1982 (7) TMI 124 - AT - Income Tax

Summary

Issues:
1. Allowability of expenses incurred for increasing authorized capital.
2. Disallowance of sales promotion expenses.
3. Disallowance of expenditure on fluctuations in exchange rates.
4. Allowability of deductions under sections 80G, 80M, and 80VV.
5. Reduction of disallowance made by the ITO under sections 40A(5) and 40(c) of the IT Act, 1961.

Analysis:

1. Allowability of expenses incurred for increasing authorized capital:
The assessee claimed a deduction of Rs. 45,000 as fees paid to the Registrar of Companies for increasing its authorized capital. The ITAT Bombay-C considered various precedents cited by both parties but relied on the Supreme Court's decision in the case of India Cement Co. Ltd. The ITAT held that the expenditure was of a capital nature as it provided an enduring benefit in the capital field. The ITAT upheld the disallowance, citing that the benefit of acquiring fresh capital through public subscription was a capital advantage.

2. Disallowance of sales promotion expenses:
The sales promotion expenses of Rs. 29,434 and Rs. 6,575 were disallowed by the ITO as entertainment expenses. However, the ITAT, following its own past orders and the decision in CIT vs. Shah Nanji Nagji, allowed these expenses as they were not considered lavish or entertainment-related. The ITAT deleted the disallowance of these expenses.

3. Disallowance of expenditure on fluctuations in exchange rates:
The expenditure incurred on fluctuations in exchange rates at the time of remitting loan instalments for purchasing plant and machinery was disallowed as capital expenditure. The ITAT upheld this disallowance based on a previous Special Bench decision that deemed such expenses as capital in nature.

4. Allowability of deductions under sections 80G, 80M, and 80VV:
The assessee's claim for deductions under sections 80G, 80M, and 80VV was rejected as there was no positive total income. The ITAT held that no relief under Chapter VI is admissible when there is no positive total income.

5. Reduction of disallowance made by the ITO under sections 40A(5) and 40(c) of the IT Act, 1961:
The CIT (Appeals) reduced the disallowance made by the ITO under sections 40A(5) and 40(c) by considering cash allowances and repair expenses differently. The ITAT upheld the CIT (Appeals) decision based on precedents and directed the ITO to recompute the disallowances accordingly.

In conclusion, the ITAT partly allowed the assessee's appeal and dismissed the departmental appeal based on the above analysis of the issues involved in the case.