1982 (8) TMI 96 - AT - Income Tax

Summary

Issues:
1. Disallowance under s. 40A (5)/40(c)
2. Claim for staff welfare expenses
3. Claims under s. 35B

Disallowance under s. 40A (5)/40(c):
The judgment addresses the issue of disallowance under s. 40A(5)/40(c) concerning the remuneration paid by the assessee company to its Directors. The CIT(A) invoked the provisions of s. 40(c) for disallowance, which was upheld based on previous decisions by the Special Bench of the ITAT and the Gujarat High Court. The Tribunal affirmed the CIT(A)'s order in line with these precedents, rejecting the department's appeal. Additionally, a clerical mistake in the disallowance calculation for a specific assessment year was noted, directing the CIT(A) to review this aspect.

Claim for staff welfare expenses:
Regarding the claim for staff welfare expenses, the assessee sought Rs. 2,29,625, but the ITO disallowed a portion due to insufficient details provided. The CIT(A) reduced the disallowance to Rs. 2,500, emphasizing the lack of verifiable documentation for the expenses. The Tribunal upheld the CIT(A)'s decision, highlighting that the mere acceptance of similar claims in previous years does not prevent the department from reassessing. The disallowance was deemed justified due to the unverifiable nature of the expenses.

Claims under s. 35B:
The judgment delves into the issue of claims under s. 35B concerning weighted deduction for specific expenditures related to the business activities of the assessee. The ITO disallowed the claim, stating the lack of evidence linking the expenses to export business. The CIT(A) partially allowed the claim based on turnover and sales figures but restricted the deduction to 1/3rd of the expenses. Both parties appealed to the Tribunal, with the department arguing against the weighted deduction entitlement. The Tribunal sided with the department, emphasizing the absence of proof of actual export activities or agreements with exporters, crucial for claiming deductions under s. 35B. The judgment differentiated this case from precedents, ultimately canceling the CIT(A)'s orders and reinstating those of the ITO, dismissing the assessee's appeals and partially allowing the department's appeals.

This comprehensive analysis of the judgment covers the key issues addressed, detailing the Tribunal's decisions and the rationale behind them in each instance.