1981 (11) TMI 71 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of bonus paid to employees.
2. Disallowance of valuation fees paid for valuing shares.
3. Disallowance of embezzled cash by an employee.
4. Disallowance of relief under Section 80J of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Bonus Paid to Employees:

The first issue concerns the disallowance of a Rs. 910 bonus paid to the employees. The assessee, a company, claimed this bonus as business expenditure. The Income Tax Officer (ITO) disallowed the claim, asserting that the bonus related to employees engaged in activities connected with properties, not the business. The Commissioner of Income Tax (Appeals) [CIT (Appeals)] upheld this disallowance, referencing a similar decision from the assessment year 1972-73. The Tribunal affirmed the CIT (Appeals)'s decision, noting the identical facts and the small amount involved. The principle of res judicata was deemed inapplicable, and the assessee's lack of distinguishing features to depart from the earlier decision led to the confirmation of the disallowance.

2. Disallowance of Valuation Fees Paid for Valuing Shares:

The second issue involves the disallowance of Rs. 2,000 paid as valuation fees for evaluating the assessee's equity shares. The ITO rejected this claim, citing a lack of evidence that banks required such valuation reports for loan purposes. The CIT (Appeals) upheld this disallowance, finding that the valuation was for shareholders' wealth-tax assessments, not the assessee's business. The Tribunal agreed, noting that the assessee failed to rebut the CIT (Appeals)'s findings and that the expenditure was not incurred wholly and exclusively for business purposes. The Tribunal also noted inconsistencies in the assessee's claims before different authorities, leading to the conclusion that the claim was an afterthought.

3. Disallowance of Embezzled Cash by an Employee:

The third issue pertains to the disallowance of Rs. 18,849, embezzled by an employee. The ITO disallowed the claim, stating that the embezzlement occurred outside the relevant assessment year and that the amount was rent collected, not business income. The CIT (Appeals) upheld this disallowance, noting that the loss was not reflected in the business accounts and that mere defalcation did not constitute a business loss. The Tribunal affirmed this decision, emphasizing that the embezzlement did not fall within the relevant assessment year and had no nexus to the business. The Tribunal also noted the assessee's affidavit to the police, which stated that the embezzled amount did not relate to business activities, further supporting the disallowance.

4. Disallowance of Relief under Section 80J of the Income Tax Act:

The fourth issue involves the disallowance of Rs. 9,208 under Section 80J of the Income Tax Act. The assessee claimed this relief for its new fishing business, arguing that fishing was an industrial activity. The ITO rejected this claim, stating that fishing did not constitute a manufacturing or processing industry and referencing the Bombay High Court decision in New India Fisheries Limited vs. ITO. The CIT (Appeals) upheld this decision, agreeing that the assessee's activities did not meet the criteria for an industrial undertaking. However, the Tribunal disagreed, citing the Kerala High Court decision in Cochin Company vs. CIT, which held that fishing and selling processed fish constituted an industrial undertaking. The Tribunal directed the ITO to compute the relief under Section 80J, considering the Finance (No. 2) Act, 1980, and providing the assessee an opportunity to be heard.

Conclusion:

The Tribunal upheld the disallowances of the bonus, valuation fees, and embezzled cash but allowed the relief under Section 80J, directing the ITO to compute the relief in accordance with the law. The appeal was thus partly allowed for statistical purposes.