1983 (4) TMI 63 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenditure incurred on a foreign tour.
2. Disallowance of registration fees for increase in authorized capital.
3. Disallowance of expenses incurred by another company.

Analysis:

1. The first issue pertains to the disallowance of an expenditure of Rs. 82,756 incurred on a foreign tour by the assessee's delegation to East African countries. The ITO disallowed the claim, stating lack of direct nexus between the expenditure and the business. The CIT (A) upheld the disallowance, emphasizing no operational benefit from the tour. However, the ITAT Allahabad allowed the deduction, emphasizing the business objective of securing finance for industrial development. The tribunal held that the expenditure was incurred wholly and exclusively for business purposes, citing relevant case laws.

2. The second issue concerns the disallowance of registration fees amounting to Rs. 37,500 for an increase in the authorized capital. The ITO treated the expenditure as capital-related, disallowing it. The CIT (A) upheld the disallowance, stating it was not revenue expenditure. The ITAT concurred, citing a precedent that such expenditure results in an enduring benefit to the business. The claim was not allowed under Section 35D(2)(c)(iii) of the IT Act, as it was not incurred for registering under the Companies Act, 1956.

3. The final issue involves expenses incurred by another company, where the assessee was required to bear 1/4th of the expenses and loss. The ITO disallowed the claim, citing lack of details and capital nature of the expenditure. The CIT (A) upheld the disallowance due to late communication of expenses. However, the ITAT allowed the deduction, considering the expenditure as revenue expenditure in line with the object of forming and promoting companies. The tribunal directed the ITO to allow the entire amount of Rs. 19,561.

4. Additionally, the appeal against the levy of interest under sections 139 and 215 of the Act was rejected by the CIT (A), which was upheld by the ITAT, citing precedents that no appeal lies against such charges. The ITAT partially allowed the appeal, overturning the disallowances related to the foreign tour and expenses incurred by another company, while confirming the disallowance of registration fees and interest levy.