment is made. In the instant case, there was no dispute that the return filed on 31-7-1974 was a return under Section 139(1). Hence, Section 139(5) was the provision applicable. This provision reads as under: (5) If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.

According to the counsel, there could be only one return in law under Section 139(5). In this case, the first revised return was filed on 29-8-1975. In terms of Section 153(1)(c) limitation started running from that day. The assessment should, therefore, have been completed by or before 28-8-1976. The assessment having been completed on 1-3-1978 has to be struck down as a nullity, being barred by limitation.

51. According to the learned Counsel, there are four classes of returns. These are: The return under Section 139(5) can only be pursuant to a return already furnished under Section 139(1) or under Section 139(2). So far as the return under Section 139(5) is concerned, filing of such a return can be done only once. This is obvious from the word 'therein' occurring in Section 139(5), i.e., when an assessee discovers any omission or any wrong statement either in the return filed under Section 139(1) or in the return filed under Section 139(2), he may file a revised return under Section 139(5). The Legislature could not have intended (the counsel submits) an unfettered privilege being conferred upon a particular class of assessees. The Legislature could not also have intended to restrict the right of other assessees to only one return.

Obviously, if more than one return is permissible under Section 139(5), an assessee can go on filing returns (at intervals) endlessly and the assessment process can be delayed indefinitely. On the other hand, an assessee who has not filed any return under Section 139(1) or 139(2) can file only one return at any time before the assessment is made. It would, therefore, be harmonious (the counsel argues) to construe Section 139(5) as authorising only one return pursuant to a return under Section 139(1) or 139(2). Any other construction would impute a bias to the Legislature and such a construction should not be favoured.

52. Shri Dave, for the revenue, submits that whatever be the number of returns the Legislature has or has not authorised under the law, the ITO can act on only one return. He cannot make piecemeal assessment with reference to the various returns that may come to be filed by an assessee before an assessment is made. The departmental representative invites attention to Rule 12 of the Income-tax Rules, 1962 ('the Rules'). This refers only to 'a return of income' required to be furnished under Section 139(1) or under Section 139(2) or under Section 139(3) or under Section 139(4)(a) or under Section 139(4)(6). In other words, no form of return is specifically prescribed under the rules for returns to be filed under Section 139(4) or under Section 139(5). This means a return under Section 139(5) is nothing but a return under Section 139(1) or under Section 139(2). According to the departmental representative, when a revised return is filed under Section 139(5), the earlier return filed under Section 139(1) or under Section 139(2) gets substituted by the later revised return. In effect, what remains is only 'a' return under Section 139(1) or under Section 139(2), as the case may be. The position in law that naturally follows is that there is no limit to the number of times an assessee can revise his return under Section 139(5) before the assessment is made. In reply, Shri Sharma contended that though all returns were returns of income, the consequences were different. If indeed there was substitution as claimed for the revenue, the counsel submitted, then no penalty under Section 271(1)(c) of the Act can be levied with regard to the concealment detected in the original return. The revised return may make good the concealment detected by the ITO in the first return. On the other hand, the accepted position in law is that the first return is relevant for the purposes of deciding concealment and, hence, it cannot be claimed that the first return gets obliterated for all purposes. When Section 139(5) uses the phrase 'a revised return' it clearly refers only to a single return and not to a series of returns.

53. Various authorities were cited before us by both the revenue as well as by the learned Counsel for the assessee. One particular decision was against the assessee on the very point in dispute here.

This was in the case of Niranjan Lal Ram Chandra v. CIT [1982] 134 ITR 352 (All). The facts here were: the assessee filed a return under Section 139(1) for the assessment year 1966-67 showing a business income of Rs. 55,489. Thereafter, on 2-3-1971 he filed a revised return under Section 139(5) showing an income of Rs. 50,273. A second revised return was filed on 8-2-1972 showing an income of Rs. 38,138. The assessment was completed on 6-2-1973. The assessee contended that limitation had supervened on 2-3-1972 limitation having run from 2-3-1971, the date of filing the first revised return and, hence, the assessment was null and void. But the Court held that a revised return may be furnished at any time before the assessment is made, by a person who has furnished a return under Section 139(1) or Section 139(2). Once a revised return has been filed under Section 139(5), the original return is supplanted by the revised return, as a result of the amendment made in the original return as affected by the revised return. In other words, the revised return on such substitution becomes a return under Section 139(1). In the case before the Court the original return was one under Section 139(1). The ratio would be the same for a return under Section 139(2) also. Hence, a second revised return can be filed under Section 139(5) correcting the omissions or wrong statements made in the first revised return since such a return would in the law be a return under Section 139(1) also. The result of filing a second revised return would be to extend the period of limitation for an assessment under Section 153(1)(c).

