1981 (8) TMI 90 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 40,000 out of advertisement expenditure.
2. Disallowance of Rs. 5,000 out of car expenses.
3. Disallowance of Rs. 300 out of general expenses.
4. Disallowance of Rs. 4,527 out of sale promotion expenses.
5. Disallowance of Rs. 800 for guest house maintenance.
6. Disallowance of Rs. 2,000 out of labor welfare expenses.
7. Disallowance of Rs. 1,000 from T.A. expenses.
8. Disallowance of Rs. 3,000 out of telephone expenses.
9. Disallowance of Rs. 913 interest paid to partners.
10. Disallowance of Rs. 1,793 interest paid to IT Department.
11. Denial of initial depreciation on new machinery.
12. Revenue's appeal on allowance of Rs. 10,000 for advertisement.
13. Revenue's appeal on reduction of Rs. 5,000 from car expenses.
14. Revenue's appeal on allowance of Rs. 3,670 from telephone expenses.

Detailed Analysis:

1. Disallowance of Rs. 40,000 out of Advertisement Expenditure:
The assessee's appeal contested the disallowance of Rs. 40,000 out of Rs. 50,000 spent on advertisement in the Souvenir "ANUSHASHAN PARVA" by the Indian National Congress. The I.A.C. treated the payment as a donation rather than a genuine advertisement expense. The CIT allowed only Rs. 10,000 as genuine advertisement expense, disallowing the remaining Rs. 40,000. The Tribunal, referencing a similar case (Bawa Skin Co.), held that the entire payment was genuine business expenditure, as there was no material to justify bifurcating the amount into genuine and donation parts. The Tribunal vacated the CIT's finding and allowed the assessee's appeal on this issue.

2. Disallowance of Rs. 5,000 out of Car Expenses:
The ITO initially disallowed Rs. 10,000 for personal use of cars by partners, which the CIT reduced to Rs. 5,000. The assessee argued the disallowance lacked basis. The Tribunal found the disallowance reasonable, considering the total expenditure on car maintenance and upheld the CIT's decision, dismissing the assessee's contention.

3. Disallowance of Rs. 300 out of General Expenses:
The assessee failed to raise this issue before the CIT, thus the Tribunal dismissed the appeal on this ground.

4. Disallowance of Rs. 4,527 out of Sale Promotion Expenses:
The I.A.C. disallowed Rs. 4,527 out of Rs. 9,541-1/2 as entertainment expenses. The CIT reduced the disallowance to Rs. 4,527. The Tribunal found no justification for further interference and dismissed the assessee's appeal on this issue.

5. Disallowance of Rs. 800 for Guest House Maintenance:
The Tribunal agreed with the CIT that the expenditure was prima facie disallowable and dismissed the assessee's appeal on this issue.

6. Disallowance of Rs. 2,000 out of Labor Welfare Expenses:
The assessee's counsel did not press this appeal, leading to its dismissal.

7. Disallowance of Rs. 1,000 from T.A. Expenses:
The CIT disallowed Rs. 1,000 for personal expenses incurred by partners on tour. The Tribunal, agreeing with the assessee that the expenses were within IT Rule limits, found no justification for the disallowance and deleted the addition.

8. Disallowance of Rs. 3,000 out of Telephone Expenses:
The Tribunal upheld the CIT's finding that the disallowance was reasonable for personal use of telephones by partners, dismissing the assessee's appeal.

9. Disallowance of Rs. 913 Interest Paid to Partners:
The CIT disallowed interest paid to a partner, J.K. Berry, under s. 40(b) of the Income Tax Act. The Tribunal upheld this disallowance, stating it was irrelevant in what capacity the partner received the interest.

10. Disallowance of Rs. 1,793 Interest Paid to IT Department:
The Tribunal agreed with the CIT's findings and dismissed the assessee's appeal on this issue.

11. Denial of Initial Depreciation on New Machinery:
The CIT denied initial depreciation on machinery, stating the assessee was manufacturing iron and steel goods, not iron and steel. The Tribunal upheld this decision, distinguishing between manufacturing iron and steel and making goods from them, and dismissed the assessee's appeal.

12. Revenue's Appeal on Allowance of Rs. 10,000 for Advertisement:
The Revenue contested the CIT's allowance of Rs. 10,000 for advertisement. The Tribunal, having allowed the entire Rs. 50,000 as genuine expenditure, dismissed the Revenue's appeal.

13. Revenue's Appeal on Reduction of Rs. 5,000 from Car Expenses:
The Tribunal upheld the CIT's decision to reduce the disallowance to Rs. 5,000 and dismissed the Revenue's appeal.

14. Revenue's Appeal on Allowance of Rs. 3,670 from Telephone Expenses:
The Tribunal upheld the CIT's decision to reduce the disallowance to Rs. 2,000 and dismissed the Revenue's appeal.

Conclusion:
The assessee's appeal was partly allowed, with specific disallowances being overturned or upheld based on the merit of each issue. The Revenue's appeal was dismissed in its entirety.

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