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Issues:
1. Disallowance of compounding fees as business expenditure. 2. Admission of additional ground regarding sales tax incentive as a capital receipt. Issue 1: Disallowance of compounding fees as business expenditure: The appeal concerned the disallowance of compounding fees paid by the assessee in relation to a prosecution launched by the Income Tax Department. The appellant argued that the expenditure was incurred to protect the reputation of the company, as the prosecution was against the directors who were previously partners of the firm. However, the Departmental Representative contended that such expenditure was personal and not related to the business. The Tribunal analyzed Section 37(1) of the Income Tax Act, which allows deductions for expenditures incurred wholly and exclusively for business purposes. The Tribunal concluded that the compounding fee paid by the assessee to avoid prosecution against the directors was personal expenditure and not related to the business. The Tribunal upheld the decision of the lower authorities disallowing the deduction, citing that the expenditure was in violation of the law and therefore not allowable under Section 37(1). Issue 2: Admission of additional ground regarding sales tax incentive as a capital receipt: The assessee sought to raise an additional ground regarding a sales tax incentive received from the Government of Gujarat, claiming it to be a capital receipt not chargeable to tax based on a decision by the Special Bench of ITAT. The appellant argued that this ground was not raised earlier due to lack of awareness regarding the nature of the incentive. The Departmental Representative opposed the admission of the additional ground, stating that the relevant facts were not on record. The Tribunal reviewed the assessment order and found no evidence of the setting up of a new industry or the receipt of any sales tax incentive by the assessee. Referring to the decision in National Thermal Power Co. Ltd., the Tribunal emphasized that additional grounds could only be admitted when relevant facts were available. As the facts regarding the incentive were not on record, the Tribunal refused to admit the additional ground, noting that it would require a fresh investigation of facts. The Tribunal distinguished the case from previous decisions cited by the appellant, as the facts in those cases were different and not applicable to the current situation. In conclusion, the Tribunal dismissed the assessee's appeal, upholding the disallowance of the compounding fees as business expenditure and refusing to admit the additional ground regarding the sales tax incentive as a capital receipt due to lack of relevant facts on record.
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