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Export House Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Amritsar
Decided On
Judge
Reported in(1985)13ITD687(Asr.)
AppellantExport House
Respondentincome-tax Officer
Excerpt:
1. the assessee, a firm, is in appeal for the assessment year 1978-79 against the order under section 263 of the income-tax act, 1961 ('the act') of the commissioner. the commissioner on examination of the assessment records was of the view that the assessment order dated 21-11-1978 of the ito was erroneous insofar as it was prejudicial to the interests of revenue on the point of allowing weighted deduction of rs. 2,84,779 under section 35b of the act in respect of the following items of expenditure : sl.nature of amount of sub-clause (s) of clause (b) of no.expenditure expenditure section 35b(1) under which the expenditure was claimed 1. freight 7,12,031 35b(1)(b)(iii) charges 2. clearing 56,051 35b(1)(b)(iii) charges 3. inspection 2,650 35b(1)(i)(iii) charges 4. salaries 24,705.....
Judgment:
1. The assessee, a firm, is in appeal for the assessment year 1978-79 against the order under Section 263 of the Income-tax Act, 1961 ('the Act') of the Commissioner. The Commissioner on examination of the assessment records was of the view that the assessment order dated 21-11-1978 of the ITO was erroneous insofar as it was prejudicial to the interests of revenue on the point of allowing weighted deduction of Rs. 2,84,779 under Section 35B of the Act in respect of the following items of expenditure : Sl.

Nature of Amount of Sub-clause (s) of Clause (b) of No.expenditure expenditure Section 35B(1) under which the expenditure was claimed 1. Freight 7,12,031 35B(1)(b)(iii) charges 2. Clearing 56,051 35B(1)(b)(iii) charges 3. Inspection 2,650 35B(1)(i)(iii) charges 4. Salaries 24,705 Sub-clauses (i) to (iv) of clause (b) of Section 35B(1) 5. Bonus 10,425 Sub-clauses (i) to (iv) of Clause (b) of Section 35B(1) 6. Rent 4,000 Sub-clauses (i) to (iv) of Clause (b) of Section 35B(1) 7. Stationery 5,151 Sub-clauses (i) to (iv) of clause (b) of Section 35B(1)10. Commission to 3,000 Not specified promotion council11. Advertisement 1,326 Sub-clause (i) of Clause (b) of Section 35B(1)." 2. For facility of reference, we may quote relevant extract from the order of the ITO dated 21-11-1978 showing the manner in which he dealt with the issue of weighted deduction, ultimately allowing a deduction amounting to Rs. 2,84,779 : The assessee-firm derives income from export of bamboos, imli and timber to Pakistan. The entire sales are that of export for which regular details have been filed. Books of account were also produced and examined. The loss returned at Rs. 1,01,243 is due to the weighted deduction claimed under Section 35B of the Income-tax Act, 1961. This weighted deduction has been claimed in respect of the following expenses incurred in connection with and for promotion of export sales :(i) Freight 7,12,031(ii) Clearing charges 56,051(iii) Inspection charges 2,650 7,70,732 Weighted deduction has also been claimed in respect of the following items of expenses : 2.

(a) Customers' expenses 2,728 (b) Subscription to Chemicals and Allied Products regarding exports 3,000 (c) Advertisement : Pakistan 1,326 (d) Rent for the maintenance of office 4,000 (e) Postage and telegrams 1,084 (f) Printing and stationery 5,151 (g) Salaries 24,705 (h) Bonus 10,425 (i) Commission to bank 17,832 (j) The commission paid to Steel Authority of All these expenses except customer's expenses of Rs. 2,728 and commission to bank at Rs. 17,832 [which do not fit in properly for weighted deduction in any of the clauses of Section 35B(1)] are entitled to the weighted deduction as these have been incurred in connection with the export business which comprises of entire sales to Pakistan of the various items mentioned above." 3. The Commissioner has recorded a categoric finding for withdrawal of weighted deduction in respect of items 1 to 3 of the chart given in para 1 above but in respect of weighted deduction on items 4 to 11, he, taking note of the submissions of the assessee's authorised representatives [fully mentioned in sub-para (2) of para 12] that they could not produce before him the requisite details and evidence for want of adequate time and that they were in a position to produce all the required details and evidence if adequate time is given to them, considered it fair to give a further opportunity of furnishing the requisite details and evidence to prove that the assessee had carried on during the relevant previous year the activities mentioned in sub-clauses (i), (ii), (v) and (vi) of Clause (b) of Section 35B(1). He finally passed the order setting aside the assessment already made and directing the ITO to make a fresh order of assessment after giving an opportunity to the assessee to furnish the details and evidence as stated earlier and determining afresh whether the assessee is entitled to the allowance of weighted deduction under Section 35B in respect of any of the expenses booked under the various heads of accounts mentioned at serial Nos. 4 to 11 (both included) of the statement given in para 1 of his order and the amount of weighted deduction admissible, if any, in respect thereof, according to law, on examination of the details and the evidence furnished by the assessee and on obtaining such further information and/or making such further enquiries as may be considered by him to be necessary for this purpose and without allowing any weighted deduction under Section 35B in respect of the expenditure on freight, clearing and inspection charges.

4. It will be worthwhile to analyse briefly the error found by and the approach of the Commissioner in giving the directions to withdraw the weighted deduction in respect of items at serial Nos. 1 to 3 and to examine the assessee's claim afresh in respect of item Nos. 4 to 11. In regard to items at serial Nos. 1 to 3 even though the ITO in his order has not referred to his relying on some orders of the Tribunal, but the Commissioner has referred to that aspect in para 1(ii) of his order and this he has done by taking note of copies of orders of the Tribunal filed before the ITO. He has observed that the view taken by the various Benches of the Tribunal in the cases cited by the assessee before the ITO did not represent the correct interpretation of Sub-clause (iii) of Clause (b) of Section 35B(1) and for this observation, he referred to the fact that the scope of aforesaid Sub-clause (iii) had been subsequently examined in depth by a Special Bench of the Tribunal in the case of J.H. & Co. v. Second ITO [1982] 1 SOT 150 (Bom.). The Special Bench, according to him, laid down the correct position in law in respect of the aforementioned sub-clause and the expenses at serial Nos. 1 to 3 did not qualify for weighted deduction under Section 35B. In other words, the Commissioner has pointed out that the ITO failed to notice a decision of the larger Bench of the Tribunal, which was already handed down in June 1978 prior to the passing of the assessment order dated 21-11-1978. In para 5 of his order, the Commissioner has dealt with the submissions of the assessee's authorised representatives that the decision of the Special Bench of the Tribunal had not overruled the earlier decisions of the other Benches of the Tribunal, which favoured the assessee. The Commissioner rejected this submission by observing that it was misconceived and without any merit inasmuch as the decision of the Special Bench of the Tribunal in the case of J.H. & Co. (supra), clearly meant that the contrary views and decisions taken earlier by the other Benches of the Tribunal were not based on a correct interpretation of the relevant Sub-clause (iii) of Clause (b) of Section 35B(1) and did not, therefore, represent the correct position in law.

5. Insofar as the items at Nos. 4 to 11 are concerned, the Commissioner has dealt with these in para 1(iii) to (v). In sub-para (iii), he considered the expenditure in respect of salaries, bonus, rent and stationery mentioned at items 4, 5, 6 and 7. In sub-para (iv), he dealt with items of expenditure at serial Nos. 8, 9 and 10 and in sab-para (v) with items at serial No. 11. In all these three sub-paras, the error prejudicial to the revenue pointed out by him was that the ITO accepted the claim of the assessee for the weighted deduction without examining and determining whether these expenses had been incorrect wholly and exclusively on any of the activities mentioned in various sub-clauses of Clause (b) of Section 35B(1). After hearing the authorised representatives of the assessee, he has dealt with this issue further in paras 9 to 12 of his order. In para 9, he has dealt with the contention put forward on behalf of the assessee that full details of the expenses at serial Nos. 4 to 11 had been furnished to the ITO in the course of assessment proceedings before him and that the ITO had accepted the assessee's claim for the weighted deduction having regard to the details furnished. The Commissioner held the claim of the assessee to be misconceived and not substantiated by the facts on records. He pointed out the following important facts : The details of these various expenses, as were furnished by the assessee to the Income-tax Officer in the course of the assessment proceedings, were only such as showed the dates on which the expenses were incurred and/or the persons to whom the payments for these expenses were made. The assessee had not furnished any details in respect of any of these expenses so as to show that these expenses had been incurred on any of the activities mentioned in the various sub-clauses of Clause (b) of Sub-section (1) of Section 35B. There is also nothing in the assessment records to show that the Income-tax Officer had required the assessee to furnish such details.

6. He further observed that he had informed the representatives of the assessee on the first date of hearing, viz., 14-11-1980, that there was nothing in the assessment records to indicate that the assessee had furnished any details or produced any evidence so as to show which of the activities mentioned in the various sub-clauses of Clause (b) of Section 35B(1) were carried on by the assessee during the relevant previous year and which of the expenses had been incurred on these activities. He thereafter specifically noted that the representatives of the assessee had not been able to point out any such details or evidence furnished by them to the ITO during the course of the assessment proceedings, even though they inspected the assessment records after 14-11-1980. It is after this that he rejected the assessee's claim that full details have been furnished to the ITO and that he had examined those details before allowing the claim for weighted deduction. Another relevant factor about this aspect of the matter finds place in para 12 of the order of the Commissioner where the assessee's authorised representatives sought for an opportunity to furnish the requisite details and evidence to prove that the assessee had carried on during the relevant previous year the activities mentioned in Sub-clauses (i), (ii), (v) and (vi) of Clause (b) of Section 35B(1).

7. Shri G.C. Sharma, the learned Counsel of the assessee, firstly, made submissions about items at serial Nos. 1 to 3 relating to freight, clearing and inspection charges. He contended in the first instance by relying on the Calcutta High Court decision in Ganga Properties v. ITO [1979] 118 ITR 447 that the record as at the time of assessment revealed no error of fact nor of law and that facts available subsequently will not make the order erroneous. It was submitted that the decision of the larger Bench of the Tribunal in J.H. & Go's case (supra) was not part of the assessment records and that case was not known to many persons and that it was not the duty of the assessee to hint it and put it on record. In any event, it was contended that the ITO's order did not become erroneous because he did not follow the decision of the Tribunal in the aforementioned case. Shri Sharma took the further position that according to him, the Tribunal's decision was not case law. Another line of attack of Shri Sharma was that position about law must have attained a finality before it could be held by the Commissioner that the order of the ITO was erroneous. It was also submitted that correction on a question of law was beyond the purview of the Commissioner's jurisdiction under Section 263. Shri Sharma also stated that an order may be prejudicial to the revenue but it may not be erroneous. He for his propositions relied on several decisions of the Tribunals including one of the Amritsar Bench of the Tribunal in case the of Jolly Engineers & Contractors (P.) Ltd. v. ITO [1982] 2 ITD 8. On behalf of the revenue, Shri Berjinder Singh submitted that the order of the larger Bench of the Tribunal in the case of J.H. & Co.