54. Shri Sharma, aware of the above direct authority, submitted that this judgment was rendered per incuriam and should not be followed by us. He also submitted that the Delhi Benches of the Tribunal while dealing with appeals filed outside the jurisdiction of the Allahabad High Court were not bound by the rulings of the Allahabad High Court.

The contrary proposition stated by the Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589, is according to the learned Counsel, too wide for acceptance. Such a proposition, if accepted, would hamper the development of law itself. The counsel also refers in this regard to the observations of the Kerala High Court in AITO v. Puthimoole Krishna Bhat 1981 Tax LR 1657 at p. 1662. Hence, according to the counsel, the Tribunal should not feel bound by the decision of the Allahabad High Court in Niranjan Lal Ram Chandra's case (supra) and should independently record its interpretation on the relevant provisions in dispute here.

55. Of all the various authorities cited before us, we find that Niranjan Lal Ram Chandra's case (supra) is directly in point. The only question is whether we are free to take a different view for the reasons stated by the assessee's learned Counsel. In the absence of any other ruling of the Supreme Court or of any High Court directly on this point, we are of the view that we are bound to follow the ruling of the Allahabad High Court in this case. Judicial discipline requires us to do this. No doubt law develops on dissent and free discussion. But every dissent does not lead to enlightenment. We would, therefore, following the ruling in Niranjan Lal Ram Chandra's case (supra), hold that the charge of the assessment being a nullity on grounds of limitation is not shown to be valid in law. The assessment cannot be quashed on that ground. This objection of the assessee is, therefore, rejected.

56. The next objection relates to partial disallowance of the assessee's claim for relief under Section 35B by the Commissioner (Appeals). As regards this objection, the revenue in its appeal has also taken a corresponding ground. We have considered the entire order of the Commissioner (Appeals) in this regard and have recorded our findings also thereon in paragraph No. 27 (supra). The findings there would cover the objection raised for the assessee in this regard in its appeal also. Hence, we do not find it necessary to discuss this objection separately.

57. The next objection relates to disallowance of an expenditure of Rs. 8,721 on account of advertisement and import licence free in respect of a new project for manufacturing hand tools. The ITO disallowed it as expenditure of a capital nature, incurred for setting up a new business. The assessee's claim before the Commissioner (Appeals) was that the expenditure was incurred in the course of its normal business activity for a project 'under the same control'. The fact that the project had to be given up according to the assessee, was not material.

58. The Commissioner (Appeals) noted that the project was for establishing a factory at Aurangabad. It was a new venture. It was not connected with the existing business of the assessee. The assessee is a manufacturer of steel pipes. The new project was for manufacturing hand tools. This was a new line of business. The expenditure in question was, therefore, by way of exploration prior to the setting up of a new business. If the project had come into being, the amount of expenditure would have been capitalised. The Commissioner (Appeals), therefore, deleted the claim. The assessee is in appeal.

59. The learned Counsel for the assessee admits that it was a new line of business but still contends that it was the 'same' business as is being carried on by the assessee. He submits that there was unity of control and interlocking as regards these two businesses and hence the loss in the new project (though the project proved abortive must be allowed as a revenue expenditure. Shri Dave, on the other hand, submits that the test proponded and relied on for the assessee is irrelevant here. That test is applicable in the context of allowing or not allowing a loss carried forward from an earlier year from a business activity against the profit of a subsequent year from business. As regards the instant claim, Shri Dave submits that the new project itself had not come into being, and therefore, there was no question of there being two business activities both of which can be said to constitute the same business.

