1985 (10) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Denial of relief under section 80J of the Income-tax Act, 1961.
2. Claim under section 80HH of the Income-tax Act, 1961.
3. Computation of the written down value of generator sets for depreciation.
4. Disallowance of Rs. 4,750 as registration fee for increased share capital.
5. Disallowance of Rs. 40,580 under the head 'Sales Promotion Expenses'.
6. Charge of interest under sections 139(8) and 215 of the Income-tax Act, 1961.
7. Deletion of an addition of Rs. 10,78,886 due to discrepancies in stock statements.

Detailed Analysis:

1. Denial of Relief under Section 80J:
The assessee, a private limited company engaged in the manufacture and sale of steel tubes, claimed relief under section 80J for a new project involving a moulding plant for 4-inch diameter tubes. The ITO denied this relief on the grounds that no separate profit and loss account and balance sheet were prepared for the new project, and it was formed by splitting up the existing business. The ITO's inspection revealed shared use of machinery and facilities between the old and new projects, which he argued constituted splitting up. The Tribunal, however, found that the new project involved substantial fresh investment and was a distinct and identifiable undertaking capable of existing independently, thus entitling the assessee to relief under section 80J.

2. Claim under Section 80HH:
The assessee's claim under section 80HH was also denied by the ITO on the same grounds as section 80J, as section 80HH applies only if section 80J is applicable. The Tribunal, having accepted the applicability of section 80J, directed that relief under section 80HH should also be granted.

3. Computation of Written Down Value for Depreciation:
The ITO reduced the cost of generator sets by the amount of subsidy received from the Government of U.P., treating it as part of the cost met by another authority. The assessee's appeal on this issue was not pressed before the Commissioner (Appeals), and the Tribunal upheld the ITO's decision, referencing a similar case (ITO v. Metal Decorators (P.) Ltd.).

4. Disallowance of Rs. 4,750 for Registration Fee:
The assessee claimed the registration fee for increased share capital as a deductible expense. The ITO and Commissioner (Appeals) disallowed this, treating it as capital expenditure, supported by decisions in Upper Doab Sugar Mills Ltd. v. CIT and Mohan Meakin Breweries Ltd. v. CIT. The Tribunal upheld this disallowance, aligning with the precedent that such expenses are capital in nature.

5. Disallowance of Rs. 40,580 under 'Sales Promotion Expenses':
The ITO disallowed Rs. 40,580 of sales promotion expenses, treating them as entertainment expenses under section 37(2). The Tribunal directed the ITO to re-examine the expenses, distinguishing between entertainment expenses and those related to staff, allowing only the permissible portion under section 37(2).

6. Charge of Interest under Sections 139(8) and 215:
The Commissioner (Appeals) did not admit the appeal on this point, citing decisions in CIT v. Geeta Ram Kali Ram and CIT v. Hind Lamps Ltd. The Tribunal upheld this decision, following the binding precedent that such grounds could not be entertained by the appellate authority.

7. Deletion of Addition of Rs. 10,78,886:
The ITO added Rs. 10,78,886 to the assessee's income due to discrepancies between stock statements submitted to the bank and the stock register. The Commissioner (Appeals) deleted this addition, following a Tribunal decision in a similar case (Khan & Sirohi Steel Rolling Mills). The Tribunal found that the Commissioner (Appeals) did not adequately examine the facts and set aside the matter for fresh consideration, directing a detailed examination of the assessee's books and statements to determine the correct stock position and whether the provisions of section 145 were applicable.

Conclusion:
The Tribunal allowed the assessee's claims under sections 80J and 80HH, upheld the disallowance of registration fee and certain sales promotion expenses, and directed re-examination of the stock discrepancies and sales promotion expenses by the ITO. The charge of interest under sections 139(8) and 215 was upheld as non-appealable. The matter regarding the addition of Rs. 10,78,886 was remanded to the Commissioner (Appeals) for fresh consideration.