(supra) was available since June 1978 and the ITO had failed to notice the same and the purpose for which the larger Bench was created. It was explained that the larger Bench of the Tribunal was constituted with the specific purpose to resolve the conflicting views taken by different Benches of the Tribunal on the question of allowing of weighted deduction under Section 35B(1). It was contended that after the decision of the larger Bench of the Tribunal became available, it was binding on the other Benches of the Tribunal and there was no question of different views on the points decided by the larger Bench and, hence, there was no question of the ITO preferring a view amongst different decisions of the Tribunal. To set the record straight, Shri Berjinder Singh invited attention to a decision of the Chandigarh Bench of the Tribunal at page 103 of the assessee's paper book in the case of the Roadmaster Industries of India (P.) Ltd. in which a view different from that taken by the Special Bench in J.H. & Co.'s case (supra) was expressed but he submitted that that decision was dated 24-12-1979 and it was not before the ITO at the time of assessment or in the decisions cited before him because it was physically impossible, the judgment having been delivered in the end of the 1979 and the assessment having been made in November 1978. His argument in brief was that the ITO committed the error of following the view taken by the Benches of the Tribunal, which had come to be overruled by a larger Bench of the Tribunal in the case of J.H. & Co. (supra) and this error being prejudicial to the interests of the revenue, the Commissioner could act under Section 263. Shri Berjinder Singh also contended that it was not correct to say that in no circumstance the Commissioner could act under Section 263 when the ITO commits an error in law prejudicial to the revenue. He submitted that nobody could dispute the Commissioner's jurisdiction if the ITO ignored an existing judgment of the High Court in whose jurisdiction he was functioning or of the Supreme Court and that the same position obtains when the ITO picks up some authorities in favour of the assessee without noticing at all an authority of greater value in favour of the revenue as in this case. It was also pointed out that Section 263 uses the word 'considers' and the use of that word indicates that the amount of certitude required is less than the words 'reason to believe' in Section 147 of the Act require.

Proceeding on the basis of analogy it was pointed out that whereas an ITO could be said to have reason to believe in consequence of information in his possession when even a decision of an AAC in favour of the revenue becomes known and could reopen an assessment on the basis of the view of the AAC by fulfilling the more stringent considerations of Section 147(b), it cannot be argued plausibly that the Commissioner cannot act under Section 263 using less stringent language to take action under Section 263 on the basis of a decision of the larger Bench of the Tribunal. In support, attention was invited to the Kerala High Court decision in CIT v. Kerala State Industrial Development Corpn. Ltd. [1981] 128 ITR 742. Finally, it was contended that the ratio of the decision of the Calcutta High Court in Ganga Properties' case (supra) will not apply when what is involved is interpretation of law by a competent authority. It was submitted that an interpretation of law given by a competent authority holds good always and it will not be applicable only from the date when the interpretation is pronounced or when the order is filed for information before the ITO. Further, it was submitted that it was futile to suggest on the basis of that authority that decisions of judicial authority must form part of the records before it can be said that the ITO acted erroneously. An ITO, it was submitted, has to take note of the law available on the point and this duty of his is not dependent on the assessee furnishing copies of decisions and where, as here, the ITO ignores a relevant decision of the Tribunal an error prima facie results and the Commissioner could act to remedy the prejudice caused to the revenue. It was also submitted that already the Madhya Pradesh High Court has held the same view as is taken by the Tribunal in the case of J.H. & Co. (supra) in CIT v. K.N. Oil Industries [1982] 134 ITR 9. We have carefully considered the rival submissions. We may notice certain undisputed facts. Both the assessee's authorised representatives and the Commissioner agreed that before the ITO certain decisions of different Benches of the Tribunal were placed along with the assessee's letter dated 1-11-1978. In the paper book, a copy of the assessee's letter along with enclosed Tribunal's judgment is available.

These decisions are all prior to the decision of the Special Bench in the case of J.H. & Co. (supra) in June 1978. The Special Bench of the Tribunal was constituted by the President of the Tribunal in order to resolve the divergent views on the question of weighted deduction under Section 35B expressed by different Benches. The ITO has not noticed that decision of the Special Bench nor has the assessee in any way referred to that decision.

10. Now we may deal with the arguments of the assessee's counsel. We do not think that the ratio of the decision of the Calcutta High Court in the case of Ganga Properties (supra) can apply in this case. Taking note of a ruling or a judicial decision of a competent authority is not dependent on the filing of those orders by the assessee before the ITO.The ITO has to be aware of the law on the point irrespective of the fact whether the assessee files copies of any decisions. In respect of the state of law, the test is not what is available on the assessment records at the time of assessment or what is furnished by the assessee for the information of the ITO. If the ITO was not aware of the relevant decision of the larger Bench of the Tribunal in the case of J.H. & Co. (supra), it was clearly an error on his part of which the Commissioner has taken notice.. Further, the pronouncement about the interpretation of law by a competent authority will indicate the state of law as it always was, irrespective of the date when the interpretation becomes available. Actually, it is obvious that the ITO has failed to notice the decision of the larger Bench of the Tribunal.

10.1 The next aspect is about the value of a decision of a larger Bench of the Tribunal qua the decisions of smaller Benches of the Tribunal expressing different views. There can be hardly any dispute that the Tribunal is a competent authority to pronounce on question of law arising under the Act, with which we are dealing now, and it functions in a judicial manner. Its decisions are to be followed by the lower authorities unless these are upset by a higher judicial authority. It follows the pattern of functioning of the High Courts inasmuch as the Benches normally of two members decide the appeal presented to it.

According to a precedence followed by it, the President of the Tribunal can constitute a larger Bench to resolve the conflicting views of various Benches of the Tribunal on the same issue. The decisions of such larger Benches are binding on smaller Benches unless overruled by the High Courts or the Supreme Court or distinguishable on facts.

Clearly, therefore, a decision of a larger Bench of the Tribunal has greater value as a precedent and it has to be preferred to the views expressed by the smaller Benches. Further, as stated earlier, on the smaller Benches the view of larger Bench is binding. In the context of the High Courts and the Supreme Court the pre-eminence of a decision of larger Bench vis-a-vis a smaller Bench is well established and this matter was recently considered by the Madras High Court in the case of Ghansham Singh v. CIT [1983] 141 ITR 601. Viewed in this background, the departmental representative has rightly contended that the ITO committed an error prejudicial to the interests of the revenue when he failed to notice the decision of the larger Bench of the Tribunal in the case of J.H. & Co. (supra). We are unable to accept the argument of Shri Sharma that the decisions of the Tribunal are not case law.

Without attributing any special meaning to the words 'case law' it is clear to us that the decisions of the Tribunal do lay down law in respect of cases brought before it; as a matter of fact, Shri Sharma himself has cited before us a number of decisions of the Tribunal wherever these supported his point of view.

10.2 We may take special notice of a decision of Amritsar Bench of the Tribunal in the case of Jolly Engineers & Contractors (P.) Ltd. (supra) which, according to Shri Sharma, supported his proposition that unless the position in law is finally determined, the Commissioner cannot exercise his powers under Section 263. On a careful reading of that decision, it is obvious that that decision related to the facts and the circumstances of that case and did not lay down any general proposition of law of the kind on which Shri Sharma is relying upon. That was a case in which the Commissioner acted under Section 263 in the case of the assessee, who was a vendee-company, by taking note of a decision of the Tribunal in the case of vendor-company. Another important fact to be noticed was that the ITO had taken the view in the case of vendee-company consistent with the view of the transaction in the case of vendor-company. The ITO, thus, had not overlooked the facts and the circumstances obtaining in the case of vendor-company while making an assessment on the assessees the vendee-company. It was a matter of due care on the part of the ITO and he had exercised his judicial capacity as best as he knew. In those circumstances, the Tribunal held that on the basis of the Tribunal's order in the case of vendor-company, the Commissioner could not hold the order of the ITO in the case of vendee-company to be erroneous, being prejudicial to the interests of the revenue. We may quote the following relevant passages from the order of the Tribunal in support of our view above : 8.... Now in the case of the vendor-company the ITO had looked into the agreement regarding the transfer of the buses and had rejected the plea of the assessee that any part of the consideration was either for the route premits or for the goodwill. He had, therefore, proceeded to work out the profit under Section 41(2) in the case of the seller-company. Taking the same view in the case of the assessee-company, he allowed the depreciation on the sale consideration for these buses. Now the Commissioner is of the view that the ITO should have anticipated the possible appeal by the assessee and a possible view which might be taken by any of the appellate authorities accepting the plea of the vendor-company. In view of this possibility, he wants that the ITO should not have taken the written down value after excluding the consideration which had been paid in respect of either the route permits or the goodwill. According to him, this action could have been taken on a protective basis so that the position could be set right as and when the matter was finally decided in the case of the vendor-company. In the first place, we have to determine whether the order of the ITO was erroneous in this respect. The learned Commissioner appears to be of the view that while not accepting the claim of the vendor-company regarding the nature of the sale consideration the ITO should have taken that very stand which he had rejected there in the case of the assessee-company and should have allowed depreciation on a lower written down value after excluding Rs. 5,00,000 which was relatable to goodwill. He further wants this action to be taken not as the final decision of the ITO but only in view of a possible decision, in appeal, adverse to the revenue. In our opinion, the learned Commissioner was in error in holding that the ITO's order was erroneous in not allowing depreciation on a reduced written down value as a protective measure.

In fact, if the ITO had followed this procedure the order would have been erroneous, as it would have been against his interpretation of the agreement and against the view he had taken in the case of the vendor-company. The possibility of an error arising as a result of any future order of the appellate authorities cannot make the order of assessment itself erroenous. The order has to be found erroneous as on the day when the ITO passed that order and that error cannot depend on an uncertain factor like a possible decision in appeal.

The Commissioner does not hold that on the reading of the agreement itself the action of the ITO in allowing depreciation on the amount of Rs. 14,50,000 was erroneous. What he bad held is that the ITO should anticipate any possible appellate order and take action to safeguard the revenue. The reliance of the assessee on the decision of the Calcutta High Court in Ganga Properties (supra) is well taken and a decision of the Tribunal coming several years later in another case cannot be a part of the record of the proceedings for the purpose of Section 263.

