2002 (2) TMI 1277 - AT - Income Tax

Summary

Issues:
1. Disallowance of Rs. 43,90,120 on account of purchase of iron scrap.
2. Disallowance of Rs. 2,11,276 expended for installing an X-ray machine.

Issue 1 - Disallowance of Iron Scrap Purchase:
The Assessing Officer disallowed Rs. 43,90,120 for iron scrap, which the CIT(A) later deleted entirely. The department appealed this deletion. The Tribunal referred to a previous decision in the assessee's case and upheld the CIT(A)'s decision, stating that the deletion was justified based on the earlier Tribunal order. The Tribunal found that the CIT(A) was correct in deleting the disallowance of the iron scrap purchase amount.

Issue 2 - Expenditure for X-ray Machine Installation:
Regarding the disallowance of Rs. 2,11,276 for installing an X-ray machine, the Assessing Officer added this amount to the assessee's income, claiming lack of benefit or satisfactory explanation. The CIT(A) clarified that the expenditure was for the benefit of the assessee-company's staff family members. The department argued that the expenditure was not allowable under section 37(1) of the Income-tax Act. However, the assessee contended that the X-ray unit was installed for the welfare of staff, workers, and their families, thus being a business expediency. The Tribunal agreed with the assessee, emphasizing that the expenditure was motivated by commercial expediency and part of a welfare scheme for employee children's education. Citing the Supreme Court's ruling, the Tribunal held that such expenditure, even if voluntary, for business purposes is deductible under section 37(1). The Tribunal upheld the CIT(A)'s decision, concluding that the expenditure was allowable and motivated by commercial expediency.

The departmental appeal was dismissed, and the cross objection filed by the assessee was treated as dismissed in light of the Tribunal's decision on the issues at hand.