1982 (9) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of various expenses (travelling, advertisement, Kamla Retreat, staff welfare, printing & stationery, bank charges, audit fees, miscellaneous expenses).
2. Disallowance of payments made for good work and ex gratia payments.
3. Extra profit addition in Khandsari plant.
4. Disallowance of payment made to Aziz Ilahi for purchase of electrodes.

Detailed Analysis of the Judgment:

1. Disallowance of Various Expenses:
The assessee, M/s J.K. Iron & Steel Co. Ltd., challenged the disallowance of several expenses by the Income Tax Officer (ITO) and the subsequent partial relief granted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The expenses in question included travelling, advertisement, Kamla Retreat, staff welfare, printing & stationery, bank charges, audit fees, and miscellaneous expenses. The ITO had disallowed Rs. 50,000 from miscellaneous expenses, Rs. 20,000 from travelling expenses, Rs. 2,000 from advertisement expenses, Rs. 8,112 from Kamla Retreat expenses, and Rs. 4,000 from staff welfare expenses. The CIT(A) reduced some of these disallowances but confirmed others. Upon review, the Tribunal found that based on the past history of the assessee, a disallowance of Rs. 25,000 for all these heads was justifiable, thus reducing the overall disallowance.

2. Disallowance of Payments Made for Good Work and Ex Gratia Payments:
The ITO disallowed Rs. 58,000 claimed by the assessee for payments made for good work and ex gratia payments. This included payments to workers for good work and to the legal representatives of deceased employees. The CIT(A) confirmed the disallowance due to lack of stamped receipts and vouchers. The Tribunal, however, allowed the payment of Rs. 32,914 to workers as business expenditure, citing that the lack of receipts was immaterial given the detailed records provided. However, the disallowance of Rs. 25,483 for ex gratia payments was upheld as there was no agreement, resolution, rule, or scheme supporting these payments, making them voluntary and not commercially expedient.

3. Extra Profit Addition in Khandsari Plant:
The ITO added Rs. 60,000 to the assessee's income, arguing that the yield of sugarcane in the Khandsari plant was low. The CIT(A) reduced the addition but still sustained Rs. 60,000. The Tribunal found that the plant was operated as a demonstration plant, not for regular business, and the discrepancies in accounts were explained. The Tribunal accepted the assessee's submission that the plant was not run continuously and that the yield was reasonable for a demonstration plant. Thus, the addition was deleted.

4. Disallowance of Payment Made to Aziz Ilahi for Purchase of Electrodes:
The ITO disallowed Rs. 20,000 out of Rs. 35,440 claimed for the purchase of electrodes, citing lack of address and exorbitant rates. The CIT(A) confirmed this disallowance. The Tribunal noted conflicting affidavits regarding the presence of the accountant during proceedings and the production of relevant documents. It directed the ITO to re-examine the claim, giving the assessee a fresh opportunity to present evidence.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal reduced the disallowance of various expenses to Rs. 25,000, allowed the payment of Rs. 32,914 for good work, deleted the addition of Rs. 60,000 for the Khandsari plant, and remanded the issue of electrode purchase back to the ITO for fresh consideration.