1989 (8) TMI 104 - AT - Income Tax

Issues Involved:
1. Taxability of cash compensatory allowance.
2. Valuation method of closing stock of finished goods.
3. Valuation of closing stock of raw materials.
4. Disallowance of foreign commission payment.
5. Addition under Section 69C and gross profit on unaccounted goods.
6. Limitation of deduction under Section 80HHC.
7. Disallowance on account of duty drawback.
8. Addition under Section 37(2A).

Detailed Analysis:

1. Taxability of Cash Compensatory Allowance:
The first grievance was regarding the CIT(A)'s confirmation of the addition of Rs. 5,73,975 made by the ITO on account of cash compensatory allowance. The assessee claimed this amount as exempt from income-tax, but the ITO and CIT(A) held it as taxable, treating it as a trade receipt on revenue account. The CIT(A) relied on decisions from the Bombay High Court. The Tribunal noted that the facts of the present case differed from those in the Gedore Tools (India) Ltd. case, where similar cash compensatory support was held non-taxable. The Tribunal remitted the matter back to the ITO for re-examination after considering the details of the cash compensatory scheme.

2. Valuation Method of Closing Stock of Finished Goods:
The assessee's method of valuing closing stock at cost or market price, whichever was lower, was rejected by the ITO, resulting in an addition of Rs. 1,54,675. The CIT(A) upheld this decision. The Tribunal found merit in the assessee's argument that any change in the valuation of closing stock should correspondingly affect the opening stock. The Tribunal modified the CIT(A)'s order, directing the ITO to make corresponding adjustments in the opening stock, not exceeding Rs. 1,54,675.

3. Valuation of Closing Stock of Raw Materials:
The CIT(A) confirmed the ITO's addition of Rs. 2,78,072 due to undervaluation of closing stock of raw materials. The assessee failed to provide evidence of damage to the goods, which were allegedly damaged due to unseasonal rains. The Tribunal did not admit new evidence presented at this stage and upheld the CIT(A)'s order, rejecting the assessee's claim.

4. Disallowance of Foreign Commission Payment:
The CIT(A) upheld the ITO's disallowance of Rs. 1,00,450 paid as foreign commission to Dr. Rajendra, stating that the assessee could not have different systems of accounts for different heads of expenditure. The Tribunal, however, directed the ITO to allow the commission payable to Dr. Rajendra, recognizing the change in the assessee's accounting system from cash to mercantile.

5. Addition under Section 69C and Gross Profit on Unaccounted Goods:
The CIT(A) confirmed the ITO's addition of Rs. 3,07,202, which included Rs. 2,51,970 under Section 69C and Rs. 55,232 as gross profit on unaccounted goods. The Tribunal found that the details furnished to the Rubber Board were on an estimate basis and that there was no evidence of unexplained expenditure. The Tribunal set aside the CIT(A)'s order and deleted the addition.

6. Limitation of Deduction under Section 80HHC:
The CIT(A) limited the deduction under Section 80HHC to Rs. 8,50,000, while the assessee argued for a higher amount based on total income. The Tribunal directed the ITO to allow the deduction on Rs. 20,44,542 and the additional amount corresponding to Rs. 7,39,949 added to the income.

7. Disallowance on Account of Duty Drawback:
This ground was not pressed during the hearing and was thus rejected by the Tribunal.

8. Addition under Section 37(2A):
Similarly, this ground was not pressed during the hearing and was rejected by the Tribunal.

Conclusion:
The appeal by the assessee was partly allowed, with specific directions given to the ITO for re-examination and adjustments in certain areas, while other claims were rejected or upheld as per the Tribunal's detailed analysis.

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