9. As regards the question of prejudice to the revenue, the order of the Commissioner shows that prejudice has been caused as a result of the order of the Tribunal and not as a result of the order of the ITO. If the order of the Tribunal had been otherwise, then the Commissioner could not come to the conclusion that the order of the ITO was prejudicial to the interests of revenue. In our opinion, this is entirely a wrong approach regarding the scope of Section 263. The prejudice to revenue would disappear in case the decision of the Tribunal is upset by any judgment of the High Court or of the Supreme Court. The view that an order being prejudicial to the interests of revenue is dependent on the decision of the appellate authorities or the judgment of the High Court or the Supreme Court, is not a correct view and cannot upheld. We, therefore, agree with the learned Counsel for the assessee that the assumption of jurisdiction by the Commissioner in the case was wrong and the order under Section 263 cannot be upheld.10.3 Shri Sharma also invited attention to a decision of the Jaipur Bench of the Tribunal referred to in an article by Shri N.M. Ranka in February 1983 issue of CTR at page 154. The decision itself was not made available to us but a reference exists in last sub-para of para 6 in the article. The facts stated therein were when an ITO takes a view, which is supported by any decision of a Tribunal or the High Court and simultaneously, there are decisions taking a contrary view. It was in those circumstances that the Tribunal held that the Commissioner could not act under Section 263. Now the facts in the assessee's case are quite different. This is a case where the ITO has failed to notice a decision of a larger Bench of the Tribunal. It is not a case where after considering decisions for and against the revenue the ITO chose to prefer a decision against the revenue. Again, it is a case where the ITO apparently has tried to follow the decisions of the Tribunal in favour of the assessee but has failed to notice a more binding decision of the Tribunal, which was against the assessee. It is in effect a failure of the ITO to take notice of a relevant authority of higher value from Tribunal, thus, causing an error prejudicial to the interests of the revenue.

10.4 We may also consider the argument of Shri Sharma that correction in a question of law was beyond the purview of the Commissioner's jurisdiction under Section 263 and that he can only act to correct a mistake of law when the question in law is finally decided. First aspect to be noted is that Section 263 uses the word 'considers'. The word 'considers' means that the Commissioner acting in a judicial manner is satisfied that a mistake prejudicial to the revenue has occurred. The Supreme Court has laid down in Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 that the words 'has reason to believe' are stronger than the words 'is satisfied'. In our view, the word 'considers' requires lesser certitude than the words 'reason to believe'. It will, therefore, follow that the Commissioner normally can take action at least in the circumstances where the ITO can take action to reopen an assessment by noticing a decision of a competent authority laying down law in favour of the revenue. The ITO's powers to reopen the assessment are not fettered with the consideration of finality. The departmental representative had invited our attention to the Kerala High Court decision in Kerala State Industrial Development Corpn.

Ltd.'s case (supra) where it was held that the ITO could reopen an assessment by taking note of the interpretation of law given by the AAC. It is difficult to accept that the Legislature has intended a narrower jurisdiction for the Commissioner while framing Section 263.

Further, it is all the more difficult to accept the proposition that Commissioner will watch helplessly when errors of law are committed by his ITOs. There is nothing in Section 263, which already confers a limited period of action of two years only on the Commissioner, to place a restriction of the kind suggested by the assessee's counsel.

After all what the ITO seeks to do by reopening an assessment is also to safeguard the interests of the revenue and the same goal is to be attained by the Commissioner acting under Section 263. Finally, we may mention that if Shri Sharma's views about the Commissioner having no jurisdiction when a question of law is involved is to be accepted, it will result in substantially shrinking the jurisdiction of the Commissioner, which will amount to rendering the provisions of Section 263 otiose to a large extent. An interpretation bringing about such a result cannot be favoured.

10.5 In view of the above discussion, we are inclined to hold that the Commissioner had the jurisdiction to act under Section 263. The Commissioner's decision to withdraw the weighted deduction under Section 35B in respect of items at serial Nos. 1 to 3 by following the view of the Special Bench of the Tribunal in the case of J.H. & Co.

(supra) was not challenged on merits. The learned departmental representative, however, had referred to the Madhya Pradesh High Court decision in K.N. Oil Industries" case (supra) taking the same view and in that decision the Madhya Pradesh High Court had followed the view of the Madras High Court in CIT v. Kasturi Palayacat Co. [1979] 120 ITR 827. The plea of the assessee in respect of the ITO's action at serial Nos. 1 to 3 fails.

11. In respect of items at serial Nos. 4 to 11, it was the contention of the assessee's counsel that the Commissioner's finding was perverse about the ITO having not made any enquiries. It was submitted that the ITO had made enquiries and a reference was made to facts at pages 1 to 3 of the assessee's paper book. It was again repeated like that before the Commissioner that all information required by the ITO was given. On behalf of the revenue, Shri Berjinder Singh submitted that what was stated by the Commissioner was quite correct and is fully borne out from the records. He pointed out by filing two small papers that the assessee had furnished information only to that extent and these two small papers were copies of the details furnished by the assessee. One page showed the details of salaries, giving the names of payees and the amounts paid and the other paper similarly showed the amount of rent paid and the name of the payee, the amount of subscription paid and the name of the payee and the advertisement account showing the dates and the amounts paid and the names of the payees. It was also submitted by him that at least in respect of four items there was not even details like date of payment and the name of the payee. The contention of the revenue was that apart from these facts, there was no information given about the nature of duties/activities performed, which would place the assessee's case for weighted deduction under clause (b) of Section 35B(1). It was contended that it was apparent that the ITO had conducted no specific enquiries required by Clause (b) of Section 35B(1) so far as the question of allowing of the weighted deduction was concerned and he had only generally dealt with the issue. Relying on the Gujarat High Court decision in Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312, the Delhi High Court decision in Gee Vee Enterprises v. Addl.

CIT [1975] 99 ITR 375 and the Karnataka High Court decision in Thalibai F. Jain v. ITO [1975] 101 ITR 1, it was the contention of the revenue that the ITO's failure to conduct enquiries has resulted in an error prejudicial to the interests of the revenue and the Commissioner has rightly acted under Section 263.

12. We have carefully considered the submissions of both the sides. It is seen from the statement of facts on pages 1 to 3 referred to by the assessee's counsel that the ITO issued notice under Section 143(2) of the Act for the first time on 26-10-1978 fixing the case for 30-10-1978. On 30-10-1978, the assessee appeared along with his chartered accountant and produced account books. On that date, the ITO asked for 'evidence regarding claim under Section 35B'. The case was adjourned to 1-11-1978. On 1-11-1978, the assessee appeared again with the chartered accountant and filed a letter dated 1-11-1978 along with nine judgments of various Benches of the Tribunal. We have looked through the assessee's reply dated 1-11-1978. It merely reproduces provisions of Section 35B(1)(b) and refers to the legal position without indicating the specific facts about the nature of duties performed, etc., which would place the case of the assessee under Clause (b) of Section 35B(1). Generally, against the items of expenditure, it was stated that the expenditure was definitely for export promotion or incurred in connection with the export business and, hence, entitled to weighted deduction. This kind of information would not be sufficient to support the assessee's claim for weighted deduction. As per the statement of facts, there was another hearing on 4-11-1978 and it is stated that other details and information required by the ITO were filed and the case was discussed. Thereafter the assessment was completed by the ITO by his order dated 21-11-1978. We have looked into two pages filed by the departmental representative which certainly do not give the relevant information for determining the assessee's claim for weighted deduction under Section 35B(1)(b).

12.1 Apart from what is stated above, there are two very significant things in the order of the Commissioner to which we have already referred to above. In para 9, the Commissioner has clearly noted that he had informed the representatives of the assessee on the first date of hearing, viz., 14-11-1980, that there was nothing on the assessment records to indicate that the assessee had furnished any details or produced any evidence so as to show which of the activities mentioned in the various sub-clauses of Clause (b) of Section 35B(1) were carried on by the assessee during the relevant previous year and which of the expenses had been incurred on these activities. The Commissioner has next, noted that the representatives of the assessee had not been able to point out any such details or evidence furnished by them to the ITO during the course of assessment proceedings even though they inspected the assessment records after 14-11-1980. It is after these enquiries that the Commissioner reached the conclusion that the ITO had made no proper enquiries or not obtained the details. Again, the Commissioner's conclusion is borne out by what is stated in a sub-para of para 12 of his order about the assessee's representatives themselves agreeing to furnishing the details in case the matter was remanded to the ITO. The Commissioner rejected the assessee's plea that it was not given sufficient time to produce the necessary evidence before him but as he did not wish to deny the assesses the grant of weighted deduction under Section 35B admissible in law, he accepted the assessee's request to give further opportunity. If the data and the evidence had been furnished to the ITO in response to his enquiries, such a request would not have been made by the representatives of the assessee.

12.2 It follows from the above discussion that the Commissioner has acted under Section 263 by taking note of the prima facie position about the ITO failing to make the necessary and proper enquiries. In such circumstances, we do not find any flaw in his action to proceed under Section 263 and the departmental representative has correctly relied on three authorities in this behalf. Here also we find that the Commissioner has acted properly.

1. I have perused the finding of the learned Accountant Member, but I am not able to persuade myself that his finding that the Commissioner (Appeals) had passed a valid order under Section 263(1), setting aside the assessment made for the assessment year 1978-79, can be accepted as correct finding in law.

2. The Commissioner (Appeal;?) had found that the ITO made assessment which was not only erroneous, but was also prejudicial to the interests of the revenue. The ITO had allowed weighted deduction of Rs. 2,84,779 on expenditure totalling at Rs. 8,54,338 incurred under various heads.

These were fully detailed in para 1 of the order of the learned Accountant Member. These expenses incurred under various heads, amounting to Rs. 8,54,338 were broadly divided into two categories; The expenses described in serial Nos. 1 to 3 belonged to one category and those remaining from serial Nos. 4 to 11 belonged to the other. In allowing the claim for weighted deduction on the expenses included in the first category, the ITO had placed his reliance on the Tribunal decisions of different Benches while in considering the claim of the assessee for the expenses of the second category, according to the Commissioner the ITO had not caused any enquiry to be made. As far as the consideration of the claim in respect of the first category, relating to the expenses incurred on freight, clearing charges and inspection charges are concerned, the ITO did not consider the effect of the decision of the Special Bench of the Tribunal, which was available on 17-6-1978. The assessment having been completed on 21-11-1978, the decision of the Special Bench having been available, should have been relied upon by the ITO. Having failed to take notice of this decision and not relying on it, the ITO led himself into error.

According to the Commissioner the decision of the Special Bench decided the issue correctly regarding a claim for weighted deduction on expenditure relating to freight, clearing and inspection charges and should have been relied upon by the ITO. I refer to his observation in para 1 as under: ...The view taken by the various Benches of the Income-tax Appellate Tribunal, in the cases cited by the assessee before the ITO, did not represent a correct interpretation of the aforesaid Sub-clause (iii). The meaning and scope of the aforesaid Sub-clause (iii) have been subsequently, examined in depth by a Special Bench of the Income-tax Appellate Tribunal in the case of J.H. & Co. (supra)....

The aforesaid decision of the Special Bench of the Income-tax Appellate Tribunal lays down the correct position in law in respect of the aforesaid Sub-clause (iii) of Clause (b) of Sub-section (1) of Section 35B.In ignoring the Special Bench decision, according to the Commissioner, the ITO placed himself in error and that error, being prejudicial to the revenue, made the assessment liable to be revised by the Commissioner, who relying upon the Special Bench decision, caused the weighted deduction to be withdrawn on these expenses. As far as the expenses listed in the second category is concerned, the Commissioner held that the ITO reached a finding without making any enquiry. He observed as under : ...The assessee had not furnished any details in respect of any of these expenses so as to show that these expenses had been incurred on any of the activities mentioned in various sub-clauses of Clause (b) of Sub-section (1) of Section 35B. There is also nothing in the assessment records to show that the ITO had required the assessee to furnish such details....

3. The Commissioner, accordingly, passed the impugned order, withdrawing the weighted deduction on freight, clearing and insurance charges and setting aside the assessment to be remade after causing an enquiry to be made regarding the claim for weighted deduction in respect of the expenses listed in the second category.

4. The learned Accountant Member has upheld both the pleas of the Commissioner. His finding is given in para 10(5) as under : In view of the above decisions, we are inclined to hold that the Commissioner had the jurisdiction to act under Section 260 of the Income-tax Act.

It follows from the above discussion that the Commissioner has acted under Section 263 by taking note of the prima facie position about the ITO failing to make the necessary and proper enquiries.

6. In my consideration, the first plea of the Commissioner has not issued out a proper consideration of judicial principles which govern the administration of justice and functioning of the Courts. Before I elaborate this aspect of the matter, it is necessary to stress that under Section 263(1) the Commissioner has to write a finding that he considers the order of the ITO to be erroneous, inasmuch as, it is prejudicial to the revenue. Unless there is a finding recorded by the Commissioner that the order is erroneous, he cannot assume jurisdiction under Section 263(1). As would appear from a perusal of the excerpted finding, he held the decision of the Division Bench as incorrect and the decision of the Special Bench as correct. Before I go further with him, I take, for a moment, the example of this Bench, which may be required to record a finding on an issue. If there is a decision of the Supreme Court on the issue, no one would dispute that this Bench could have no option in the matter, but to follow the rule laid down by the highest Court of the land. The same result would follow if there was no Supreme Court pronouncement, but a pronouncement of the Punjab and Haryana High Court to which this Bench is subordinate. But, considered for a while that there is no pronouncement by the latter, but there are two pronouncements by the two different High Courts, say Bombay and Madras, which have taken contrary position in law, could the Tribunal be justified in recording a finding that the view of the Bombay High Court is correct and that of the Madras High Court is incorrect. The moment this right is conceded to a Bench of the Tribunal to pronounce on the correctness of the decision of a High Court, the floodgates of the dissent are opened, which, once opened, could not be shut again.

The Tribunal, if allowed to act on the basis of this right, may not confine itself to pronounce on the correntness or otherwise of a decision of another High Court but may be tempted to make a pronouncement in respect of a decision of the Punjab and Haryana High Court, to which it is subordinate. The other day, it may pronounce upon the correctness or otherwise of the decision delivered by the highest Court, i.e., the Supreme Court. If once it is conceded that the Tribunal has a right to pronounce on the correctness of the superior authority, like the High Court or the Supreme Court, the same right can be claimed not only by other Benches, but by the authorities subordinate to the Tribunal, say the Commissioner or even the ITO. The ITO may openly pronounce upon the erroneous decision not only of the Tribunal, to which it is subordinate, but on those of the High Court of the State in which he has jurisdiction. He may also not spare the decision of the Supreme Court. It is not that a view cannot be taken by the Tribunal different from that expressed by a High Court. In such cases, the finding is recorded by the Tribunal that the reasoning of the particular High Court has not appealed to it. It is, on this basis, that the reasoning of a particular High Court decision has not appealed to it, a different view is preferred. It is not on the basis of any error detected in the finding of the High Court that a different view is adopted by the Tribunal. If the Tribunal does not have a right to sit in judgment over the view adopted by a superior Court, like High Court, can this right be permitted to the Commissioner or the ITO, who are subordinate to the Tribunal. If the Commissioner desires to take a different view, he can do so on the ground that the reasoning of a particular decision has not appealed to him, but not on the ground of an error detected by him in the decision of the superior authority. But proceeding on that basis he would not be able to find the decision of the ITO based on the decision of the Tribunal as incorrect or erroneous under Section 263(1).

The law has not invested him with competence to review a decision by a superior authority. There is one exception, however, to this rule. It is when the decision of a authority or the Court, to which the Tribunal is subordinate, is available. On the basis of that decision, no doubt, the decision of a particular Bench can be considered by him to be incorrect. There is no other exception to my knowledge, when a Commissioner or any other authority subordinate to the Tribunal can consider a decision of the superior authority like that of the Tribunal to be incorrect. The entire judicial set up and the functioning of the Courts proceed on the position of this rule of discipline. The decision of the Special Bench of the Tribunal, as far as its effect and authority are concerned, is of the same rank as that of a Division Bench. No appeal lies from the order of a Division Bench to a Special Bench. The decision of both the Benches, the Division Bench and the Special Bench, are in reference proceedings, appealable to the High Court. Therefore, the Special Bench decision cannot be looked upon as the decision of an authority superior to that of the Division Bench.

Looked at in this background, the decision of a Special Bench cannot entitle the Commissioner to find the decision of the Division Bench as incorrect or erroneous in law. Needless to stress that consideration of the Commissioner whether as strong as the expression 'reason to believe' indicates or otherwise has to be a consideration in conformity to the judicial rules and principles and not based on a subjective approach. A consideration of the Commissioner must not be subjective, but judicially sustainable. Looked at from these decisions, the finding of the Commissioner that the order of the ITO, based on the decisions of the Division Bench was incorrect, as the correct position was brought about in the decision of the Special Bench, has to be considered proceeding from the subjective consideration only and not in conformity to the judicial discipline governing the administration of justice. It is an irony of situation that both the day in and day out, correctness of the correct decision of the Special Bench in the case of J.H. & Co. (supra) is being assailed in numerous references, filed by the revenue before us, is besides the point.

A point has been made by the learned Accountant Member that the decision of a Special Bench, if not binding on the Division Bench, enjoys precedence over the decision of a Division Bench, I have already pointed that there is no basis in law for such a view, when decisions of both the authorities rank equal, in respect of authority and effect, both being appealable to the High Court. This has been the view of several Tribunals including the Amritsar Bench, which has taken this view in the past.

7. The Jaipur Bench, referred to in para 10(3) of the order of the learned Accountant Member, for this very reason held that the Commissioner could not pass an order under Section 263(1), setting aside the ITO's finding, which was based on an order, passed by a Tribunal, although the Commissioner had proceeded on the basis of a contrary decision of another Bench. The departmental representative had also referred to a decision of the Chandigarh Bench in the case of Roadmaster Industries of India (P.) Ltd., where the Bench, aware of the decision of the Special Bench in the case of J.H. & Co. (supra), took a different view for the simple reason that the decision of the Special Bench far from being binding, could not claim any precedence over the decision of a Division Bench. The view that the decision of a Special Bench is binding or takes precedence over that of a Division Bench, does not find any support in law. In this connection, a reference is made to the decision of the Amritsar Bench in the case of Jolly Engineers & Contractors (P.) Ltd. (supra) where the Bench had made a similar approach. The Bench struck down the order of the Commissioner under Section 263(1) on the ground that the material he had relied on to hold the finding of the ITO as erroneous was in a fluid state and was not adjudicated upon finally by a competent authority. The Commissioner was not held authorised to proceed on his consideration made up on his subjective approach. I would end the debate by reproducing the observations of their Lordships of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229. In this case also, the Commissioner had revised an order of the ITO, which was based on a decision of the Tribunal. Their Lordships held that such an order could not be held erroneous and, therefore, such an order could not be revised. Their Lordships observed : ... The Income-tax Officer has merely followed the decision of the Tribunal. No error has been pointed out in the said decision of the Income-tax Officer. It has not been pointed out that there were materials for the Income-tax Officer not to follow the decision of the Tribunal....

As a matter of fact, whenever there is a decision of the higher appellate authority, the subordinate authorities are bound to follow the said decision if judicial discipline is to be maintained.

8. I must hold that conditions for exercise of the power under Section 263, namely, that there must be material for the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue, were not fulfilled in the instant case. If that is the position, then the notice must be held to be without authority.

9. In this view of the matter, the finding of the Commissioner that the order of the ITO was erroneous is not judicially sustainable or maintainable and is to be vacated.

10. I move to consideration of the other plea that the ITO in reaching the finding that the expenditure incurred on the items from serial Nos.

4 to 11 was entitled to weighted deduction, was not followed by any enquiry to show that the expenses had been incurred on any of the activities mentioned in the various sub-clauses of Clause (b) of Sub-section (1) of Section 35B. I am not able to appreciate the purport of this observation. The nature of the expenses is explicit from their nomenclature. The ITO had observed in his assessment 'entire books of account were produced and examined'. Therefore, he had looked into the details of the expenses and verified their reality and genuineness.

What was left out then, which the ITO had not seen, was, according to the consideration of the Commissioner, the ITO had not indicated under which sub-clauses of Section 35B(1)(b), the claim for weighted deduction could be considered. If it is so, it is to be pointed out that the Special Bench decision, which he had certified to be laying down the correct principles in law in respect of the aforesaid Clause (b) of Sub-section (1) of Section 35B, has admitted claim for weighted deduction in respect of salary, bonus, stationery, rent, commission, postage and telegram, commission (subscription to Export Promotion Council) and advertisement, etc. It was also in the finding of the Commissioner that the business of the assessee was for export and that the entire turnover consisted only of export. Therefore, there could not be any doubt that the expenses were incurred wholly and exclusively for the business of the export. The only dispute that could arise was to be about the percentage of such expenditure which, following the principles laid down by the Special Bench, could be considered exclusively laid out for export and, accordingly, entitled for weighted deduction. The dispute or controversy could not be about the nature of activities to which the numerous expenses related. Therefore, in my view, the Commissioner had not made any proper appraisal of facts, when he made the above observation that the ITO did not make any enquiry to show that the expenses had been incurred on any of the activities mentioned in various sub-clauses of clause (b) of Sub-section (1) of Section 35B. I refer, in this connection, to para 12 of the order of the learned Accountant Member, where reference is to the issue of a notice under Section 143(2) by the ITO on 26-10-1978 for attendance and enquiry on 30-10-1978.

