1983 (11) TMI 97 - AT - Income Tax

Issues Involved:

1. Sundry credit balances written off
2. Disallowance under s. 40A(5)
3. Deferred payment of annuity policy
4. Repairs to building, gardening, etc.
5. Disallowance under s. 40A(5)
6. Disallowance under Rule 6D
7. Conference expenses, expenditure on tea and entertainment
8. Disallowance of club membership
9. Gift articles
10. Drawback and cash assistance
11. Expenditure on Goregaon property
12. Stock Exchange listing fees
13. Export market development allowance under s. 35B
14. Deduction under sec. 80-O
15. Interest under s. 216

Detailed Analysis:

1. Sundry Credit Balances Written Off:
The assessee company wrote back sundry credit balances amounting to Rs. 9,146, which were credited to the P&L A/c. These amounts represented deposits from customers and parties for materials and services, which were not claimed. The ITO attempted to tax this amount, but the assessee argued there was no cessation of liability as the write-off was unilateral. The Commissioner (A) agreed with the assessee, and the Tribunal upheld this decision, stating that creditors could still claim the amounts.

2. Disallowance under s. 40A(5):
The Department sought to disallow certain alleged perquisites related to the Managing Director under s. 40A(5) instead of s. 40(c). The Commissioner (A) followed the Tribunal's decision in Geoffrey Manners & Co. Ltd. vs. ITO and accepted the assessee's claim. The Tribunal upheld the Commissioner (A)'s order.

3. Deferred Payment of Annuity Policy:
The ITO included Rs. 42,000 as a premium paid by the company towards a deferred annuity policy for the Managing Director. The Tribunal held that the single premium annuity policy was not the income of the Managing Director in the year the policy was taken, following earlier decisions and considering the decision in I.T.A. No. 537 (Bom)/1978-79 in the matter of Shri Amitabh Bachhan. The Tribunal concluded that the policy was a payment in kind, benefiting the employee, and thus, the value of the policy should be included in the total income of the employee.

4. Repairs to Building, Gardening, etc.:
The ITO included Rs. 6,492 and Rs. 720 for repairs to buildings and gardening as disallowable under s. 40A(5). The Commissioner held these amounts could not be regarded as perquisites, as the property belonged to the company and the expenses were for its protection. The Tribunal upheld the Commissioner's order.

5. Disallowance under s. 40A(5):
The ITO included cash receipts from the Managing Director as perquisites for disallowance under s. 40A(5). The Commissioner, following the Tribunal's decision in Blackie & Sons India Ltd vs. ITO, held these amounts could not be considered for disallowance. The Tribunal upheld the Commissioner's order.

6. Disallowance under Rule 6D:
The ITO disallowed Rs. 20,493 for local conveyance allowance under r. 6D(2)(b). The Commissioner, relying on r. 6D(2)(g), held that the amount should not be disallowed. The Tribunal upheld the Commissioner's order, referencing its decision in ITA Nos. 2153 and 2086 (Bom)/1979.

7. Conference Expenses, Expenditure on Tea and Entertainment:
The ITO disallowed Rs. 5,019 for dinner expenses, Rs. 8,587 for tea and coffee expenses, and Rs. 5,626 for expenses related to technical know-how negotiations. The Commissioner allowed these expenses based on the Tribunal's and Bombay High Court's decisions. The Tribunal upheld the Commissioner's order.

8. Disallowance of Club Membership:
The ITO disallowed Rs. 1,478 for club membership fees, questioning its business purpose. The Commissioner allowed the expense, citing the Tribunal's decision for the previous year and the business benefits of such memberships. The Tribunal supported the Commissioner's order.

9. Gift Articles:
The ITO disallowed Rs. 756 for gifts to foreign constituents, considering it an advertisement expense under r. 6B. The Commissioner allowed the amount, finding no advertisement element. The Tribunal upheld the Commissioner's order.

10. Drawback and Cash Assistance:
The assessee changed its accounting method for duty drawback and cash assistance to a cash basis, citing practical difficulties. The ITO added Rs. 8,43,989 to the total income, but the Commissioner found the change bona fide and deleted the addition. The Tribunal upheld the Commissioner's order, acknowledging the practical challenges and the bona fide nature of the change.

11. Expenditure on Goregaon Property:
The ITO disallowed Rs. 19,766 for expenses on the Goregaon property, considering it a non-business asset. The Commissioner allowed the expenses, viewing the property as a business asset. The Tribunal upheld the Commissioner's order, recognizing the property as part of the business assets.

12. Stock Exchange Listing Fees:
The ITO disallowed Rs. 4,375 for Stock Exchange listing fees, viewing it as a capital expenditure. The Commissioner accepted the assessee's claim, and the Tribunal upheld the Commissioner's order, noting the business advantages and relevance to the IT Act.

13. Export Market Development Allowance under s. 35B:
The ITO disallowed claims for hotel expenses (Rs. 5,626), entertainment expenses (Rs. 4,076), and packing expenses (Rs. 2,82,456). The Commissioner allowed these claims based on Tribunal and High Court decisions. The Tribunal upheld the Commissioner's order.

14. Deduction under sec. 80-O:
The ITO allowed relief under s. 80-O on the net amount after deducting expenses. The Commissioner, referencing the Supreme Court's decision in Cloth Traders (P) Ltd. vs. Addl. CIT, allowed the relief on the gross amount. The Tribunal upheld the Commissioner's order.

15. Interest under s. 216:
The ITO charged interest under s. 216 for underestimation of advance tax. The Commissioner found the estimate reasonable and the technical objection valid, deleting the interest. The Tribunal reversed the technical objection but agreed with the Commissioner on the facts, finding the levy of interest unjustified.

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