1998 (6) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 67,950 and Rs. 30,000 claimed as revenue expenditure.
2. Lease rent of Rs. 92,160 and Rs. 9,600.
3. Bad debt claim.
4. Disallowance of Rs. 20,000 on account of sales promotion.
5. Deduction under s. 80HH.
6. Levy of interest under s. 234B.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 67,950 and Rs. 30,000 claimed as revenue expenditure:
During the assessment proceedings, the AO found that Rs. 67,950 was paid for the construction of a new compound wall and Rs. 30,000 for silcot work on the road, both of which were considered capital expenditures. The CIT(A) confirmed this view. The assessee argued that the expenditures were for repairs due to wear and tear and should be treated as revenue expenditures, citing relevant case law. The Tribunal noted that the nature of the work described did not necessarily mean new construction and could be considered revenue expenditure under s. 37 of the Act. The Tribunal reversed the CIT(A)'s order and allowed the expenditure as revenue expenditure.

2. Lease rent of Rs. 92,160 and Rs. 9,600:
The AO and CIT(A) disallowed the lease rent, suspecting it was a tax evasion device since depreciation on foreign cars was not allowable. The assessee contended that the lease transaction was genuine and necessary for financing the car purchase. The Tribunal found no evidence of association between the lessor and lessee that would indicate a tax evasion device. They allowed the lease rent and incidental expenses as legitimate deductions.

3. Bad debt claim:
The AO disallowed the bad debt claim due to insufficient evidence of write-off and lack of details. The CIT(A) upheld this view. The assessee argued that the debts were genuinely written off and cited case law supporting their position. The Tribunal found merit in the assessee's claim regarding Rs. 4,726 and allowed it. However, they remanded the issue of Rs. 49,002 back to the AO for further verification.

4. Disallowance of Rs. 20,000 on account of sales promotion:
The AO disallowed Rs. 20,000 from the claimed sales promotion expenses, suspecting non-business distribution of presentation articles. The CIT(A) confirmed this disallowance. The assessee argued that the disallowance was based on surmises. The Tribunal agreed with the assessee, noting that even if the articles were given for maintaining good relations, it should not be disallowed. They directed the AO to delete the disallowance.

5. Deduction under s. 80HH:
This ground was not pressed by the assessee during the hearing and was thus dismissed by the Tribunal.

6. Levy of interest under s. 234B:
The Tribunal noted that the assessee would get consequential relief concerning the levy of interest under s. 234B based on the outcome of the other issues.

Conclusion:
The appeal was partly allowed for statistical purposes, with significant relief granted on the issues of revenue expenditure, lease rent, and sales promotion expenses. The bad debt claim was partly allowed and partly remanded for further verification. The deduction under s. 80HH was dismissed as not pressed, and the interest under s. 234B was to be adjusted consequentially.