JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Cochin Bench, has referred the following two questions of law for the decision of this court :
“(a) Whether, on the facts and in the circumstances of the case, the assessee is entitled to and the Tribunal is right in directing/in allowing weighted deduction in respect of interest on packing credit ?
(b) Whether, on the facts and in the circumstances of the case, the Tribunal without considering the case on merits and without proper, relevant and independent findings is right in allowing the claim solely relying oh a decision of the Madhya Pradesh High Court ?”
2. The respondent, an assessee to income-tax, is a limited company engaged in the business of export of coir products. We are concerned with the assessment year 1980-81. The accounting period ended on December 31, 1979. The assessee was keeping its accounts on mercantile basis. The return submitted by the assessee for the year 1980-81 disclosed a profit of Rs. 7,42,870. The assessee had claimed weighted deduction under Section 35B of the Income-tax Act, 1961, in respect of interest on packing credit amounting to Rs. 1,61,385. The Income-tax Officer disallowed the claim. In appeal, the Commissioner of Income-tax (Appeals) relied on the Special
Bench decision in J. Hemchand and Co.’s case (1 S. O. T. 150) and disallowed the claim. In further appeal before the Appellate Tribunal, the claim was allowed. The Appellate Tribunal stated in paragraph 4 of its order dated February 24, 1989, thus :
“The last item is in regard to interest on packing credit. The amount is Rs. 1,61,384. This issue stands squarely covered by the decision of the Madhya Pradesh High Court in the case of CIT v. Vippy Solvex Product Pvt. Ltd. [1986] 159 ITR 487. Following the same, we direct that weighted deduction shall be allowed in respect of interest on packing credit.”
3. Aggrieved by the decision of the Appellate Tribunal and on the request of the Revenue, the Income-tax Appellate Tribunal, Cochin Bench, has referred the above two questions of law for the decision of this court.
4. We heard counsel for the Revenue, Mr. P.K.R. Menon, and also counsel for the respondent-assessee, Messrs. Menon and Pai.
5. Counsel for the Revenue submitted that the order of the Appellate Tribunal is laconic and contains no reasons. Counsel characterised the order of the Appellate Tribunal as a casual one and there has been no application of mind. It was argued that in the case of CIT v. Vippy Solvex Product Pvt. Ltd. [1986] 159 ITR 487 (MP), the Appellate Tribunal held, on the basis of a certificate issued by the concerned bank to the effect that the assessee had maintained with it an export packing credit amount and advances were made available only when the parties submitted a copy of the export contract entered into with the foreign party and other evidence, that the expenditure was incurred in connection with export. In this case, there is no finding by the Appellate Tribunal whether the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. What is more, without a proper finding, the Appellate Tribunal was in error in directing weighted deduction to be allowed in respect of interest on packing credit. Counsel for the respondent-assessee sought to sustain the order of the Appellate Tribunal by stating that the Appellate Tribunal had given the decision that the assessee is entitled to the relief which, by implication, means that there is a finding by the Tribunal that there are proper records, including a certificate, to show that the assessee had maintained an export packing credit account and advances from the account were given only for the purchase of raw materials for manufacturing goods to be exported out of India. The Appellate Tribunal has not in terms entered any finding in view of the decision of the Madhya Pradesh High Court.
6. We are of the view that the plea of the Revenue should succeed. We have extracted paragraph 4 of the Tribunal’s order wherein the Tribunal had given relief in regard to interest on packing credit amounting to Rs. 1,61,384. There is no finding on the question of fact as to whether the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. Such a finding is essential before the claim is accepted. In the absence of a clear finding, a mere reference to the decision of the Madhya Pradesh High Court in Vippy Solvex Product Private Ltd.’s case [1986] 159 ITR 487 is irrelevant and of no consequence. We, therefore, hold that the Appellate Tribunal was in error in allowing the claim for weighted deduction in respect of interest on packing credit without clearly entering a finding as to whether the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. We hold so.
7. We, therefore, answer question No. 2 in the negative and hold that the Appellate Tribunal was wrong in allowing the claim solely by referring to the decision of the Madhya Pradesh High Court. We answer question No. 1 in the negative and hold that the Appellate Tribunal was not justified in allowing weighted deduction in respect of interest on packing credit. Before doing so, the Tribunal should enter a specific finding on an evaluation of the evidence that the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. We answer question No. 1 in the negative, against the assessee and in favour of the Revenue. The references are answered as above. The Appellate Tribunal shall restore the appeal to file and consider the appeal on the merits and pass fresh orders.
8. A copy of this judgment, under the signature of the Registrar and the seal of this court, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, forthwith.