11. On 30-10-1978 the ITO asked for evidence regarding the claim under Section 35B. The case was adjourned to 1-11-1978.

12. On 1-11-1978, the assessee appeared and filed a letter dated 1-11-1978 in reply, running into more than forty pages, along with the copies of nine judgments of various Benches of the Tribunal.

13. There was another hearing on 4-11-1978, when further details, asked for by the ITO, were filed and the case was discussed.

14. It was only after this hearing on 4-11-1978 that the assessment was finalised on 20-11-1978 after an interval of more than two weeks.

Taking note of the course of hearing and the time taken after the last hearing, we cannot reach a finding that the assessment was finalised in a huff without making a proper appraisal of facts of the case or without properly appreciating the reply of the assessee, running into forty pages, containing nine Tribunal judgments. On these facts, we cannot hold that no enquiry was made by the ITO. As I have indicated that the ITO had not only satisfied himself about the reality or genuineness of the expenditure, but also the rationale of the expenditure, the purpose for which it was incurred. The ITO had, in his earlier part of the assessment, noted that the entire turnover consisted of the export. He had gone further. He had required evidence in support of the claim which had led the assessee to file a forty page reply and furnish nine judgments of the various Benches of the Tribunal, which supported the case of the assessee for weighted deduction, in respect of the specified expenses. The Commissioner himself who, as already indicated, had certified the correctness of the Special Bench decision in the case of J.H. & Co. (supra), which supported the claim for weighted deduction in respect of these expenses. In this background, I am not able to appreciate the finding that the ITO had failed to make any enquiry into the matter.

15. Judged in whatever way, it was not the case of the Commissioner that the ITO had not made any enquiry. It may be that the ITO had not caused any particular enquiry to be made, which, in his view, was necessary to be looked into. But such an approach in the matter would not entitle him to hold that the assessment made by the ITO was erroneous because no enquiry was made. The learned Accountant Member, in his order, had supported this finding of the Commissioner on the basis of the judicial pronouncements made by various High Courts. But, a perusal of these judgments would show that, in this case, the Courts justified the finding of the erroneous assessment by the ITO, because he had failed to make any enquiry at all but as I have brought out, it was not the case where the ITO had not failed to make any enquiry. I have already stressed that consideration by the Commissioner has to proceed on the basis which is judicially maintainable and is not subjective or arbitrary. Looked at in this background, the assumption of the jurisdiction under Section 263(1) by the Commissioner to upset the finding of the ITO has to be considered illegal and arbitrary and the exercise of his revisional powers as unwarranted.

16. As both the pleas of the Commissioner have failed, in my view, his finding that the assessment was erroneous inasmuch as it was prejudicial to the interests of the revenue, has to be considered bad in the eye of law not entitled to any support from facts or circumstances of the case. I direct, accordingly, that his order is cancelled and the order of the ITO on the Section 35B restored.

1. My learned brothers constituting the Amritsar Bench had a difference of opinion as to whether the Commissioner in this case has properly assumed jurisdiction under Section 263 or not, to resolve which the President of the Tribunal has nominated me as a Third Member under Section 255(4) of the Act.

2. The facts leading to this reference may briefly be stated thus. The asses-see, Export House, is a partnership firm carrying on business of exporting timber and other articles to Pakistan. The ITO, assessed the assessee for the assessment year 1978-79 computing loss of Rs. 84,706 after allowing weighted deduction under Section 35B in the sum of Rs. 2,84,779 in respect of the following expenses : Serial Nature of Amount of expenditure No. expenditure Rs. On examination of the assessment records, the Commissioner felt that allowance of weighted deduction in respect of the above items was prejudicial to the interests of the revenue and with a view to correct this error, he issued a notice to the assessee under Section 263. The reasons that prevailed with the Commissioner in coming to the conclusion as above do not appear to be the same in respect of all the items. In respect of serial Nos. 1, 2 and 3 he was of the opinion that a Special Bench of the Tribunal in the case of J.H. & Co. (supra), the Bombay High Court had decided that weighted deduction in respect of these items was not allowable. Even though the ITO's attention was drawn to the several decisions of the Tribunal, which allowed weighted deduction in respect of these items, following which the ITO made the allowance, the Special Bench that was subsequently constituted having taken a different view, it was the opinion of the Commissioner that in the light of the Special Bench decision, the earlier decisions followed by the ITO, even though they are again the orders of the Tribunal, had vitiated the assessment and resulted in causing prejudice to the interests of the revenue. Insofar as serial Nos. 4 to 7 are concerned, the view of the Commissioner was that the asses-see did not prove how this expenditure was relatable to the export even though the assessee has furnished the details before the ITO, on the scrutiny of which the ITO said that he came to that conclusion. The view of the Commissioner was that the ITO accepted the claim of the assessee for the weighted deduction in respect of these expenses without examining and determining whether these expenses had been incurred wholly and exclusively on any of the activities mentioned in the various sub-clauses of Clause (b) of Sub-section (1) of Section 35B. With regard to serial Nos. 8 to 10, the criticism of the Commissioner labelled against the ITO was more or less akin to the reasons given in respect of serial Nos. 4 to 7. The Commissioner's point was that the assessee should have shown and the ITO should have been convinced as to how these expenses were in connection with the export business and on what sub-clauses of Section 35B(1)(b) these activities in respect of which these expenses were incurred fell. Here again his complaint was that the ITO accepted the claim of the assessee without examining the nature of the claim. With regard to the last serial No. 11, the objection taken by the Commissioner was not different from the objection he had taken with regard to serial Nos. 4 to 10, the common complaint being that though the details were furnished by the assessee before the ITO during the course of assessment proceedings as in the case of other items, the ITO did not show that these expenses were incurred on advertisement or publicity outside India in respect of the export business of the assessee. In sum, the Commissioner came to the conclusion that the ITO had committed an error in accepting the claim of the assessee for the allowance of weighted deduction and the allowance was erroneous and caused prejudice to the interests of the revenue.

3. To the notice issued by the Commissioner to the assessee to show cause as to why the allowance given by the ITO should not be withdrawn, it was submitted on behalf of the assessee that the claim allowed by the ITO on the basis of several decisions given by the Tribunal, which were produced before the ITO at the time of assessment, and it could not in the circumstances be said that the ITO committed mistake or error when he followed the decisions of the Tribunal. The decisions of the Tribunal where the claim of the assessee was accepted were again cited before the Commissioner, which he listed in his order. It was specifically pointed out to the Commissioner that even though there was a Special Bench decision of the Tribunal in the case of J.H. & Co.

(supra), it did not mean in law or in effect that the Special Bench decision has overruled or had the effect of overruling the earlier decisions of the other Bandies of the Tribunal. The Commissioner was, however, of the different opinion. He held that the conclusion and decision of the Special Bench of the Tribunal mean that the contrary views and decisions taken earlier by the other Benches of the Tribunal were not based upon a correct interpretation of the aforesaid Sub-clause (iii) of Clause (b) of Sub-section (1) of Section 35B and did not, therefore, represent the correct position in law. The attention of the Commissioner was also drawn to the decision of the Bombay High Court in the case of CIT v. Eldee Wire Ropes Ltd. [1978] 114 ITR 485 where the view taken by the Special Bench in the case of J.H. & Co. (supra) was not favourably viewed by the Bombay High Court and there was even a mild criticism. The Commissioner held that the Bombay High Court decision in the case of Eldee Wire Ropes Ltd. (supra) did not in any way detract from the validity of the view expressed by the Special Bench of the Tribunal. In regard to other expenses, the attention of the Commissioner was drawn to the various details filed before the ITO while making the assessment and also various decisions of the Tribunal allowing the claims of the assessee in respect of those items. The Commissioner was not satisfied with this explanation. He still maintained that even if the details were furnished, those details did not have the effect of showing which of the activities mentioned in the various sub-clauses of Clause (b) of Sub-section (1) of Section 35B were carried on by the assessee during the relevant previous year. It was also pointed out to the Commissioner that since the business of the assessee was exclusively export of goods and articles outside India, there being no local sales at all, all the expenses incurred by the assessee must necessarily be held to have been incurred in the course of that export business wholly and exclusively and nothing fell for disallowance of the claim. In support of this contention some orders of the Tribunal were also cited before him and the copies of those decisions were also produced. The Commissioner held that there was no warrant either in fact or in law for the contention that all the expenses incurred by an exporter were necessarily covered by one or more of the sub-clauses of Clause (b) of Sub-section (1) of Section 35B and qualified for the allowance of the weighted deduction. He observed that there was no support for that view in the decisions of the Tribunal cited before him, On this view he came to the conclusion that there was no direct or exclusive relationship of the expenses under any of these heads of accounts with the activities mentioned in Sub-clauses (i), (ii), (v) and (vi) of Clause (b) of Section 35B(1) so as to warrant a view that these expenses were incurred wholly and exclusively on these activities in their entirety even if it were to be accepted that the assessee carried on the activities mentioned in the abovesaid sub-clauses. He, thus, held that the allowance of weighted deduction of the sum of Rs. 2,84,779 by the ITO was clearly prejudicial to the interests of the revenue and was erroneous. However, while he categorically held that the allowance of weighted deduction in respect of serial Nos. 1 to 3 should not be made, in respect of other items he directed the ITO to re-verify the claim and then allow in the light of such fresh examination. This is in main the sum and substance of the order passed by the Commissioner under Section 263.

