1991 (9) TMI 99 - AT - Income Tax

Issues Involved:
1. Disallowance of bonus paid to employees.
2. Disallowance of commission.
3. Claim for investment allowance due to fluctuation in foreign currency rates.
4. Deduction of interest on refund of excise duty.
5. Loss on sale of furniture at the guest house.
6. Deduction of surtax liability.
7. Depreciation calculation considering annulled assessment year.
8. Disallowance of payment to M/s Ajax Business Services Ltd.
9. Expenditure on issue of bonus shares.

Detailed Analysis:

1. Disallowance of Bonus Paid to Employees:
The first issue pertains to the disallowance of Rs. 2,49,778 out of the bonus paid to employees. The Income Tax Officer (ITO) allowed a deduction of Rs. 22,26,758 against the claimed Rs. 24,76,536, based on the Payment of Bonus Act and the IT Act, 1961. The assessee argued that a flat rate of 20% on the total wage bill had been consistently accepted in previous years. The Tribunal found the issue covered by its earlier decision for the assessment year 1980-81, where the full claim was allowed. Consequently, the Tribunal directed the Assessing Officer to allow the claim in full.

2. Disallowance of Commission:
The assessee claimed a deduction of Rs. 48,32,722 for commission paid to sales representatives. The ITO allowed only Rs. 20,06,529, stating that the commission became payable only after the sale proceeds were fully realized. The CIT(A) reduced the disallowance to Rs. 1,60,642. The Tribunal noted the relevant clause in the agreement, which was later amended to clarify that commission accrued as soon as sales were made but was payable after realizing the sale proceeds. The Tribunal allowed the entire claim, noting that the consistent past practice had been accepted by the Department.

3. Claim for Investment Allowance Due to Fluctuation in Foreign Currency Rates:
The ITO disallowed the claim for investment allowance on the grounds that it should be given in the year of purchase or installation of the assets. The CIT(A) upheld this view, noting no new plant or machinery was installed or put to use in the relevant year. The Tribunal found no reason to interfere with the CIT(A)'s decision and rejected the claim.

4. Deduction of Interest on Refund of Excise Duty:
The assessee claimed a deduction for interest on a refund of excise duty, which was directed to be paid back with interest by the Gujarat High Court, and the Supreme Court stayed the recovery. The ITO and CIT(A) rejected the claim, stating the liability arose after the relevant year. The Tribunal allowed the claim, noting the liability related back to the assessment year under consideration due to the mercantile system of accounting.

5. Loss on Sale of Furniture at the Guest House:
The ITO and CIT(A) rejected the claim for loss on the sale of furniture at the guest house, noting no evidence was provided to show the furniture was treated as a business asset or that depreciation had been claimed. The Tribunal upheld this rejection due to the lack of evidence.

6. Deduction of Surtax Liability:
The ITO and CIT(A) rejected the claim for deduction of surtax liability. The Tribunal upheld this decision, noting the issue was covered against the assessee by the Gujarat High Court's decision in S.L.M. Maneklal Industries Ltd. vs. CIT.

7. Depreciation Calculation Considering Annulled Assessment Year:
The assessee argued that for the purpose of allowing depreciation, the Written Down Value (WDV) as at the end of the assessment year 1980-81 should be considered, ignoring the annulled assessment year 1981-82. The Tribunal agreed, noting that the annulment meant no depreciation was "actually" allowed for that year. The Tribunal directed the ITO to recompute the depreciation accordingly.

8. Disallowance of Payment to M/s Ajax Business Services Ltd.:
The ITO disallowed Rs. 3,48,000 out of the total Rs. 3,60,000 paid to M/s Ajax, questioning the commensurateness of the services rendered. The CIT(A) allowed the full claim, noting the services provided and the cost-effectiveness compared to maintaining an office. The Tribunal upheld the CIT(A)'s decision, finding the payment justified based on the services rendered.

9. Expenditure on Issue of Bonus Shares:
The ITO rejected the claim for Rs. 900 spent on issuing bonus shares, but the CIT(A) allowed it. The Tribunal set aside the CIT(A)'s decision, noting the expenditure was capital in nature, as supported by relevant case law.

Conclusion:
Both appeals were partly allowed, with specific directions provided for each issue based on the Tribunal's detailed analysis and consideration of past practices, legal provisions, and relevant case law.

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