1998 (1) TMI 514 - AT - Income Tax

Issues Involved:
1. Taxability of sundry credit balances written back.
2. Disallowance of provisions for trade guarantees.
3. Disallowance of performance reward paid to employees.
4. Disallowance of capital expenditure on convertible debentures.
5. Disallowance of bad debt/business loss.
6. Disallowance of guest house expenses.
7. Addition under s. 40A(5).
8. Disallowance under s. 37(3A) and 37(3B)(ii) for motor car expenses.
9. Disallowance under s. 37(3B)(ii) for salaries paid to car drivers.
10. Disallowance under r. 6D of the IT Rules.
11. Disallowance of technical know-how fees as capital expenditure.
12. Disallowance of expenditure incurred during the construction period.
13. Disallowance of payment to Tata Research Development & Design Centre.
14. Additional depreciation under s. 32(1)(iia).
15. Levy of interest under s. 139(8).
16. Levy of interest under s. 217(1A).
17. Departmental appeal on provision for trade guarantees.
18. Departmental appeal on expenses for disallowance under s. 37(3A).
19. Departmental appeal on additional depreciation on computer room and electrical work.
20. Departmental appeal on technical know-how expenditure.

Summary:

1. Taxability of Sundry Credit Balances:
The assessee conceded that the Supreme Court's decision in CIT vs. T.V. Sundaram Iyengar & Sons Ltd. (1996) favored the Revenue. Thus, the order of the CIT(A) was upheld without interference.

2. Disallowance of Provisions for Trade Guarantees:
The CIT(A) observed a wide gap between provision and actual expenses, confirming the AO's disallowance. However, the Tribunal found the assessee's method consistent and scientifically justified, deleting the disallowance of Rs. 54.26 lacs sustained by the CIT(A).

3. Disallowance of Performance Reward Paid to Employees:
The Tribunal found the performance reward was outside the purview of the Bonus Act and was incurred wholly and exclusively for business purposes. The disallowance of Rs. 27,57,729 was deleted.

4. Disallowance of Capital Expenditure on Convertible Debentures:
The Tribunal held that the expenses incurred were for raising a loan and not capital, thus deleting the disallowance of Rs. 4,97,953.

5. Disallowance of Bad Debt/Business Loss:
The ground was not pressed by the assessee and hence rejected.

6. Disallowance of Guest House Expenses:
Following the Tribunal's earlier order, the disallowance of Rs. 5,95,054 was deleted.

7. Addition Under s. 40A(5):
The Tribunal upheld the disallowance of Rs. 6.00 lacs, following the jurisdictional High Court's decision in Lubrizol India Ltd. vs. CIT.

8. Disallowance Under s. 37(3A) and 37(3B)(ii) for Motor Car Expenses:
Following the Tribunal's earlier order, the disallowance was deleted.

9. Disallowance Under s. 37(3B)(ii) for Salaries Paid to Car Drivers:
The Tribunal held that the disallowance was uncalled for, following the decision in Dy. CIT vs. Addison & Co. Ltd.

10. Disallowance Under r. 6D of the IT Rules:
Following decisions against the assessee, the Tribunal upheld the disallowance.

11. Disallowance of Technical Know-How Fees as Capital Expenditure:
Following the Tribunal's earlier order, the payment was held to be of revenue nature, and the disallowance of Rs. 5,70,000 was deleted.

12. Disallowance of Expenditure Incurred During the Construction Period:
The ground was not pressed by the assessee and hence rejected.

13. Disallowance of Payment to Tata Research Development & Design Centre:
The Tribunal found the expenditure related to the assessee's business and deleted the disallowance.

14. Additional Depreciation Under s. 32(1)(iia):
Following the Tribunal's earlier order, the claim for additional depreciation on certain assets was rejected, but allowed for data processing machines.

15. Levy of Interest Under s. 139(8):
Following the Tribunal's earlier order, the interest was deleted.

16. Levy of Interest Under s. 217(1A):
The Tribunal directed the AO to grant consequential relief in accordance with the law.

17. Departmental Appeal on Provision for Trade Guarantees:
The Tribunal rejected the ground as the addition was already deleted in the assessee's appeal.

18. Departmental Appeal on Expenses for Disallowance Under s. 37(3A):
The Tribunal upheld the CIT(A)'s deletion of the addition.

19. Departmental Appeal on Additional Depreciation on Computer Room and Electrical Work:
The Tribunal restored the disallowance made by the AO.

20. Departmental Appeal on Technical Know-How Expenditure:
The Tribunal found the ground misconceived and rejected it.

Conclusion:
Both the assessee's and the Department's appeals were partly allowed.

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