4. Aggrieved by this order, the assessee preferred an appeal to the Tribunal and contended, inter alia, that the order passed by the Commissioner was without jurisdiction and when the ITO had only followed the views expressed by the various Benches of the Tribunal, it could not be said that he was acting in such a manner so as to cause prejudice to the interests of the revenue and the Commissioner should not have interfered with such an order. No ITO causes prejudice to the interests of the revenue if he applies the principles enunciated by a properly constituted authority under the Act. The Tribunal having been constituted as the highest authority under the Act entrusted with the duty of interpreting the law with a binding force except as provided in Section 256 of the Act, the ITO commits no error if he follows the order of the Tribunal on a question of law even though there is a contrary view expressed by another Bench of the Tribunal. The Special Bench decision of the Tribunal was not available at the time when the ITO passed the assessment order and in any case he was not aware of it and such being the case, the view taken by the Special Bench, which happened to be contrary to the views expressed by the other Benches, could not be said to have laid down the law in a conclusive manner so as to hold that the ITO committed an error. The learned Accountant Member could not agree with the contentions put forward on behalf of the assessee. He supported the order of the Commissioner in every respect. He held that the ITO should have known about the Special Bench decision of the Tribunal in J.H. & Co.'s case (supra) and should have followed that in preference to the views expressed by other Benches of the Tribunal whose orders were placed before him. According to him, the ITO should be aware of the law on the point irrespective of the fact whether the assessee files copies of any decisions and if the ITO was not aware of the relevant decision of the larger Bench of the Tribunal, it was clearly an error on his part and the Commissioner could take notice of it, He held that, the decisions of a larger Bench are binding on smaller Benches unless they are overruled by the High Courts or the Supreme Court or found distinguishable on facts. On other points also, namely, with regard to the allowance of weighted deduction on serial Nos. 4 to 11, he agreed with the view of the Commissioner that filing of information before the ITO was not sufficient and adequate to prove or justify the assessee's claim and, therefore, an error was committed by the ITO. On the other hand, the learned Judicial Member was of a different opinion. He was of the opinion that when the ITO has followed a decision of the Tribunal and applied the interpretation of law as given by it, he does not commit an error causing prejudice to the interests of the revenue. After discussing the law bearing on the subject of precedence, he held that it was not open to the ITO or the Commissioner for that matter to say that he would not follow an order of the Tribunal but it is always open to him to say that he would desire to take a different view provided there was sufficient reason for doing so. The learned Judicial Member further pointed out that before the Commissioner could act under Section 263, he must first of all find out that there was an error committed by the ITO. That is a condition precedent for the assumption of jurisdiction under Section 263. In this case the Commissioner did not point out any error committed by the ITO except stating that by following the decision of a Division Bench of the Tribunal and not that of a Special Bench, he committed an error which in effect amounted to saying that the Commissioner would not agree with the view of a Division Bench and would like to follow the Special Bench. The learned Judicial Member further held that the decision of the Special Bench of the Tribunal, as far as its effect and authority were concerned, was the same as that of a Division Bench since no appeal from an order of the Division Bench of the Tribunal lies to a Special Bench of the Tribunal. It cannot, therefore, be said that the Special Bench order overrules the decision of a Division Bench. Once the Special Bench decision has not got the effect of a superior authority to the Division Bench in law, that could not be considered as of a binding nature. The Commissioner, thus, in his opinion committed an error in thinking that the order passed by the ITO was not in conformity with the law. In this connection he relied upon a decision of the Amritsar Bench in the case of Jolly Engineers & Contractors (P.) Ltd. (supra) where the Bench had cancelled an order passed by the Commissioner under Section 263 on the ground that the material relied upon to hold the finding of the ITO as erroneous was in a fluid state as it was not adjudicated upon finally by a competent authority. The Commissioner was not authorised to proceed on his considerations made upon his subjective approach. He also made a reference to a decision of the Calcutta High Court in the case of Russell Properties (P.) Ltd. (supra), where the Calcutta High Court held in similar circumstances that the Commissioner had no jurisdiction to revise an order of the ITO which was based upon a decision of the Tribunal. He was also unable to agree with the learned Accountant Member's view that in regard to serial Nos. 4 to 11, it could be said that no enquiry was made by the ITO while allowing the claim even though the details were called for and were filed and examined by the ITO. He observed that the nature of the expenditure was explicit from their nomenclature. He pointed out that the very Special Bench decision, which the Commissioner had preferred to follow to hold that the ITO committed an error, laid down the principle that in respect of the expenditure of the nature referred to at serial Nos. 4 to 11 weighted deduction could be allowed depending upon the proportion of the turnover of exports to the local turnover, which meant that if there was no local turnover and the entire output was exported, the entire expenditure of that nature could be said to be on promotion of export and, therefore, entitled to weighted deduction under Section 35B. Thus, in his view, the Commissioner had not made a proper appraisal of the facts and came to erroneous conclusions. He also found that the ITO followed nine Tribunal decisions in allowing the assessee's claim and on those facts it could not be said that no enquiry was made by the ITO. He also noticed that in support of the claim the assessee filed before the ITO a reply containing 40 pages and furnished nine judgments of the various Benches of the Tribunal, which belied the view taken by the Commissioner that no enquiry was made by the ITO. He, therefore, preferred to cancel the order passed by the Commissioner. Thus, the difference of opinion couched in the beginning of this order has been referred to the President, who has nominated me as the Third Member.

5. My task is to find out first what is the error committed by the ITO which caused prejudice to the interests of the revenue so that it could be said that the Commissioner had assumed jurisdiction under Section 263. Secondly, what is the nature, effect, scope and the binding nature of the decision of the Special Bench in law so as to compel an ITO to follow it and to say that by not following it an error in law was committed. If the binding nature of the Special Bench decision and a Division Bench decision is one and the same in law, then can it be said that if a Division Bench view is followed by an ITO, he commits an error if he does not follow the decision of the Special Bench. In other words, to what extent the ITO is bound by the orders of the Special Bench in preference to the orders of the Division Bench. These are some of the questions that are both relevant and salient.

6. Shri Sharma, the learned senior advocate appearing for the assessee, contended that if an ITO follows an order of a Division Bench of the Tribunal, he does not commit any error in law even if it eventually turns out to be against a view expressed by another Division Bench or for that matter a larger Bench. The Act does not recognize the theory as mentioned by the Commissioner or as was supposed by him that a Special Bench of the Tribunal is competent or authorised to overrule a Division Bench decision. The Act envisages constitution of a Special Bench consisting of three or more Members, one of whom shall necessarily be a Judicial Member and one an Accountant Member for the disposal of any case only to decide complex cases. It does not mean that the President is empowered under the Act [section 255(3)] that a Special Bench is constituted in such a way as to authorise it to overrule a Division Bench view. The constitution of Special Benches is a method devised for the purpose of resolving complicated issues of law and facts. Since several Division Benches in the country located at different stations are apt to take different views at any point of time and the expression of such divergent views is likely to cause difficulty in deciding matters and eventually result in the proliferation of appeals, it has been devised by the Tribunal to constitute Special Benches to address itself on questions where there is a conflict of views expressed by the Division Benches. By a convention developed unilaterally by the Tribunal for its internal administration, the Special Bench view is not normally to be dissented from by a Division Bench. Generally it follows the view expressed by a Special Bench only to have uniformity of views and not on the view that the Special Bench had the power or endowed with the authority of overruling a Division Bench view. The constitution of the Special Bench in the Act is never meant to give the power to overrule the Division Bench decision. That can be done only when a Special Bench has been vested with the appellate jurisdiction or revisionary jurisdiction, both of which it does not possess under the law as it is constituted unlike the procedure obtaining in the High Courts. In a High Court the latter's patent appeal is specifically provided against the view expressed by a Single Judge or a Division Bench to a larger Bench. The view of the larger Bench will then be the view of the High Court which will have the effect of overruling the view expressed by a Single Judge or a Division Bench. Such law not being available or enacted or contemplated under the Act for the purpose of constituting the Special Benches, the Special Bench view cannot have the effect of upsetting or overriding or reversing the view of the Division Bench. The reference application lies to the High Court against the order of a Division Bench and whatever be the strength of the Special Bench, it is subject to the control of the High Court under article 226 as well as article 227 of the Constitution and a Single Judge of a High Court can upset the ruling given by a Special Bench whatever be its constitution. Such being the position in law it is wrong on the part of the Commissioner to think that a Special Bench decision should have been followed by the ITO and he committed an error when he followed a Division Bench view.

Insofar as the ITO is concerned, to him the views expressed by the Division Bench as well as by the Special Bench are of equal authority and entitled to equal respect and as an assessing officer he is entitled to take the view expressed by a Division Bench if IT Appeals to him. As a matter of fact, the ITO in this case was not aware of the existence of the Special Bench decision. That has been conceded by the Commissioner. When the ITO is not aware of the Special Bench decision, he cannot be found fault with from not following that order of which he was not aware. The learned Accountant Member as well as the Commissioner were unanimous on the issue that the ITO was not aware of the Special Bench case even though the Special Bench decision was delivered much earlier to the date of passing his order. Shri Sharma further submitted that Section 263 empowers the Commissioner to examine the record that was before the ITO to find out whether any error was committed by him or not. The record referred to in Section 263 is the record available at the time when he made the assessment. Anything coming subsequently into the records or that could form part of the record, could not be looked into by the Commissioner for the purpose of Section 263. In this context he relied upon the decisions of the Calcutta High Court in the cases of Ganga Properties (supra) and Russell Properties (P.) Ltd. (supra) and of the Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. (supra). He also submitted that the effect of the Special Bench decision, on which so much reliance was placed by the Commissioner, was very much watered down and was even criticised by the Bombay High Court in the case of Universal Ferro & Allied Chemicals Ltd. v. P.G.K. Warner [1983] 143 ITR 959. A Special Bench decision which came for adverse criticism by the Bombay High Court should not have been considered by the Commissioner as laying down the correct law so as to say that the ITO committed an error in not following it. Then he addressed himself to the question as to what should be the meaning of the word 'consider' used in Section 263 ; whether that should be objective consideration, subjective consideration or restrictive consideration. He submitted that it should be objective consideration and looking it from the point of view of objectivity, he should have seen that the ITO also followed a decision of the Division Bench in allowing the assessee's claim and that did not cause any prejudice to the interests of the revenue at the point when he made the assessment. Referring to serial Nos. 4 to 11 he submitted that the Commissioner was not correct at all in observing that the ITO had not examined those claims in depth and that in any case the assessee had not produced before him the necessary details. All that could be done by an assessee was done by the assessee in this case ; all the information was furnished and there was nothing more to be done in this regard. It is only the inference to be drawn by the ITO on the basis of those information and even here the ITO drew correct inferences following the order of the Tribunal. The Commissioner took objection to the allowance of relief in respect of these items on pro rata basis when the CBDT accepted the decision of the Special Bench of the Tribunal in the case of J.H. & Co. (supra) and when the Special Bench laid down that in certain areas of expenditure proportionate allowance could be given, the Commissioner should have noticed that proportionate allowance was accepted in theory by the CBDT, which also implied that in appropriate cases full allowance could be made depending upon the facts of the case and if the ITO was satisfied on the facts of this case that since all the turnover was export turnover, full allowance could be made, he was not committing an error either on facts or in law which could be said to have caused prejudice to the interests of the revenue. It is only a different view taken by the Commissioner on the same set of facts that can be said to have caused prejudice to the interests of the revenue and not the order passed by the ITO. Lastly, he submitted that the Commissioner was persuaded or motivated more by the objections made by the revenue audit party than by his own individual objective judgments. A proceeding under Section 263 cannot lie if the Commissioner is to give effect to the views expressed by the audit party. He should convince himself that there was a prejudice to the interests of the revenue by an error committed by the ITO and that satisfaction must be his own satisfaction and not the satisfaction of someone else. In a way it can be said that the Commissioner has even surrendered his judgment to the revenue audit party. Thus proceeded, the argument of the learned Counsel for the assessee, Shri Sharma, supported in full measure the view taken by the learned Judicial Member. He stressed for the acceptance of the view of the learned Judicial Member and to hold that the Commissioner had erroneously entered upon the jurisdiction which is not available to him under Section 263 on the facts of this case.