60. After hearing the parties, we do not see any room for interference.

The test referred to by the learned counsel for the assessee is not in context. Here the assessee incurred certain expenditure with a view to starting a new project, i.e., manufacturing of hand tools. This project never took off the ground. There is, therefore, no question of this preliminary expenditure being classed as expenditure of a business activity which was part of the business in manufacture of steel pipes and tubes being carried on the assessee. We decline to interfere.

61. The next objection relates to disallowance of a sum of Rs. 12,000 claimed as business expenditure. The ITO disallowed the claim as it represented penalties imposed by the Excise and Taxation Officer (Enforcement-cum-Assessing Authority) for non-payment of passenger tax on the vehicles owned by the assessee for the purpose of business. The submission for the assessee before the Commissioner (Appeals) was that such penalties were part of passenger tax and, hence, allowable as business expenditure. The facts noted by the Commissioner (Appeals) are: There was some dispute about the payment of passenger tax for the assessment years 1966-67 to 1973-74. The liability for the said tax arose in the year under appeal and was also paid. The authority concerned, however, imposed a total penalty of Rs. 12,000 for the said eight years. This was also disputed. According to the Commissioner (Appeals), this penalty of Rs. 12,000 represented an outgoing arising out of an infringement of law and hence could not be allowed as a business expenditure.

62. The counsel for the assessee reiterated this submission before the authorities below. He also referred to the decision in Mahalakshi Sugar Mill Co. v. CIT [1980] 123 ITR 429 (SC). Shri Dave supported the order of the Commissioner (Appeals).

63. We have heard the parties. We have also seen the decision relied on. In that case, interest was paid by the taxpayer company engaged in the business of manufacture and sale of sugar under Section 3(3) of the U.P. Sugarcane Cess Act, 1956, on arrear of cess payable 'on the entry of cane into the premises of a factory for use, consumption or sale therein'. The High Court was of the view that it was not allowable business expenditure as it was paid by way of penalty for infringement of the said Act. The Supreme Court reversed the decision of the High Court. In its view, interest payable on an arrear of cess under Section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess 'carries' interest, if the cess is not paid within the prescribed period, a larger sum will become payable as cess. The enlargement of the cess liability is automatic under Section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue.

It is not a penalty, for which provision has been seperately made by Section 3(5). The penalty payable under Section 3(5) lies in the discretion of the collecting officer or authority. In truth, the interest provided for under Section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess.

64. In the light of the above position, we do not see how the assessee's claim can be allowed. There is no dispute here that the disputed amount was a penalty. It cannot be looked upon as an 'automatic enlargement' of the tax liability. Nor is it the assessee's case that no specific order is necessary for imposition of the penalty.

It was also not argued before us that there was no separate provision for the levy of such penalty in the relevant statute. A penalty cannot be looked upon as a mere accretion to the tax liability in question.

We, therefore, decline to interfere.

65. The next objection is to the disallowance of Rs. 2,25,000 being expenditure incurred for exploring the possibility of manufacture of raw material, i.e., steel/strips for captive use of the existing plant.

Under the head 'General expenses', the assessee claimed a deduction of Rs. 1,50,000 paid to M.M. Dastur & Co., industrial consultants and Rs. 75,000 to Industrial Development Services for exploring the possibility of manufacturing steel strips for captive use of the tube and for acquiring scrap. It was claimed that the project was for procuring raw material for the existing units and hence it was a revenue expenditure.

The ITO, however, disallowed it. The Commissioner (Appeals) noted the following in this regard: (a) The new project was meant for manufacturing or acquiring raw material. The ITO did not go into the question whether steel strips were actually required as raw material for manufacturing the existing products (tubes and pipes). Nor did the assessee throw any light in this regard. From the facts available it would be seen that a separate plant was being thought of. Failure of this project did not actually affect the continuation of the existing business.

(b) Production of raw material can be a separate activity requiring substantial capital. There are cases where raw material is produced in a separate undertaking promoted by the same company in order to feed its existing units. Merely because there was unity of control between the existing business and this new project, the assessee's claim cannot be allowed.

(c) The relevant test would be whether such expenditure would be revenue or capital if the project had ultimately materialised. If the project had materialised, such an expenditure would have been capitalised. There was no reason why the expenditure should have a different character when the project did not go through. In the above view, the Commissioner (Appeals) sustained the addition.

