1989 (2) TMI 137 - AT - Income Tax

Issues Involved:

1. Applicability of Sections 40(c) and 40A(5) of the IT Act for employee-directors.
2. Exclusion of medical reimbursement, house rent allowance, and depreciation on leased flats under Section 40A(5).
3. Deduction under Section 80-I for new industrial undertakings without separate accounts.
4. Disallowance of bonus payments exceeding limits under the Payment of Bonus Act.
5. Disallowance of contributions to Superannuation Fund under Section 43B.
6. Exclusion of advertisement expenses for statutory requirements under Section 37(3A).
7. Inclusion of medical reimbursement as part of salary under Section 40A(5).
8. Inclusion of house rent allowance in salary for disallowance under Section 40A(5).
9. Inclusion of actual expenditure on cars provided to employee-directors under Section 40A(5).
10. Non-allowance of surtax liability as business expenditure.
11. Disallowance of depreciation on assets used for scientific research.
12. Disallowance of traveling expenses under Rule 6D.
13. Disallowance of investment allowance on air-conditioners, refrigerators, and water coolers.
14. Deduction under Section 80-I for new industrial undertakings.
15. Deduction of set-on amounts under the Bonus Act.
16. Inclusion of insurance claims and export incentives on an accrual basis.
17. Disallowance of marriage gifts as business expenditure.
18. Disallowance of excise duty on goods in bonded warehouses.
19. Disallowance of share issue expenses.
20. Disallowance of bad debts and advances written off.
21. Deduction of liability under the Drugs (Price Control) Order, 1979.
22. Disallowance under Section 43B for payments to ESIS, labor welfare fund, sales-tax, excise, and additional purchase tax.
23. Disallowance of legal fees concerning taxation matters.
24. Disallowance of sales promotion expenses under Section 37(3A).
25. Disallowance of repairs and maintenance of cars under Section 37(3A).
26. Disallowance of payments to hotels under Section 37(3A).
27. Addition of unclaimed credit written back.
28. Levy of interest under Sections 139(8) and 215.

Issue-wise Detailed Analysis:

1. Applicability of Sections 40(c) and 40A(5) for Employee-Directors:
The Tribunal held that the CIT(A) was correct in applying Section 40(c) instead of 40A(5) for employee-directors, following the decision in Geoffrey Manners and Co. Ltd. (3 SOT 40).

2. Exclusion of Medical Reimbursement, House Rent Allowance, and Depreciation on Leased Flats:
The Tribunal confirmed the CIT(A)'s direction to exclude medical reimbursement, exempted house rent allowance under Section 10(13A), and depreciation on leased flats while computing disallowance under Section 40A(5), citing decisions in Blackie and Sons (India) Ltd., Glaxo Laboratories (I) Ltd., and Kodak Ltd.

3. Deduction under Section 80-I for New Industrial Undertakings:
The Tribunal upheld the CIT(A)'s direction to allow deduction under Section 80-I on a reasonable basis despite the absence of separate accounts, referencing Calcutta High Court decisions in Dunlop Rubber Co. and Rohtas Industries Ltd., and Karnataka High Court in International Instruments P. Ltd.

4. Disallowance of Bonus Payments Exceeding Limits:
The Tribunal agreed with the CIT(A) that disallowing bonus payments exceeding statutory limits was irrational, referencing the Supreme Court decision in Hukumchand Mills vs. CIT.

5. Disallowance of Contributions to Superannuation Fund:
The Tribunal upheld the CIT(A)'s decision to allow contributions to the Superannuation Fund, even if paid after the accounting period, referencing Andhra Pradesh High Court in S. Subbarao and Co. vs. Union of India.

6. Exclusion of Advertisement Expenses for Statutory Requirements:
The Tribunal found no infirmity in the CIT(A)'s direction to exclude expenses for statutory advertisements from disallowance under Section 37(3A).

7. Inclusion of Medical Reimbursement as Part of Salary:
The Tribunal upheld the CIT(A)'s inclusion of medical reimbursement as part of salary for disallowance under Section 40A(5), supported by the Special Bench decision in Glaxo Laboratories.

8. Inclusion of House Rent Allowance in Salary:
The Tribunal rejected the argument that the entire house rent allowance should be excluded from salary, holding that only the exempt portion under Section 10(13A) should be excluded.

