1991 (2) TMI 76 - HC - Income Tax

Appeal To Tribunal Business Expenditure Business Income Expenditure On Advertisement Sugar Industry

Summary

Issues:
1. Valuation of sugarcane purchased by the applicants
2. Allowability of fees paid for issue of bonus shares as business expenditure
3. Disallowance of 25% of advertisement expenses for souvenirs
4. Allowability of revenue loss due to destruction of sugar godown

Analysis:
1. The primary issue in this case was the valuation of sugarcane purchased by the applicants at their agricultural farms and crushed at different locations. The Tribunal had valued the sugarcane at lower rates than claimed by the applicants. The High Court referred to a previous decision in the assessee's own case and held in favor of the assessee, directing the valuation to be as per the higher rates claimed.

2. Another issue raised was the allowability of fees paid for the issue of bonus shares as a business expenditure. The Tribunal had disallowed the fees, but the High Court, considering relevant case law and circulars issued by the Central Board of Direct Taxes, held that the expenditure should be allowed as a deduction since it was incurred for the purpose of the business.

3. The question of disallowance of 25% of advertisement expenses for souvenirs was also discussed. The Income-tax Officer disallowed the claim entirely, while the Appellate Assistant Commissioner allowed 50% of the expenses. The Tribunal reduced the disallowance to 25% considering an element of charity in the advertisements. The High Court, relying on relevant circulars and case law, held that the disallowance was not justified as the expenditure was incurred for business purposes, even if it had a charitable element.

4. Lastly, the issue of allowing revenue loss due to the destruction of a sugar godown was examined. The assessee had claimed the loss under a specific section of the Income-tax Act, citing the destruction of the godown by cyclones. The High Court considered the circumstances leading to the claim, including the Tribunal's previous order in the assessee's case for the preceding year, and directed further examination of the Tribunal's jurisdiction to entertain such a claim for the first time. The matter was referred to a larger bench for clarification on the Tribunal's power to admit new grounds in such cases.