66. Before us the submissions before the authorities below are reiterated. Learned Counsel says the assessee got a feasibility report prepared for the project. The assessee was informed by the consultants that it would not be advisable to start such a project. It, therefore, abandoned it. Since the project was for creating a source of raw material for captive use in its own factory, the expenditure not having resulted in any asset of enduring nature, the claim had to be allowed as a revenue expenditure. For the revenue, Shri Dave supported the orders of the authorities below.

67. We have considered the matter. There was no dispute before us as to the quantum of the expenditure incurred or the purpose for which the expenditure was incurred. The only point is whether such an expenditure is allowable as a revenue expenditure this year.

68. No dispute was raised specifically, that setting up a project for manufacture of raw material for captive use by the assessee's factory would be closely linked with the assessee's existing business, i.e., manufacture of steel tubes. However, every expenditure incurred on an activity connected with an existing business does not get to be allowed as revenue expenditure. Very often, the line dividing capital and revenue expenditure gets blurred. But in the case before us the distinction is evident. The decision in the case of CIT v. Seshasayee Bros. (P.) Ltd. [1981] 127 ITR 218 (Mad.) was cited before us. That was a case of a managing agency company. It had been investigating several projects and wherever feasible, promoting new industrial undertakings.

If the new undertaking materialised the expenses were transferred and recovered from the new unit and the assessee secured the office of managing agents or technical consultancy or the like and earned profits. If, however, the project was unsuccessful, the assessee wrote off the expenses. For the assessment years 1966-67 and 1967-68 the assessee claimed deduction of Rs. 9,865 and Rs. 10,785 respectively being project expenses incurred in a newsprint paper mill project which did not materialise. The Tribunal held that such expenses to be of revenue nature as the assessee's business was promotion of new ventures [Emphasis supplied]. The Madras High Court upheld the decision of the Tribunal. It held that the expenses were incurred by the assessee in the course of business as promoter of companies or as managing agents and with a view to augmenting their income. On the facts before us, if we apply the ratio of this case, we have to uphold the orders of the authorities below, no doubt, no asset of an enduring nature resulted from the expenditure. It is, however, not the business of the assessee to promote projects as in the case before the Madras High Court referred to above. Expenditure incurred for the purpose of or with a view to acquire a capital asset could, therefore, be rightly looked upon as capital in nature. This was the reasoning preferred by the Allahabad High Court also in CIT v. Bazpur Cooperative Sugar Factory Ltd. [1982] 10 Taxman 246. We therefore, decline to interfere.

69. The next objection concerns a disallowanee of Rs. 15,000 alleged to be in the nature of entertainment expenditure. This is not pressed and, hence, rejected.

70. The next objection relates to the refusal of the authorities below to allow relief under Section 80G of the Act on donations made by the assessee to the extent of Rs. 1,86,445. The total claim before the ITO was Rs. 2,01,320. It appears that the ITO allowed relief under Section 80G in respect of donations totalling Rs. 13,555 only, for want of proof of payment and/or exemption certificates for such donations under Section 80G. In respect of major donations amounting to Rs. 1,73,000 (Raunaq Education Foundation), the ITO disallowed the relief claimed as, according to him, exemption under Section 11 of the Act was granted to the donee foundation only up to 31-3-1973. The assessee appealed.

71. After hearing the assessee, the Commissioner (Appeals) referred the matter to the ITO for a de novo decision after looking into the evidence filed by the assessee.

72. Before us it is pointed out that the ITO has already allowed the necessary relief on the donations of Rs. 1,73,000 to Raunaq Education Foundation by his subsequential order dated 17-8-1979. The claim is, therefore, confined to Rs. 12,000 before us. This donation was to the Haryana Welfare Society for the Deaf and Dumb. On page 6A of the paper book is a copy of the letter issued by the Commissioner (Appeals), Patiala, granting exemption under Section 80G to the society. The ITO is, therefore, directed to consider the claim of the assessee in the light of this evidence and dispose of the claim for exemption in accordance with law.

