1988 (10) TMI 64 - AT - Income Tax

Issues Involved:
1. Deletion of addition under Section 40A(8)
2. Application of Section 40(c) instead of Section 40A(5)
3. Relief under Section 80VV for professional fees and commission
4. Weighted deduction under Section 35B for commission payment
5. Investment allowance on computer used as office appliance
6. Deduction under Section 32(1)(iii)
7. Deletion of interest levied under Section 216

Detailed Analysis:

1. Deletion of Addition under Section 40A(8)
The Department challenged the CIT(A)'s decision to delete the addition of Rs. 1,59,600 made under Section 40A(8). The IAC (Asst.) found that the assessee had paid interest to parties other than financial institutions, claiming these were used for tax payments. The IAC (Asst.) accepted an alternate plea and computed disallowance based on net interest. However, CIT(A) allowed the entire interest under Section 80V, stating the assessee could choose the most advantageous fund utilization method. The Tribunal concluded that no direct nexus existed between borrowings and tax payments, thus confirming the disallowance under Section 40A(8).

2. Application of Section 40(c) instead of Section 40A(5)
The IAC (Asst.) applied Section 40A(5) instead of Section 40(c) for remuneration to directors and included various expenses as perquisites. The CIT(A) held that Section 40(c) should apply and excluded certain expenses from perquisites. The Tribunal followed its earlier decision, directing that disallowance for directors who were employees should be under Section 40(c) with one overall limit, and repairs to flats and cars should be considered for disallowance. Medical reimbursements were treated as salary, and club fees as business expenditure.

3. Relief under Section 80VV for Professional Fees and Commission
The IAC (Asst.) disallowed Rs. 42,385 for professional fees, attributing it entirely to Section 80VV. CIT(A) allowed only Rs. 6,050 under Section 80VV, with the balance under Section 37(1). The Tribunal found no material to dispute CIT(A)'s finding that Rs. 6,050 was for tax representation, confirming the CIT(A)'s order.

4. Weighted Deduction under Section 35B for Commission Payment
The assessee claimed weighted deduction for commission payments to Kanal Trading Co., Nepal, and BASF, Germany. The IAC (Asst.) disallowed it based on amendments to Section 35B. CIT(A) allowed the deduction, following its earlier decision. The Tribunal confirmed the allowance for BASF, Germany, and disallowed it for Kanal Trading Co., Nepal, based on the presence of an agency in Germany but not in Nepal.

5. Investment Allowance on Computer Used as Office Appliance
The Department argued that computers were office appliances, not qualifying for investment allowance. CIT(A) found the computers were installed in the factory, supported by the Chief Inspector of Factories' certificate, and allowed the allowance based on Bombay High Court decisions. The Tribunal found no error in CIT(A)'s findings and upheld the investment allowance.

6. Deduction under Section 32(1)(iii)
The IAC (Asst.) disallowed Rs. 1,30,407 under Section 32(1)(iii), stating assets were not sold and no scrap value was determined. CIT(A) accepted the assessee's method of accounting, writing off untraceable assets and debiting scrap value in the year of scrapping. The Tribunal found no error in CIT(A)'s order, confirming the deduction.

7. Deletion of Interest Levied under Section 216
The IAC (Asst.) charged interest under Section 216 without considering the basis of estimates filed by the assessee. CIT(A) found the estimates were honest and based on available facts at the time. The Tribunal confirmed CIT(A)'s finding, holding that interest under Section 216 was not justified.

Conclusion
The appeals were partly allowed, with the Tribunal upholding some of the CIT(A)'s decisions and reversing others based on detailed analysis of the issues involved.

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