1984 (4) TMI 85 - AT - Income Tax

Assessment Year, Entertainment Expenditure, High Court, Retrospective Amendment, Retrospective Effect, Scientific Research

Summary

Issues:
1. Claim for depreciation on assets used for scientific research.
2. Claim for relief under section 35B of the Income-tax Act.
3. Disallowance of entertainment expenses under section 37 of the Act.

Detailed Analysis:

1. Claim for Depreciation on Assets Used for Scientific Research:
The appeal was filed by the revenue against the order of the Commissioner (Appeals) regarding the assessee's claim for depreciation on assets used for scientific research. The issue arose due to the retrospective amendment of section 35(2)(iv) of the Income-tax Act, 1961, which denied the assessee's claim for relief under section 32. The assessee had filed a writ petition in the Bombay High Court, which granted an injunction against the retrospective amendment. However, the ITO still applied the amendment while framing the assessment. The Commissioner (Appeals) granted relief in line with the High Court's order, and the ITAT upheld this decision, stating that the Commissioner's order was in conformity with the High Court's directive.

2. Claim for Relief under Section 35B:
During the assessment proceedings, the assessee claimed relief under section 35B for expenses totaling Rs. 16,76,647. The ITO disallowed a portion of these expenses, including entertainment expenses for foreign customers. The ITO allowed a deduction for part of the entertainment expenses but disallowed the rest under section 37 of the Act. The assessee appealed, arguing that the ITO's actions were incongruous, and the Commissioner (Appeals) agreed, allowing the claim for the disputed expenditure. The revenue appealed this decision, contending that the expenditure was for entertainment purposes and should not have been allowed under section 37. The ITAT analyzed the provisions of sections 35B and 37, concluding that once an expenditure is considered under section 35B, it cannot be re-examined under section 37. The ITAT found that the ITO had correctly considered the claim under section 35B and should have granted the relief accordingly. The Commissioner (Appeals) rectified the errors made by the ITO and granted the deduction equal to one and one-half times the expenditure, which was upheld by the ITAT.

3. Disallowance of Entertainment Expenses under Section 37:
The issue revolved around the disallowance of entertainment expenses under section 37 of the Income-tax Act. The ITO had disallowed a portion of the entertainment expenses incurred by the assessee for foreign customers under section 37. The assessee contended that the expenditure was for the promotion of exports and should have been examined under section 35B instead. The ITAT analyzed the provisions of sections 35B and 37, emphasizing that once an expenditure is considered under section 35B, it cannot be re-examined under section 37. The ITAT found that the ITO had erred in not granting the full relief under section 35B and in restricting the deduction based on section 37. The Commissioner (Appeals) rectified these errors and allowed the deduction as per the provisions of section 35B, which was upheld by the ITAT.