POPULAR AUTOMOBILES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of an assessee to Income Tax, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this Court:

(2.) The respondent is the Revenue. We are concerned with the assessment year 1979-80. The assessee is a registered firm. It is a dealer in automobile spare parts. For the year 1979-80, the Income Tax Officer made an assessment under S.143(3) of the Income Tax Act read with S.144B of the Act, by order dated 17-9-1982. Various additions were made in the assessment order. Against the said additions, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). When the appeal was posted for hearing, the Income Tax Officer submitted an application on 2-2-1983 before the CIT (Appeals) bringing to his notice that S.37(3A) of the Income Tax Act is applicable in the instant case, and that the assessment may be enhanced by the disallowance under S.37(3A) of the Act of a sum of 15% of Rs. 14,66,586/- being the total of the sales commission and advertisement expenses as reduced by a sum of Rs. 5,00,464/- disallowed out of the sales commission in the assessment and the amount worked out to Rs. 2,16,987/-. The Commissioner of Income Tax (Appeals) did not accept the request of the Income Tax Officer. He passed the appellate order on 31-3-1983. No mention was made in the order about the request made by the Income Tax Officer in the communication dated 2-2-1983 praying for the enhancement of the disallowance under S.37(3A) of the Act. Against the aforesaid order of the CIT (Appeals) dated 31-3-1983, the Revenue filed an appeal before the Income Tax Appellate Tribunal and contended that the Commissioner of Income Tax (Appeals) erred in deleting the entire disallowance under commission and that as the expenses were in the nature of sales promotion expenses, 15% of the amount has to be disallowed under S.37(3A) of the Income Tax Act, 1961. Repelling the plea of the assessee, that the appeal filed by the Revenue is incompetent, the Income Tax Appellate Tribunal, after adverting to the specific plea made by the Income Tax Officer in his letter dated 2-2-1983 praying for an enhancement, held that the CIT (Appeals) ought to have considered this issue and the failure to do so is a clear error and in this view ordered a remit of the matter to the CIT (Appeals) for considering the said issue afresh. It was further stated that an opportunity will be given to the assessee of being heard. The appeal filed by the Revenue was allowed, on this aspect. It is thereafter, at the instance of the assessee, the question of law formulated herein above has been referred for the decision of this Court.

(3.) We heard counsel for the applicant/assessee, Mr. M.C. Sen and also counsel for the respondent/Revenue Mr. P. K. R. Menon. Counsel for the assessee submitted as follows: