1988 (4) TMI 95 - AT - Income Tax

Summary

Issues:
1. Admissibility of extra shift allowance and wages.
2. Allowance of deduction for bonus payment.
3. Admissibility of conference expenses under s. 37(2A).
4. Disallowance under s. 80VV for audit fees.

Analysis:

1. The first issue pertains to the admissibility of extra shift allowance and wages for the assessment year 1981-82. The CIT(A) directed the ITO to allow the claim for double shift allowance and full amount of wages based on new evidence produced by the assessee without giving the ITO an opportunity to be heard. The ITAT found that the CIT(A) erred in not following Rule 46A of IT Rules, 1962, which necessitates giving the ITO an opportunity to respond to fresh evidence. Consequently, the matter was remanded back to the CIT(A) for proper consideration after affording the ITO a hearing.

2. The second issue involves the allowance of deduction for a sum of Rs. 9,478 on account of bonus payment. The ITO disallowed this amount as the full bonus had not been paid, allowing deduction only for actual payment. However, the CIT(A) directed the ITO to allow the deduction, considering the bonus provision made under the mercantile system of accounting as a liability accrued in the relevant accounting year. The ITAT upheld the CIT(A)'s decision, noting that the statutory liability for bonus payment was allowable as a deduction since it had accrued in the relevant year.

3. The third issue concerns the admissibility of conference expenses under s. 37(2A). The CIT(A) held that conference expenses of Area Managers were admissible to the extent of Rs. 2,291 under s. 37(2A). However, the ITAT disagreed, stating that expenses related to the conference of employees could not be subject to deduction under s. 37(2A). Therefore, the ITAT directed the ITO to allow the deduction of the entire amount of conference expenses.

4. The final issue revolves around the disallowance under s. 80VV for audit fees. The CIT(A) disallowed audit fees amounting to Rs. 2,050 under s. 80VV, considering part of the fees as expenses covered under s. 80VV and part as representation before IT authorities. The ITAT upheld the disallowance of Rs. 1350 for representation before IT authorities under s. 80VV due to the negative taxable income, but directed the ITO to allow the deduction of Rs. 700 for conveyance expenses under s. 37(1) of the Act.

In conclusion, ITA No. 258/BOM/85 was partly allowed, cross objection No. 73/BOM/85 was dismissed, and ITA No. 7025/BOM/84 was partly allowed based on the above analysis of the issues and the respective decisions made by the ITAT.