73. The last objection concerns the refusal of the authorities below to allow the assessee's surtax liability as business expenditure in computing the taxable income for this year. After hearing the parties, we see no room for interference. This is because such a disallowance is supported by an order of the Special Bench of the Tribunal in the case of Amar Dye-Chem. Ltd. v. ITO [1983] 3 SOT (Bom.) [IT Appeal No. 3643 (Bom.) of 1974-75, dated 1-12-1977]. This objection of the assessee is, therefore, rejected.

1. I am in full agreement with the finding of my learned brother except for those contained in paras 47 to 55. The assessee has raised a plea that the assessment was time barred. His learned Counsel had raised several pleas which we would shortly notice. But my learned brother, relying on the decision of the Allahabad High Court in the case of Niranjan Lal Ram Chandra (supra), sought to reject the pleas raised on behalf of the assessee with the observation that judicial discipline required that if a Supreme Court decision was not available on the subject, the Tribunal must follow the decision of a High Court because, in his view, dissent would not lead to enlightenment in the case in hand. I am unable to see the light which my learned brother has seen from the Allahabad High Court decision in respect of the pleas raised by the learned Counsel for the assessee. The learned Counsel for the assessee had claimed that according to the provision contained in Section 139(5), it was not open to an assessee to file a revised return more than once. According to him, law did not permit an unfettered licence to an assessee in this matter. According to the provision contained in Section 153(1)(c) an assessee got an extension of one year from the date of filing the revised return. According to the learned Counsel, if there was no limit, the assessee may go on filing the revised returns ad infinitum. A time may come by undertaking to file unlimited number of revised returns, the present would be joined to the eternity itself. He made another submission on the basis of decision of the Delhi High Court that an assessee who had filed return under Section 139(4) could not revise the return. This would imply such an inequitable and unequal treatment to the taxpayer who file a return under Section 139(4) as compared to the treatment permitted to those who file a return under Sub-section (1) or (2) of Section 139. If an assessee who was not served with a notice under Section 139(2) files the return on the 31st of July of an assessment year, he would have a right to file unlimited number of revised returns. But if he filed his first return on the 1st of August, a. day later, he would not, according to the Delhi High Court, have any right to file a revised return under Section 139(5), although there may be a genuine and bona fide need of correcting and revising the return. He also drew support for his proposition that a taxpayer was permitted to file only one return from the use of the article 'a' used in Section 139(5).

Referring to the treatment to be meted out to taxpayers who choose to file returns under Section 139(4), he submitted, that permitting an assessee an unfettered right to file revised returns under Section 139(5) would bring about such an inharmonious construction of the law on the subject that one begins to doubt if that could have been the intention of the law maker.

2. On a consideration of rival pleas, 1 am not disposed of to hold that the import of provisions contained in Sub-section (4) or (5) of Section 139 or Clause (a) or (b) or (c) of Sub-section (1) of Section 153 has been correctly appreciated by either party. Sub-section (4) or (5) permits a return or a revised return, respectively, to be filed before the assessment is made. In both these sub-sections the same expression 'before the assessment is made' is used. The expression places a limitation on the right of the taxpayer to file a return or a revised one to be filed and that is indicated by the expression 'before the assessment is made'. Can one have any doubt about the time indicated by this expression If no return is filed under Sub-section (5) of Section 139, no one will dispute that assessment would fall to be made within the time indicated by Clause (a) or (b) of Sub-section (1) of Section 153. For the time being I rule out that it is a case falling within Clause (c) of Sub-section (1) of Section 271, i.e., involving penalty for concealment which is also the case before us as neither parties contended otherwise. In normal non-penalty assessment time will be set by the limit provided in clause (a) only. To be precise, in the case in hand, it will be 31-3-1977. Therefore, as the assessment will be required to be made on or before 31-3-1977, a return under Section 139(4) could not be filed after this date, i.e., after 31-3-1977.

Similarly, it follows that a revised return under Section 139(5) could not be filed after this date--31-3-1977. Therefore, a revised return to be filed is to be filed before the assessment is made, i.e., in our case before 31-3-1977 only. It is for this reason a return filed under Sub-section (4) and a revised return under Sub-section (5) of Section 139 after the assessment is made that is after the time limit set in Clause (a) of Sub-section (1) of Section 153 will be considered invalid. A revised return filed after the date of assessment, i.e., after the time limit set in Sub-section (1) of Section 153, i.e., after 31-3-1977 is to be considered invalid and bereft of any legal effect. A little consideration about the expression used in provision contained in Sub-section (4) and that in Sub-section (5) of Section 139 will support the aforesaid view. A return where no return has been filed can be filed only 'before the assessment is made', which refers to the time limit set in Clause (a) of Section 153(1). How can a revised return under Sub-section (5) of Section 139 required to be filed 'before assessment is made' mean a date of assessment different from the date of assessment for a return under Section 139(4). In my consideration, therefore, it is a mistake to think that the expression 'before assessment is made' can be found to refer to the extended time limit provided in Clause (c) of Sub-section (1) of Section 153 as I have shown above. Filing a revised return does not operate to extend the time limit for filing another revised return as has been wrongly assumed by both the parties.

3. A taxpayer no doubt has a right to revise his return under Sub-section (5) as many times as he may but he must file the revised return 'before the assessment is made'. His right is not restricted to filing only one revised return as has been erroneously canvassed for by the learned Counsel for the assessee, but his right is not as unlimited as was canvassed by the departmental representative speaking for the revenue that he can go on revising the return with the help of revised returns till the doomsday--till the eternity and beyond. The right of filing a return or a revised return is to be exercised on or 'before the date of assessment', which could be determined as if no revised return had been filed--as provided in Clause (a) of Sub-section (1) of Section 153. If filed later, it has to be considered invalid and not of any legal consequence.

4. Both the parties have erroneously assumed that revised return which extended the time limit for making the assessment extended also the time for filing another revised return to be subsequently filed. In my view, the assumption proceeds from a fallacy and a misconstruction of Section 139, as has been illustrated above. When a second return is filed the first revised return has been admitted by both parties to lapse or to lose its operation and effect. It is the subsequently revised return which is to be looked upon as the one revising the original return and it is this return alone which has the effect of extending the time limit as provided in Clause (c) of Sub-section (1) of Section 153. An earlier revised return which being supplanted by a subsequent return and having lost its legal effect cannot be still considered to be extending the time limit, as provided in the aforesaid Clause (c). There is no authority or support available from any provision of law in favour of this view, nor does it affect the validity or otherwise of the later revised return. The later revised return has to stand upon its own validity in the background of the original return and 'the date of assessment' as indicated above to have effect upon the original return. It cannot depend upon a revised return which having been substituted has lost its effect and operation. If it were otherwise, there would have been a firmer expression in Sub-section (1) of Section 153. There would have been either one or more time limit provided on account of a revised return which had lapsed being supplanted by a subsequently filed revised return and which, consequently, had lost its operation and effect for assessment purposes. If there was any intention to add to the period for making assessment it would have been provided by a further addition to the Explanation appended to Section 153. A perusal of the provision contained in Sub-section (1), particularly of that contained in Clause (c) against the background of those in clauses (a) and (b) does not suggest that the period for making assessment could be considered to be extended beyond twelve months from the date of filing the revised return on the basis of which assessment is made. The extension is to be read in the context of the time limit provided by Clause (a) or (b) and not in the context of time limit already extended by a revised return filed earlier under Section 139(5), which had lost its operation and effect. And this is natural because the revised return which is effective and on the basis whereof assessment is made has the effect of revising the original return only and not the earlier revised returns, which as pointed out above were bereft of their effect and operation by a revised return filed subsequently. Time is extended as a result of this revised return only as compared to the time limit provided by Clause (a) of Sub-section (1) of Section 153 and not by the effect of earlier revised returns, which admittedly were bereft of any legal effect and operation.

5. Therefore, whatever way we look at either from a consideration of provisions contained in Section 139(4) and Section 139(5) or from a consideration of Section 153(1), we reach the same finding that a revised return must be filed before the date of assessment as specified above and that it is with reference to the date of filing of the last revised return that extension of twelve months is permitted for making the assessment.

6. Bearing these principles the validity of returns filed by the assessee has to be examined. The first return was filed on 31-7-1974.

