1994 (10) TMI 13 - HC - Income Tax

Accounting Year Advance Tax Burden Of Proof Business Expenditure Computation Of Capital Development Allowance Expenditure Incurred New Industrial Undertaking Special Deduction Travel Expenditure

Issues Involved:
1. Deduction of liabilities for calculating capital under Section 80J of the Income-tax Act, 1961.
2. Treatment of payment as advance tax.
3. Entitlement to deduction under Section 35B on specific expenses.
4. Calculation of travel expenditure under Rule 6D of the Income-tax Rules, 1962.

Detailed Analysis:

1. Deduction of Liabilities for Calculating Capital under Section 80J:
Issue: Whether the entire liabilities should be deducted from the gross value of the assets for the purpose of Section 80J relief.
Judgment: The court referred to the decision in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC), which applies to this case. The court held that the entire liabilities should not be deducted and the entire gross value of the assets should be taken as capital for the purpose of Section 80J relief.

2. Treatment of Payment as Advance Tax:
Issue: Whether the payment of Rs. 6 lakhs made on March 19, 1973, should be treated as advance tax payment.
Judgment: The court referred to CIT v. T. T. Investments and Trades Pvt. Ltd. [1984] 148 ITR 347, agreeing with the decision that the payment should be treated as advance tax. The court answered this question in favor of the assessee.

3. Entitlement to Deduction under Section 35B on Specific Expenses:
Issue: Whether the assessee was entitled to deduction under Section 35B on expenses like salary, telex, stationery, etc., and the estimation of Rs. 30,000 by the Appellate Tribunal.
Judgment: The court discussed the provisions of Section 35B(1)(b)(i), (ii), and (v) of the Income-tax Act, 1961, which allow deductions for expenses incurred on advertisement, obtaining market information, and preparation of tenders for export promotion. The Tribunal had estimated the expenses at Rs. 30,000 and allowed one-third as a deduction under Section 35B. However, the court found that the Tribunal's approach was flawed as it did not follow proper procedures for estimating expenses without direct evidence. The court emphasized the need for documentary proof or satisfactory secondary evidence to support claims for deductions. The court disagreed with the Tribunal's method of best judgment assessment and held that the Appellate Assistant Commissioner should decide based on materials produced by the assessee.

4. Calculation of Travel Expenditure under Rule 6D:
Issue: Whether the disallowance based on a 24-hour day method for calculating travel expenditure under Rule 6D was correct.
Judgment: The court found that Rule 6D does not specify a 24-hour period as comprising a day for calculating allowance. The Tribunal correctly held that the disallowance based on the 24-hour method was not sustainable. The court agreed with the Tribunal's decision that the entire disallowance of Rs. 7,557 should be deleted, as the claim made by the assessee was in conformity with Rule 6D.

Conclusion:
The court answered the questions referred to it as follows:
1. The entire liabilities should not be deducted, and the entire gross value of the assets should be taken as capital for Section 80J relief.
2. The payment of Rs. 6 lakhs should be treated as advance tax.
3. The expenses incurred for purposes set out in Section 35B(1)(b)(i), (ii), and (v) qualify for deduction, but the Appellate Assistant Commissioner must decide based on proof with materials produced by the assessee.
4. The disallowance based on the 24-hour day method for calculating travel expenditure under Rule 6D is incorrect, and the entire disallowance of Rs. 7,557 should be deleted.

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