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Issues involved: Disallowance of provision for salaries and disallowance of entrance fees to clubs for officers of the company.
Dispute 1 - Provision for Salaries: The assessee, engaged in manufacturing and trading chemicals, returned a loss for the year and made a provision of Rs. 90 lakhs for salaries pending wage revision. The Assessing Officer disallowed the claim stating it was unascertained and contingent. The CIT(A) upheld the disallowance. The assessee argued that the liability was already incurred as the new wage revision was under process and payments were made in January, 2002. The Tribunal noted that the liability had accrued, and quantification was pending, justifying the provision to avoid a distorted financial picture. The provision was made on an estimated basis, not contingent, and hence the disallowance was deleted. Dispute 2 - Entrance Fees to Clubs: The Assessing Officer disallowed Rs. 75,000 entrance fees to clubs for officers, citing lack of clarity on membership details. The CIT(A) upheld the disallowance. The assessee contended that the membership was for all company officers, citing a Tribunal decision and other judgments supporting such expenses for business promotion. The Tribunal, following precedent, deleted the disallowance, emphasizing that such memberships facilitate socializing and business networking. The appeal of the assessee was allowed, directing the Assessing Officer to delete the disallowance. The order was pronounced on 25-4-2008 by the Appellate Tribunal ITAT Hyderabad, with Pradeep Parikh, Vice President, and N.R.S. Ganesan, J.M presiding over the case.
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