1985 (12) TMI 68 - AT - Income Tax

Summary

Issues:
1. Disallowance of certain expenditures under sections 40(C) and 40A(5) of the Income Tax Act.
2. Claim for deduction under section 80HHC on export turnover.
3. Disallowance of traveling expenses and expenditure on bonus shares.
4. Disallowance of membership fee paid to Citizen Council.

Analysis:

1. The first issue revolves around the disallowance of expenditures on medical benefits, house rent allowance, personal accident insurance premium, and cash payment of house rent allowance to employees under sections 40(C) and 40A(5) of the Income Tax Act. The CIT(A) upheld the assessee's claims based on previous tribunal orders and decisions of the Delhi High Court. The Tribunal concurred with the CIT(A) based on consistency with earlier decisions, thereby dismissing the Revenue's appeals.

2. The second issue pertains to the claim for deduction under section 80HHC on export turnover. The ITO initially disallowed the claim, citing a loss in business income. However, the CIT(A) allowed the deduction, emphasizing the difference in treatment under section 80HHC compared to other sections. The Tribunal upheld the CIT(A)'s decision, stating that the deduction should be allowed from the gross total income, irrespective of the business income being negative, as long as the gross total income is positive.

3. Moving on to the third issue, the disallowance of traveling expenses and expenditure on bonus shares was challenged by the assessee in cross-objections. Relying on tribunal orders and a decision of the Bombay High Court, the Tribunal directed the ITO to accept the assessee's claims for deduction of these expenses, modifying the assessment accordingly.

4. The final issue concerns the disallowance of a membership fee paid to the Citizen Council. The assessee argued that such expenses are necessary in the modern business world to maintain good relations and benefit from community activities. The Tribunal agreed with the assessee, emphasizing the changing business landscape and the need to align with industry practices. Consequently, the Tribunal directed the ITO to accept the deduction for the membership fee paid to the Citizen Council.

In conclusion, the Tribunal dismissed the Revenue's appeals and partly allowed the cross-objections filed by the assessee, ensuring that deductions were granted in accordance with the provisions of the Income Tax Act and previous legal precedents.