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Issues Involved:
1. Applicability of Section 41(1) of the Income-tax Act, 1961. 2. Deduction for corresponding liability to customers. 3. Taxability under other provisions of the Act (Section 28(i) or Section 28(iv)). 4. Disallowance of legal charges. 5. Disallowance of market fee. 6. Disallowance of insurance premium. 7. Disallowance of sales promotion expenses. 8. Disallowance of guest house expenses. 9. Claim under Section 35C of the Act. 10. Higher depreciation claim. 11. Miscellaneous disallowances. Detailed Analysis: 1. Applicability of Section 41(1) of the Income-tax Act, 1961: The primary issue was whether the amount of Rs. 43,78,875 received as a refund of sales tax was taxable under Section 41(1) of the Income-tax Act, 1961. The learned Accountant Member held that the assessee had been allowed a deduction in earlier years in respect of the sales tax payable to the government, and the refund of Rs. 43,78,875 was due to the cessation of liability, making it taxable under Section 41(1). The Judicial Member disagreed, stating that the deduction had not been allowed in earlier years. The Third Member concurred with the Accountant Member, concluding that the sales tax payable had been allowed as a deduction by direct deduction from the sales proceeds, making Section 41(1) applicable. 2. Deduction for Corresponding Liability to Customers: The assessee argued that a corresponding deduction should be allowed for the liability to return the sales tax refund to its customers. The Accountant Member rejected this argument, stating that no customer had made any claim for a refund, and the liability was contingent. The Judicial Member did not express a separate opinion on this issue. The Third Member's concurrence with the Accountant Member's view implicitly upheld this position. 3. Taxability under Other Provisions of the Act (Section 28(i) or Section 28(iv)): The Accountant Member held that since the amount was taxable under Section 41(1), it was unnecessary to discuss the applicability of Sections 28(i) or 28(iv). The Judicial Member did not express an opinion on these sections. Consequently, this issue was not further deliberated upon. 4. Disallowance of Legal Charges: The assessee incurred legal charges, including retainers' fees for consultations on various matters, not just income-tax proceedings. The Commissioner of Income-tax (Appeals) allowed only a part of the retainers' fee, attributing most of it to income-tax proceedings. The Tribunal directed that only Rs. 502 related to income-tax proceedings should be disallowed, allowing the rest as a deduction. 5. Disallowance of Market Fee: The assessee claimed a deduction for market fees under the Bihar Agricultural Produce Markets Act, 1960. The Tribunal directed the Income-tax Officer to investigate the purchases made in the market area and determine the fee payable, allowing the deduction accordingly. 6. Disallowance of Insurance Premium: The Commissioner of Income-tax (Appeals) disallowed Rs. 5,561 as it related to interest on late payment of premium demanded in the subsequent year. The Tribunal directed the Income-tax Officer to examine if the liability was statutory and allow it if it arose in the relevant year. 7. Disallowance of Sales Promotion Expenses: The assessee claimed expenses for a feasibility report on market survey and production of special steel. The Tribunal allowed the deduction, stating it was for diversifying existing production and not for establishing a new line of business. 8. Disallowance of Guest House Expenses: The assessee's claim for maintaining a flat in Bombay was disallowed as it was considered a guest house under Section 37(5). The Tribunal upheld this disallowance. 9. Claim under Section 35C of the Act: The assessee claimed development allowance for expenses related to cane farming. The Tribunal allowed the claim for direct expenses but directed the Income-tax Officer to re-examine the proportionate expenses on salaries and conveyance related to cane development. 10. Higher Depreciation Claim: The assessee's claim for higher depreciation on plant and machinery was disallowed, following the decision in Saraswati Industrial Syndicate Ltd., which held that the mixture of lime and acid with sugarcane juice did not make it a corrosive chemical. 11. Miscellaneous Disallowances: The Tribunal noted that the assessee did not press claims for minor disallowances on bad debts, repairs to furniture, and general charges, deeming them rejected. Conclusion: The Tribunal, following the majority opinion, upheld the taxability of the sales tax refund under Section 41(1). Other issues were addressed based on the merits and specific directions were given for further examination by the Income-tax Officer where necessary. The appeal and cross-objections were partly allowed.
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