9911796707
|
Home
Issues Involved:
1. Computation of disallowance under Section 37(2A) of the Income Tax Act. 2. Rejection of the claim for Investment Allowance in respect of a computer installed by the assessee. Detailed Analysis: Computation of Disallowance under Section 37(2A) The first issue pertains to the computation of disallowance under Section 37(2A) of the Income Tax Act. The Assessing Authority found that Rs. 1,65,846 was debited as sales promotion expenditure, out of which Rs. 1,48,750 was identified as entertainment expenditure. Additionally, Rs. 84,926 shown as expenditure of the export department was also considered entertainment expenditure. Thus, the total entertainment expenditure was Rs. 2,33,676. After allowing a statutory deduction of Rs. 5,000, the disallowed amount was Rs. 2,28,676. On appeal, the CIT(Appeals) agreed that most of the expenditure at the Head Office and branches in Delhi, Bombay, Bangalore, and Calcutta was for providing tea, coffee, etc., to visitors and customers, but determined the amount to be Rs. 2,21,490 and upheld the disallowance to this extent. On further appeal, the assessee argued that part of the expenditure related to staff and should be allowed. However, this submission was not raised at earlier stages. The Tribunal, for uniformity, referred the matter back to the Assessing Authority for fresh adjudication, following the reasoning in the assessment years 1980-81 and 1981-82 where a similar issue was remanded for re-examination. Rejection of Investment Allowance Claim The second issue concerns the rejection of the claim for Investment Allowance on a computer installed by the assessee. The assessee installed HCL system 4 computers in June 1981, costing Rs. 9,51,321, and claimed Investment Allowance. The assessee argued that it was a small-scale industry and produced articles or things, listing activities such as preparation of catalogues/pamphlets, registration of orders, and printing of invoices, among others. Reliance was placed on decisions from the Bombay High Court (CIT v. I.B.M World Trade Corpn.) and Gujarat High Court (CIT v. Ajay Printery (P.) Ltd.). The Assessing Authority rejected the claim, stating that the computer was a data processing machine installed in the office, making it ineligible for Investment Allowance under the Eleventh Schedule. The authority also rejected the claim that the assessee was a small-scale industry, as the value of plant and machinery exceeded Rs. 20 lakhs. The CIT(Appeals) upheld this decision, agreeing that the assessee was not a small-scale industry and that the computer was used for office purposes, not manufacturing or producing commercial commodities. Before the Tribunal, the assessee reiterated that it maintained a data center and could be registered as a small-scale industry, referencing a Government of India Notification and decisions from the Bangalore Bench of the Tribunal and the Karnataka High Court. The Department argued that the Tribunal's decision for the year 1981-82 should not influence the current year's decision, emphasizing that the computer was used for self-consumption, not manufacturing goods for sale. The Tribunal agreed with the Department, stating that the letter from the Ministry of Industry was not relevant and that the assessee did not satisfy the conditions for being a small-scale industry, as the total cost of fixed assets exceeded Rs. 20 lakhs. The Tribunal concluded that the activities listed by the assessee did not constitute manufacturing or producing commercial commodities. The Tribunal also distinguished the cited cases, stating they were not applicable. The Tribunal noted that the decision in the assessee's own case for the year 1981-82 was due to a lack of materials, which was not the case for the current year. The Tribunal concluded that the assessee was not entitled to Investment Allowance and treated the appeal as partly allowed for statistical purposes.
|