7. The learned departmental representative, Shri Kapila, aided by his colleague, Shri Hardayal Singh, in the first instance, submitted that the order of the Commissioner is to be split into two parts, one part containing observations relating to serial Nos. 1 to 3 and the other part containing observations relating to serial Nos. 4 to 11. Insofar as the first part is concerned, it is clearly a violation on the part of the ITO to have allowed weighted deduction on those items when the law was against it. He should have known the correct position in law and should have disallowed the claim. He should not have followed the orders of the Division Bench when it was not accepted by a Special Bench constituted specially for this purpose. In this context he went to the extent of saying that in fact and in law there cannot be any difference between considerations necessary to reopen an assessment under Section 147 and considerations necessary to revise an assessment under Section 263. Both are one and the same. Here in Section 263 the word used is 'consider' while the words used in Section 147 are 'reason to believe'. What is available for reopening an assessment under Section 147(b) on the basis of the existence of a reason to believe that income has escaped assessment or under-assessed, the same considerations should also prevail and should be available to invoke the jurisdiction of the Commissioner under Section 263 because of the use of the word 'consider' in Section 263. Both Sections 147 and 263 are aimed at preventing under-assessments and securing to the State what is due to the State. While Section 147 proceedings could be taken by the ITO, the proceedings under Section 263 could be taken by the Commissioner, the object being the same. Section 263 was specifically enacted because under the scheme of the Act if an ITO commits an error which caused prejudice to the interests of the revenue, there is no scope to justify it except under Section 147 and if the time limit under Section 147 happens to expire, then the loss of the revenue becomes impossible of recoupment. It is to prevent this situation that the Commissioner has been given the power to revise the assessments and in this category falls the power given to the Assistant Commissioner to enhance the income in an appeal. If the Commissioner is satisfied that there was under-assessment by reason of a mistake committed by an ITO, he should be allowed to rectify that mistake and for that purpose no other consideration other than the consideration of loss of revenue should prevail. It has now been trite law that mistake of law is also a ground to hold that under-assessment of income has taken place. Here there is a clear mistake of law committed by the ITO in allowing weighted deduction in respect of serial Nos. 1 to 3, which was not clearly allowable under the Act. This mistake of law committed by the ITO rendered the order passed by him erroneous which caused prejudice to the interests of the revenue. He further pointed out that if an assessment could be reopened on the basis of findings given by an Assistant Commissioner in an appeal, then a view expressed by the Special Bench of the Tribunal, which is certainly superior to that of an Assistant Commissioner, can be considered as information as to mistake of law and should be held to be good enough to reopen an assessment under Section 147. If the assessment could thus be reopened, there should be no objection for a Commissioner to interfere to invoke Section 263. With a view to support his contentions, the sum and substance of which I have mentioned above, he placed reliance upon the decisions of the Delhi High Court in the case of Handicrafts & Handloom Export Corporation of India v. CIT [1983] 140 ITR 532, the Madras High Court in Kasturi Palayacat Co.'s case (supra) and the Madhya Pradesh High Court in K.N. Oil Industries' case (supra). Then dealing with the other part of the order of the Commissioner, which dealt with serial Nos. 4 to 11, he submitted that it is for the assessee to satisfy the ITO by adducing necessary evidence in support of the claim. If the ITO had not made appropriate enquiry or if the enquiry made by the ITO is found to be inadequate and if further enquiries are found necessary to support the assessee's claim, the order passed by the ITO can be said to be erroneous and the Commissioner acquires the necessary jurisdiction to revise the order under Section 263. In spite of the several opportunities given, the assessee could not substantiate its claim as to what was the nature of services rendered in incurring the expenditure mentioned at serial Nos. 4 to 11. The Commissioner did not totally shut out the assessee with regard to these claims. All that he said was that the ITO should re-examine these claims and the assessee should file further evidence. A direction given to the ITO to gather further evidence and then to allow the claim is a most justified order that could be passed on the facts of this case and this order did not really cause prejudice to the interests of the assessee even though the order as originally passed, if allowed to stand had caused prejudice to the interests of the revenue. When the assessee says that it had rendered services and when the assessee is asked to prove that claim with necessary data and when the assessee found himself unable to lead the necessary evidence, the only order that the Commissioner could pass is an order of the nature that he had passed now. It does not mean that if 100 per cent goods are exported, the requirements of Section 35B are automatically satisfied or deemed to have been satisfied. Still there may be some activities which are prohibitory in the sense that they would not qualify for relief under Section 35B. In respect of that portion of the expenditure the relief under Section 35B is not admissible. The ITO did not care to locate these areas. That was a mistake committed by him. The Commissioner still gave the assessee an opportunity to supply that link. There could not, therefore, be any objection to the order passed by the Commissioner or for the assumption of jurisdiction. In support of these propositions he laid great stress on the decisions of the Delhi High Court in the case of Gee Vee Enterprises (supra), the Supreme Court in Smt. Tara Devi Aggarwal v.CIT [1973] 88 ITR 323, the Karnataka High Court in Thalibai F. Jain's case (supra) and the Gujarat High Court in Mukur Corporation's case (supra). If the Commissioner is held to be wrong in assuming jurisdiction in respect of serial Nos. 1 to 3, the same cannot be applied in respect of serial Nos. 4 to 11. That is how the learned departmental representative in a forceful plea in support of the Commissioner's order rounded up his arguments. In addition he adopted various reasons given by the learned Accountant Member in his order.

8. These are in main the submissions made before me on the consideration of which I am now to pronounce which of the two views is correct. If I say that the Commissioner is right in assuming jurisdiction, I would be holding by implication that an ITO if he follows a decision of the Tribunal and makes assessment, he would be committing an error causing prejudice to the interests of the revenue all because superior authority like the Commissioner either does not agree with the view expressed by the Tribunal or another Bench of the Tribunal comes to take a different view. Insofar as the orders of the Tribunal are concerned, the Act clearly provided in Section 254(4) of the Act that save as provided in Section 256, orders passed by the Tribunal on appeal shall be final, that is to say, the finality to the order passed by the Tribunal is taken away only if a reference application is filed under Section 256. Thus, the orders of the Tribunal cannot be said to be final till the view of the Tribunal is accepted by the High Court. If the view of the Tribunal is accepted by the High Court, then the view expressed will not be the view of the Tribunal but the judgment of the High Court, which has got a different binding force under our Constitution as well as the Act notwithstanding an appeal against that judgment is filed before the Supreme Court. The same cannot be said of the Tribunal's view although the view expressed by the Tribunal is of persuasive value. It is also true that the Andhra Pradesh High Court in one case has taken the view that a view expressed by the Tribunal is binding on all the authorities over whom it exercises jurisdiction till the view is reversed by the High Court of that State. The Madras High Court has gone a step further and laid down a rule that if an authority inferior to Tribunal does not follow or apply the view of the Tribunal, that authority would be committing contempt of the Tribunal. These authorities read in the context of Section 254(4) make it clear that the orders passed by the Tribunal on appeal are entitled to be followed and deserved great respect and they do not lose their authority if a different view is expressed by another Bench of the Tribunal. Now I may have to say a few words about the constitution of Special Benches and whether they have the power to overrule a Division Bench view. To my mind, a Special Bench constituted by the President for the disposal of any particular case does not exercise an appellate or revisionary jurisdiction. Therefore, it does not possess a power to overrule the decision of a Division Bench.

Insofar as the ITO is concerned, to him both the decisions are of equal authority though a Special Bench view may be entitled to a greater respect because is was the expression of collective wisdom of more Members than constituting a Division Bench. So long as the Special Bench does not possess the power of overruling a Division Bench view, both the views are entitled to hold the field till one of them is reversed or modified by the High Court on reference. So long as this situation does not happen, it is wrong to think that the effect of a Special Bench is to overrule a Division Bench case. The constitution of Special Benches has assumed greater significance of late not because it is intended to overrule a Division Bench view but because it is considered necessary to secure uniformity in the views expressed by various Benches of the Tribunal located in various stations in the country. Uniformity of views in tax administration is so essential and to be striven for, the importance and significance of which need not be over-emphasised. The divergence of views will promote litigation. The reduction of conflict in views will reduce litigation and enhance the faith of the litigants in the working and administration of the Tribunal as a judicial body. The more the conflict the more the faith is shaken. The less the conflict the more the faith. It is with a view to secure this objective that the constitution of Special Benches is resorted to by the President and a unilateral convention is developed amongst the Members of the Tribunal to give respect to the Special Bench views and not to differ from it unless substantial grounds exist like non-consideration of a decision of the High Court having a direct bearing on the subject or amendment of a provision of law or non-consideration of important place of evidence, etc., etc. If sufficient grounds are shown to show that the Special Bench had not considered an important and vital aspect, it is open to a Division Bench to express those points of difference. The convention that we have developed is that instead of a Division Bench straightaway differing from the view of the Special Bench, it will write to the President through the Vice President concerned to constitute still larger Bench to consider those aspects and the President would normally suggest constitution of still larger Bench. Instances of constituting a larger Bench to consider the view of the Special Bench do also exist.

The whole object is to strive to secure uniformity in views, which is the prime concern of the Tribunal to develop faith of the litigants in its administration of justice. That does not mean either in fact or in law or in the contemplation of the Special Bench that the Special Bench will overrule a Division Bench view. As I said in the beginning since the Special Bench does not sit as an appellate authority over a Division Bench, it does not have the power of overruling a Division Bench unlike in High Courts. All those arguments adopted either by the Commissioner or by the learned Accountant Member touching upon this aspect and to the extent that this aspect has a bearing on the difference of opinion must be held to have been incorrectly conceived.

I am, therefore, unable to subscribe to the view that a Special Bench decision must be held to have overruled the Division Bench decision and, therefore, the Division Bench view is not entitled to be followed.

Thus, when the Special Bench view is adopted only by way of convention amongst the Members of the Tribunal in the country as of persuasive value entitled to greater respect and not as binding precedent, it cannot be conceived that it could have the same effect on the ITO. As I said earlier, if a Division Bench and a Special Bench views are both available simultaneously to the ITO, he should normally follow the view expressed by a Special Bench unless he is able to point out some glaring omissions or is able to show that it is per incurium. In practice I have come across cases where the ITO do not follow the orders of the Tribunal. They often say that since a reference application is filed, he would not like to follow the order of the Tribunal. This is a common practice we come across not only in other cases but sometimes in the assessee's own case, which is the real source for the proliferation of the Income-tax litigation. Even in respect of the High Courts, sometimes we find the ITOs mentioning that since an appeal has been filed to the Supreme Court, he would not follow the judgment of the High Court. I do not know how far is the ITO justified in saying so but I would not like to comment upon it now since that is not germane for the present purpose except to say that when the ITO thus feels free not to follow an order of the Tribunal, he cannot be expected to follow an order passed by the Special Bench of the Tribunal more so when it was not brought to his notice.

