1990 (4) TMI 76 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 37(3A)
2. Treatment of leave encashment under section 40(c)
3. Disallowance under section 80VV
4. Disallowance of penalty and fine under Factories Act

Disallowance under Section 37(3A):
The appeal challenged the disallowance made by the ITO under section 37(3A), specifically regarding advertisement expenses, car lease rent, and recruitment costs. The CIT(A) upheld the disallowance. The appellant's counsel argued that certain expenses were not for advertisement but for statutory compliance and recruitment. The tribunal found that while car lease rent was rightly disallowed, a portion of the other expenses had an advertisement value. They determined that 50% of the expenses related to advertisement and thus disallowed that portion under section 37(3A).

Treatment of Leave Encashment under Section 40(c):
The issue revolved around whether leave encashment should be included in the calculation under section 40(c) due to a retrospective amendment. The ITO and CIT(A) included it based on the amendment. The appellant cited a previous tribunal decision in their favor. However, the tribunal held that leave encashment should be considered under section 40(c) due to the retrospective amendment extending the definition of "salary" to include leave encashment.

Disallowance under Section 80VV:
The dispute concerned the disallowance made under section 80VV and upheld by the CIT(A). The appellant claimed that a payment related to sur-tax assessment should not be subject to section 80VV as it pertained to the IT Act only. The tribunal agreed with the appellant, stating that section 80VV referred to liabilities under the IT Act specifically, not other enactments like the Sur-tax Act. Therefore, the payment for sur-tax assessment was allowed in full.

Disallowance of Penalty and Fine under Factories Act:
The final issue involved the disallowance of a payment for penalty and fine under the Factories Act. The ITO and CIT(A) disallowed the claim, which the appellant's counsel supported based on a High Court decision. The tribunal upheld the disallowance, stating that the decision was supported by the High Court ruling. As a result, this ground of appeal was rejected, and the appeal was partly allowed.