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Issues involved: Appeal against disallowance of loss on sale of raw materials, disallowance of club fees, and disallowance u/s 40(a)(ia) of the Income-tax Act, 1961.
Issue 1 - Disallowance of loss on sale of raw materials: The assessee claimed a loss of &8377; 1.52 lakh on the sale of raw material (cotton) which was not usable in the manufacturing process. The Assessing Officer disallowed the loss, stating lack of proof of unusability. The CIT(A) upheld the disallowance. The Tribunal found that the purchase and sale details were furnished with supporting bills, and since no discrepancy was found, the loss was held to be deductible as a revenue expenditure, even without proof of unusability. Issue 2 - Disallowance of club fees: A sum of &8377; 1,10,329 incurred as club fees was disallowed by the Assessing Officer as personal expenses. The CIT(A) upheld this disallowance based on the audit report. The Tribunal, after considering the tax audit report and relevant expenses, held that the expenditure was revenue in nature, following a precedent decision, and allowed the deduction in computing the total income. Issue 3 - Disallowance u/s 40(a)(ia) of the Income-tax Act: A disallowance of &8377; 2,70,903 was made u/s 40(a)(ia) for non-deduction of tax at source on fees for quality testing paid in foreign exchange. The CIT(A) upheld the disallowance, stating the amendment was not retrospective. The Tribunal, considering the explanation provided by the assessee and a relevant tribunal decision, held that since all services were rendered and payments made outside India, tax deduction at source was not applicable, and thus, deleted the disallowance. In conclusion, the Tribunal allowed the appeal, holding in favor of the assessee on all three substantive grounds.
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