If no revision had taken place, the assessment was to proceed on the basis of this return only. The time limit for making the assessment on the basis of this return would have ended on 31-3-1977. A revised return had to be filed on or before the 'assessment could be made' on this date. A revised return filed after this date would be undoubtedly considered an invalid return. Therefore, the revised return filed on 29-8-1975 being one filed before the prescribed date of assessment, i.e., 31-3-1977 was a valid revised return but this revised return, followed by a second revised return filed on 10-2-1977 lost its effect and operation. The second revised return filed before the prescribed date of assessment, i.e., 31-3-1977 was also to be considered a valid revised return. This extended the period of assessment by twelve months following the date of filing the return on 10-2-1977 that is up to 10-2-1977. An assessment up to this date could not be considered barred by time. The assessment was, however, made on 1-3-1978--a date which fell beyond the period of twelve months from the date of filing of the second revised return. Could the assessment be saved on account of the third revised return having been filed on 23-1-1978 I have already brought out the date of assessment as prescribed by Clause (a) of Sub-section (1) of Section 153 as 31-3-1977. The third revised return having been filed after the date of assessment as provided in Clause (a) of Sub-section (1) of Section 153 was invalid and did not have the effect of revising the return nor that of extending the time for making the assessment. This revised return could not as brought out above be considered as valid, on account of a revised return having been filed earlier on 10-2-1977.

7. In this view of the facts, the plea of the assessee that assessment made on 1-3-1978 was barred by time has to be upheld while the contrary plea of the revenue that the assessment was within time has to be rejected. In my view, the assessment is liable to be quashed and I direct accordingly.

1. On a difference of opinion between the learned members, the following points of difference are stated: 1. Whether, on the facts and in the circumstances of the case, the revised return filed on 23-1-1978 was invalid return in the eye of law 2. Whether, on the facts and in the circumstances of the case, the assessment completed on 1-3-1978 was one made beyond the time prescribed in Section 153 of the Income-tax Act and, therefore, liable to be quashed The case having been assigned by the President to himself for disposal as Third Member, it has come up for hearing before me.

2. It is pertinent to mention that the Bench has passed a consolidated order covering both the assessee's and departmental appeals, being IT Appeal Nos. 2557 and 2828 (Delhi) of 1979. However, the difference has been on an issue which arises out of the assessee's appeal only. That is why only one IT Appeal No. is mentioned in the cause title of the order.

3. The relevant facts, in brief, are that the assessee is a company and the proceedings relate to its assessment for the assessment year 1974-75. Return of income was filed voluntarily under Section 139(1) on 31-7-1974. First revised return was filed on 29-8-1975, the second revised return was filed on 10-2-1977 and the third revised return was filed on 23-1-1978. The assessment was completed on 1-3-1978. Under ordinary circumstances, the assessment for the year would have been barred by limitation if not completed on or before 31-3-1977. However, if the second and/or the third revised returns are treated as valid revised returns, the assessment would be barred by limitation only if not completed before 10-2-1978 and/or 23-1-1979, as the case may be.

4. The assessee's case is that the third revised return filed by it on 23-1-1978 is not a valid return, that the assessment on the basis of the second revised return should have been completed on or before 10-2-1978 and that the same having been completed on 1-3-1978 is barred by limitation. The department's case, on the other hand, is that the third revised return is as valid a return as the first and/or the second revised returns and so the assessment would have been in time if completed on or before 23-1-1979. The learned Accountant Member has dealt with this issue in paragraphs 47 to 55 of his consolidated order while the learned Judicial Member's entire order running into seven paragraphs deals with this issue only.

5. Besides, strongly relying on the order of the learned Judicial Member, Shri Sharma, the learned Counsel for the assessee, has reiterated that Section 139(5) contemplates 'a' revised return which means one revised return only and not more than one. According to him, the use of the expression 'therein' in the sub-section indicates that revised return can be filed only if there is omission or wrong statement in the return furnished by the assessee under Sub-section (1) or (2). In other words, his submission is that an omission or wrong statement discovered in the return filed under Sub-section (5) cannot be cured by filing another revised return. Lastly, he argued that the expression 'before the assessment is made' used in Section 139(5) is very important. This expression, according to him, means and can only mean that a revised return can be filed before the assessment is factually made or can be made under Section 153(1)(c) simpliciter and not within the extended time on the basis of a revised return or returns. It was stated that if the interpretation sought to be given by the learned Accountant Member is accepted, it will lead to absurd results. The assessee, in that case, would be able to postpone his assessment for an unlimited period as this interpretation will enable him to file a series of revised returns before the assessment is completed on the basis of an earlier revised return. In support, Shri Sharma has referred to the provisions of Section 139(4) where the dates before which returns can be filed by an assessee are specifically mentioned.

