1980 (11) TMI 62 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenses incurred for issuing bonus shares.
2. Disallowance of provision for gratuity claimed by the assessee.
3. Denial of relief under section 80G for a donation made to a charitable trust.

Issue 1: The appeal addressed the disallowance of Rs. 17,127 incurred by the assessee for issuing bonus shares. The Income Tax Officer (ITO) considered this expenditure as a reorganization of capital, not related to bringing in any capital assets or enduring benefit. The Commissioner of Income Tax (CIT) agreed with the ITO, stating that the expenditure did not contribute to the business's operation. However, the Tribunal referred to a previous case where expenses for sending right shares were allowed as normal business expenditure. The Tribunal concluded that the expenses for issuing bonus shares were also incurred in the course of business and thus deductible. The ITO was directed to allow the expenditure of Rs. 7,127 related to bonus shares.

Issue 2: The second point of contention was the disallowance of a provision of Rs. 10,79,935 for gratuity claimed by the assessee. The assessee argued that, as per accounting principles and the mercantile system, the provision should be allowed as the gratuity liability was due and ascertained. The ITO disallowed the claim citing non-payment and s. 40A(7) conditions. The Tribunal, following precedent decisions, held that the provision for gratuity should be allowed as it was based on the actuarial report. The ITO was directed to allow the claim of Rs. 10,79,935 for gratuity provision.

Issue 3: The final contention was the denial of relief under section 80G for a donation of Rs. 25,000 to a charitable trust. The ITO provisionally disallowed the claim due to the absence of an exemption renewal for the institution. The CIT(A) directed the ITO to rectify the assessment upon producing the necessary exemption proof. The assessee agreed to obtain the exemption certificate, and the claim for relief under section 80G was not pressed. Ultimately, the appeal was partly allowed, directing the ITO to make necessary adjustments based on the provided documentation.