1979 (5) TMI 29 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the assessment under section 148/147(b) of the Income-tax Act, 1961.
2. Allowance of initial contribution to the superannuation fund.
3. Addition for under-valuation of stock.
4. Disallowance of expenditure in Agro Aviation Division.

Issue-wise Detailed Analysis:

1. Legality of the assessment under section 148/147(b):
The assessee challenged the legality of the supplementary assessment made under section 148/147(b) of the Income-tax Act, 1961. However, the AAC upheld the validity of the supplementary assessment, and the assessee did not press this ground further in the appeal.

2. Allowance of initial contribution to the superannuation fund:
The assessee argued that the contribution of Rs. 7,03,143 to the superannuation fund should be allowed in full. The departmental authorities allowed only one-fifth of 80 percent of the contribution. The Tribunal examined the provisions of section 36(1)(iv) of the Act, rules 87 and 88 of the Income-tax Rules, 1962, and the relevant CBDT Notification. The Tribunal concluded that the entire sum of Rs. 7,03,143 paid by the assessee as a contribution to the superannuation fund represents the assessee's allowable liability of the year. The Tribunal held that the limits and conditions prescribed in the rules are for the approval of the fund and not for the allowance of sums paid. Therefore, the assessee's contention was accepted, and the contribution was allowed in full.

3. Addition for under-valuation of stock:
The AAC remitted the issue of addition on account of under-valuation of closing stock back to the ITO for fresh consideration. The ITO, in pursuance of the AAC's order, examined the issue afresh and deleted the addition himself. Consequently, the grounds regarding this issue in both the assessee's and the ITO's appeals became infructuous and were treated as not pressed.

4. Disallowance of expenditure in Agro Aviation Division:
The assessee contested the addition of Rs. 1,02,200 out of Rs. 1,25,000 made by the ITO. The AAC limited the disallowance to Rs. 1,02,200, which was the total cash expenditure defrayed by Shri P.G. Dastur through Shri Kalidas. The Tribunal noted that the payments were made under duress to the Tamil Nadu Government, as evidenced by the findings of the Sarkaria Commission of Inquiry. However, the Tribunal held that illegal payments, irrespective of the circumstances, cannot be allowed as a deduction under section 37 of the Act. The Tribunal agreed with the assessee's counsel that the payments should be taken at Rs. 55,404, as found by the Sarkaria Commission, and not the entire amount of Rs. 1,02,200. Therefore, the disallowance was limited to Rs. 55,404.

Conclusion:
The assessee's appeal was partly allowed, allowing the full contribution to the superannuation fund and limiting the disallowance in the Agro Aviation Division to Rs. 55,404. The departmental appeal was dismissed.