6. Strong reliance has been placed on the order of the learned Accountant Member on behalf of the department. It is submitted that the expression 'a' does not necessarily mean one; it will include within it one or more than one. It is stated that the return filed under Section 139(5) is nothing but a substituted return under Section 139(1) and, therefore, the argument that a revised return can be filed only when an omission or wrong statement is discovered in the return filed under Section 139(1) or 139(2) does not carry the case of the assessee farther. The expression 'before the assessment is made', according to the departmental representative, means and can only mean, the factual state of affairs, i.e., before the date on which the assessment is made or the date on or before which the assessment can be legally made having regard to the facts and circumstances of that case and not the ordinary time limit provided in Section 153 for completion of the assessment. In this context, it is pointed out on behalf of the revenue that Section 139(4) supports the order of the learned Accountant Member rather than that of the learned Judicial Member. There the Legislature felt or wanted to provide separate time limits for filing returns, and has taken care to mention 'before the assessment is made' or 'before the end of the period specified', etc. Such a provision having not been made in Section 139(5) it will be too much to assume that the expression 'assessment is made' in Section 139(5), should have a different meaning from what it has in Section 139(4). According to the revenue, the interpretation sought to be given by the learned Accountant Member does not lead to any absurdity at all. On the other hand, the interpretation given to the provisions by the learned Judicial Member leads to absurdities. For instance, in this very case, the assessee has filed not one but three revised returns. The ITO has accepted the stand taken by the assessee, namely, all the returns filed by the assessee are valid returns. Now, when the assessee finds that such an argument does not suit its convenience, it turns round and argues that the third revised return is not a valid return.

It may be mentioned that reference has been made to the following decisions at the time of hearing--Nirajan Lal Ram Chandra's case (supra), Bhaskaran v. Addl. ITO [1963] 47 ITR 334 (Ker.), S.S. Gadgil v. Lal & Co. [1964] 53 ITR 231, 239 (SC) and Dr. S.B. Bhargava v. CIT [1982] 136 ITR 559 (All.).

7. I have carefully considered the rival contentions and have gone through the decisions relied upon by the parties. Section 139(1) and Section 139(5) of the Act reads as under: (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-- (5) If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.

It is pertinent to mention that the expression 'before the assessment is made' has also been used in Sub-section (4) of Section 139 but in that Sub-section the Legislature has provided that a return can be filed by an assessee under Sub-section (4) before the assessment is made or before the end of the period specified in Clause (b) thereof.

There is obviously no such provision in Sub-section (5). Therefore, I am inclined to take the view that the expression 'before the assessment is made' has reference to the factual state of affairs, namely, before the assessment is actually made. All the same, on the other point made out by Shri Sharma, namely, if no assessment is at all made on the return filed by the assessee, it may not be correct to say that a revised return can be filed at any time, say, after six years, eight years or even ten years. I am inclined to agree with him that the expression 'before the assessment is made' would also mean and include 'before the assessment can be legally made'. However, the date on or before which the assessment can be legally made would be the date on the basis of the revised return filed, if any, by an assessee in a case. The assessee cannot file a revised return and thereby extend the time limit for completing the assessment and say that the extended time limit is not the time within which the assessment can be made. As regards the submission that a revised return can be filed only when the assessee discovers an omission or a wrong statement in the return filed under Section 139(1) or (2) or the revised return can be filed only once. I am of the view that the revised return is a substituted return under Section 139(1) or (2) and there is no material difference between the return filed under Section 139(1), 139(2) or 139(5). For this purpose, I derive support from the observations of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. Accordingly, I agree with the learned Accountant Member that the revised return filed by the assessee on 23-1-1978 was a valid return and, therefore, the assessment completed on 1-3-1978 was within time.

8. The order will now go to the Bench for decision according to the majority view.


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