9. Inclusion of Actual Expenditure on Cars Provided to Employee-Directors:
The Tribunal upheld the CIT(A)'s decision to include actual expenditure on cars provided to employee-directors, referencing Bombay High Court in Bombay Burmah Trading Corporation vs. CIT and Gujarat High Court in CIT vs. Rajesh Textile Mills Ltd.

10. Non-Allowance of Surtax Liability as Business Expenditure:
The Tribunal upheld the CIT(A)'s decision to disallow surtax liability as business expenditure, referencing multiple High Court decisions.

11. Disallowance of Depreciation on Assets Used for Scientific Research:
The Tribunal rejected the claim for depreciation on assets used for scientific research due to retrospective amendment, noting the Tribunal's lack of competence to rule on constitutional validity.

12. Disallowance of Traveling Expenses under Rule 6D:
The Tribunal directed that disallowance under Rule 6D should consider all trips together, referencing the Tribunal decision in S.V. Ghatalia vs. ITO.

13. Disallowance of Investment Allowance on Air-Conditioners, Refrigerators, and Water Coolers:
The Tribunal allowed investment allowance on air-conditioners, refrigerators, and water coolers installed in factory buildings, referencing Gujarat High Court in CIT vs. Tarun Commercial Mills Ltd. and Bombay High Court in CIT vs. Tata Chemicals Ltd.

14. Deduction under Section 80-I for New Industrial Undertakings:
The Tribunal reiterated that the CIT(A)'s direction to allow deduction under Section 80-I on a reasonable basis was correct and did not cause grievance to the assessee.

15. Deduction of Set-On Amounts under the Bonus Act:
The Tribunal dismissed the ground as it was not pressed by the assessee.

16. Inclusion of Insurance Claims and Export Incentives on an Accrual Basis:
The Tribunal dismissed the ground as it was not pressed by the assessee.

17. Disallowance of Marriage Gifts as Business Expenditure:
The Tribunal allowed the claim for marriage gifts as welfare expenses, referencing Gujarat High Court in CIT vs. S.L.M. Manekhlal Industries Ltd.

18. Disallowance of Excise Duty on Goods in Bonded Warehouses:
The Tribunal upheld the disallowance of excise duty on goods in bonded warehouses, noting the change in accounting policy and lack of crystallized liability during the relevant year.

19. Disallowance of Share Issue Expenses:
The Tribunal upheld the disallowance of share issue expenses as capital expenditure, referencing Bombay High Court decisions in Bombay Burmah Trading Corpn. Ltd. and CIT vs. O.P. Monga.

20. Disallowance of Bad Debts and Advances Written Off:
The Tribunal directed the assessing officer to examine the details of bad debts and advances written off and allow the claim on its merits.

21. Deduction of Liability under the Drugs (Price Control) Order, 1979:
The Tribunal set aside the CIT(A)'s decision and directed the IAC to examine the statutory liability under the Drugs (Price Control) Order and allow the claim if bona fide.

22. Disallowance under Section 43B for Payments to ESIS, Labor Welfare Fund, Sales-Tax, Excise, and Additional Purchase Tax:
The Tribunal allowed the claim for payments under Section 43B, referencing Andhra Pradesh High Court decision.

23. Disallowance of Legal Fees Concerning Taxation Matters:
The Tribunal upheld the disallowance of legal fees related to taxation matters.

24. Disallowance of Sales Promotion Expenses under Section 37(3A):
The Tribunal upheld the disallowance of sales promotion expenses under Section 37(3A), noting that items like samples and promotional materials were rightly treated as advertisement expenses.

25. Disallowance of Repairs and Maintenance of Cars under Section 37(3A):
The Tribunal reversed the CIT(A)'s order and held that repairs and maintenance of cars should not be disallowed under Section 37(3A).

26. Disallowance of Payments to Hotels under Section 37(3A):
The Tribunal upheld the disallowance of payments to hotels under Section 37(3A), referencing the Special Bench decision in Sundaram Finance Ltd. vs. IAC.

27. Addition of Unclaimed Credit Written Back:
The Tribunal directed the IAC to examine the nature of unclaimed credit written back and allow the claim if it did not result in income.

28. Levy of Interest under Sections 139(8) and 215:
The Tribunal upheld the levy of interest under Sections 139(8) and 215, noting that the assessee did not deny its liability.

Conclusion:
The appeals of the Department for the assessment years 1982-83 and 1983-84 were dismissed. The appeals for the assessment years 1984-85 and 1985-86 were also dismissed. The appeals of the assessee were allowed in part.

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