9. Having settled the controversy with regard to the binding nature of the Special Bench order, I will address myself to the question whether the ITO commits an error when he follows a Division Bench view. Since the order of the Tribunal is entitled to be followed and its views are entitled to be respected and implemented even though a reference application has been filed and the finality of the order of the Tribunal is diluted, still the views expressed by the Tribunal on questions of law are entitled to greater respect and are to be followed. If the ITO, therefore, follows the view expressed by the Tribunal on a question of law, which under the law it is empowered to express, he would not be committing an error of law at all, even if the view is found to be incorrect subsequently in the light of the judgments given by the High Court or other Benches of the Tribunal or if the law is to be otherwise. Assume a case where the Tribunal expressed an opinion on the question of law and it became final, within the meaning of Section 254(4), then that view the ITO has to adopt notwithstanding the fact that there was a contrary decision of another Bench of the Tribunal elsewhere in the country against which a reference application has been filed making the order of the Tribunal not final. In such a situation can it be said that the ITO commits an error when he followed the view of the Bench which has become final The answer must be in the negative. As rightly pointed out by the learned departmental representative, the Courts have held almost unanimously that a view expressed by the AAC on a question of law, an authority inferior to the Tribunal, also constitutes information to the ITO to reopen the assessment under Section 147. Thus, the view on a question of law expressed by an AAC, when elevated to the position of an authority duly constituted under the Act to interpret the laws based upon which an assessment could be reopened, there is no reason why the Tribunal's view on a question of law is not entitled to greater respect more particularly when its orders are declared final except as provided in Section 254(4). The orders of the AAC are appealable and, thus, not final unlike the orders passed by the Tribunal which are subject to reference only on question of law. It is keeping in view this situation that the Calcutta High Court held in the case of Russell Properties (P.) Ltd. (supra) that an order passed by the ITO following the decision of the Tribunal cannot be revised. The Calcutta High Court held in this case that the power of revision under Section 263 can be exercised only if the Commissioner is satisfied on calling for and examining the records of the proceedings under the Act that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue. Where there is a decision of a higher appellate authority, the subordinate authority is bound to follow that decision (see the Supreme Court decision in East India Commercial Co.

Ltd. v. Collector of Customs AIR 1962 SC 1893 at p. 1905). Having laid down this principle of binding nature of the decision of a higher appellate authority to the subordinate authority, the Calcutta High Court held that if the ITO followed the decision of the Tribunal, he cannot be said to have committed an error and such an order could not be revised. In this case the Calcutta High Court reviewed the entire case law on the subject starting from CIT v. Amritlal Bhogilal & Co.

[1953] 23 ITR 420 (Bom.) and considered several decisions of the Supreme Court including Smt. Tara Devi Aggarwal's case (supra) on which great reliance was placed by the departmental representative, Shri Kapila, before us. Referring in this context as to the effect of the finality of the orders of the Tribunal, reference was made to the observations made by the Supreme Court in CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 at p. 140. The Supreme Court held in that case that mere pendency of an appeal does not have the effect of suspending the operation of the order under appeal and despite the fact that the pendency of an appeal may put the order in jeopardy, yet until the appeal is finally disposed of, the said order subsists and is effective in law. This is the cardinal principle to be borne in mind while deciding the issues involved in this case and in cases of this nature.

It does not, therefore, seem correct to say on the authority of the Calcutta High Court decision, which has rendered its decision on the authority of the Supreme Court decision referred to above, that the ITO has committed an error in following an order of the Tribunal. Then there is another aspect to be considered. What is the meaning of the word 'record' used in Section 263. Is the expression 'record' confined to the record as it stood when the ITO passed the order or does it include the subsequent material that could form part of the record When a similar situation came up for consideration before the Calcutta High Court, the Calcutta High Court held that the word 'record' meant the record available to the ITO when he passed the order and it does not include anything that comes into his possession subsequently (see Ganga Properties' case (supra)]. In this case the Calcutta High Court held that since the Commissioner in exercise of the powers under Section 263 is to call for the record of the proceeding, which was before the ITO and then examine it in order to consider whether the order passed by him is erroneous and prejudicial to the interests of the revenue, the record must mean only the record as available to the ITO. Therefore, the materials which were not in existence at the time the assessment was made and came into existence afterwards cannot form part of the record of the proceedings of the ITO at the time he passed the order and cannot be taken into consideration by the Commissioner for the purpose of invoking his jurisdiction under Section 263(1) because he is not acting as an appellate authority but only exercising revisional jurisdiction. It was pointed out in this case by the Calcutta High Court that if the revisional jurisdiction under Section 263(1) could be exercised by the Commissioner on the basis of the subsequent report, it would conflict with the jurisdiction of the ITO under Section 147(b) or under Section 154. The word 'record' used in Section 263 could not, therefore, mean the record as it stood at the time of the examination of the Commissioner. Applying this rule, which was so forcefully put forward before me by the learned Counsel for the assessee, Shri Sharma, I must hold that the record of the ITO when he passed the order did not contain the Special Bench order of the Tribunal. The coming into existence of the Special Bench order subsequent to the assessment cannot form part of the record. This is also a point in favour of the assessee's contention that the Commissioner did not properly assume the jurisdiction under Section 263. There are several orders passed by the Tribunal by various Benches that were produced at the time of making the assessment basing upon which he allowed the assessee's claim, may be erroneously. I would not at this stage pronounce upon the merits of the matter. All I would now concentrate upon is whether at the time the ITO was making the assessment, was he guided by the orders of the Tribunal which he is bound to follow or he was acting on his own If he was following the orders of the Tribunal, which he did in this case, he was not committing an error so as to vest in the Commissioner the necessary jurisdiction to exercise his revisional powers under Section 263. Once I arrive at this conclusion, I need not go into the merits at all. In this view of the matter, I find it rather extremely difficult to agree with the arguments advanced by the learned departmental representative, Shri Kapila, though they are very attractive and seemed acceptable at the first blush. There can be no two opinions on the point that the object of Sections 147 and 263 is the same, namely, preventing the loss of revenue but there are limitations provided for in the Act for the assumption of jurisdiction. Since the assumption of jurisdiction under these sections put the finality of the orders in jeopardy, various limitations, restrictions and safeguards were built into these sections. Unless they are satisfied strictly by the authority concerned, be it the ITO under Section 147 or the Commissioner under Section 263. They cannot assume jurisdiction. Whatever may be the view of the Special Bench in relation to the view of a Division Bench, so long as the ITO followed a Division Bench view, he cannot be found fault with for not following the view of the Special Bench. A contrary view expressed by a Special Bench would certainly constitute information and the ITO can, making use of that information, reopen an assessment under Section 147 subject to the satisfaction of the requirement of that section. Thus, I find force in the argument of the learned Counsel for the assessee, Shri Sharma, that the ITO did not commit any error so as to cause prejudice to the interests of the revenue when he followed the orders of the Tribunal, which were produced before him and there is also substance in his argument that the record that the Commissioner is entitled to look into should be the record as it stood before the ITO and not the subsequent material that came to surface. In this view of the matter, I do not want to express any opinion on the various arguments addressed to me based upon the decision of the Bombay High Court where the decision of the Special Bench has been commented upon. I think it is unnecessary for my present purpose. This is so, so far as serial Nos. 1 to 3 are concerned.

10. In respect of serial Nos. 4 to 11 the controversy put simply is, whether the ITO has made proper enquiry What is proper enquiry is not spelt out by any authority but all proceeded on the assumption that the enquiry made so far by the ITO was not proper and some more enquiry could be made but which was not made. The Commissioner felt that the assessee had not led evidence to show that each of the provisions of Section 35B(1)(b) was individually satisfied. The learned Members differed on the question as to whether the ITO made the enquiry or not apart from adequacy of such enquiry. While the learned Accountant Member says no enquiry was made, the learned Judicial Member said that enquiry was made and it was adequate. In the paper book that was filed before me copious documents were presented, which showed that the ITO had accepted the claim of the assessee after making proper enquiry after calling for various details and even here he was supported by the various orders of the Tribunal. I do not want to burden this order with all those details of enquiries made by the ITO but suffice it to say that the record does show that enough evidence was called for by the ITO and the assessee produced several orders of the Tribunal in support of its various contentions and it was after considering those material that the ITO allowed the claims. It is, therefore, incorrect, in my opinion, to say that enquiry was not made. I am deliberately avoiding all the references given in the paper book to the various letters filed by the assessee in response to the various enquiries made by the ITO only with a view to reduce the burden of this order, which is already burdened. The Commissioner is, therefore, in my opinion, not quite correct in saying that the assessee had not produced enough evidence to justify its claim and that the ITO was in error when he accepted those claims. He cannot, therefore, assume jurisdiction to unsettle the finality of that view in the hope that something would come out if further enquiry was ordered. The assessee is an exporter and it is on record that the entire output is exported and there were no local sales. There are several orders of the Tribunal to show that expenditure to be allowed could be proportionate, which means proportionate to the export turnover as to the local turnover, which means that if there is export turnover as to nil local turnover, the entire expenses have to be allowed for weighted deduction. This is what the ITO has done and nothing was shown by the Commissioner to show that the expenditure so allowed by the ITO contained items which did not merit such weighted deduction. This is purely suspicion. Therefore, this order of the Commissioner also does not give rise to the assumption of jurisdiction under Section 263, Thus, in my opinion, neither in respect of serial Nos. 1 to 3 nor in respect of serial Nos.

4 to 11, the ITO committed any error and, therefore, the Commissioner had not properly assumed jurisdiction. For the above reasons, I am inclined to agree with the view expressed by the learned Judicial Member. The matter will now go back to the regular Bench for disposal of this appeal in accordance with the majority opinion.

11. In my order if I have not referred to any of the arguments addressed to me by the learned departmental representative, Shri Kapila, it was not because those arguments are not entitled to respect or deserved commendation but because in the view that I have taken that the order passed by the ITO following an order of the Tribunal could not be said to be erroneous, those arguments became unnecessary to be dealt with specifically. As I have mentioned earlier, the attempt of the departmental representative is to equate the jurisdiction under Section 263 with the reopening of assessment under Section 147 by correlating the meaning of the expression 'consider' used in Section 263 with the expression 'reason to believe' used in Section 147. But the major difference is that there must be an error committed by the ITO before the Commissioner could exercise his jurisdiction. The ITO did not commit an error when he followed an order of the Tribunal. This being the distinguishing feature, it became unnecessary to deal with those arguments.


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