2004 (1) TMI 301 - AT - Income Tax

Issues Involved:
1. Disallowance of amalgamation expenses.
2. Disallowance of foreign traveling expenses for directors' wives.
3. Disallowance of expenditure on increase in authorized capital.
4. Claim under Section 80-I of the IT Act.
5. Restriction of claim under Section 80HHC of the IT Act.
6. Inclusion of sales-tax and scrap sales in turnover for Section 80HHC deduction.
7. Deduction under Section 80-I before deducting investment allowance and other deductions.

Detailed Analysis:

1. Disallowance of Amalgamation Expenses:
The first issue concerns the disallowance of Rs. 1,61,330 on account of amalgamation expenses. The Tribunal reversed the lower authorities' decision, referencing the case of CIT vs. Bombay Dyeing & Manufacturing Co. Ltd., where the Supreme Court held that as both companies were engaged in the same line of business, the expenses were allowable. Thus, the assessee succeeded on this ground.

2. Disallowance of Foreign Traveling Expenses for Directors' Wives:
The second issue pertains to the disallowance of Rs. 2,57,351 towards foreign traveling expenses of directors' wives. The Tribunal, considering the judgment in CIT vs. Apollo Tyres Ltd., concluded that in modern business practices, it is customary for executives to be accompanied by their wives on foreign tours for business purposes. The Tribunal reversed the lower authorities' decision, allowing the expenses as business expenditure, and the assessee succeeded on this ground.

3. Disallowance of Expenditure on Increase in Authorized Capital:
The third issue involves the disallowance of Rs. 60,000 incurred on increasing the authorized capital. The Tribunal upheld the disallowance, referencing the Supreme Court's decision in Brooke Bond India Ltd. vs. CIT, which held such expenses as capital expenditure. Thus, this ground failed.

4. Claim Under Section 80-I of the IT Act:
The fourth issue was the claim under Section 80-I amounting to Rs. 71,63,385, which was not pressed by the assessee's representative and hence dismissed as not pressed.

5. Restriction of Claim Under Section 80HHC of the IT Act:
The fifth issue concerns the restriction of the claim under Section 80HHC. The assessee argued that Section 80HHC is a complete code in itself and should not be controlled by Section 80AB, referencing the judgment of CIT vs. Shirke Construction Equipments Ltd. The Tribunal agreed, stating that for the purpose of determining deduction under Section 80HHC, only the profit for the year should be considered without setting off brought forward losses, unabsorbed depreciation, and unabsorbed investment allowance. The Tribunal reversed the lower authorities' decision, allowing the assessee's claim.

6. Inclusion of Sales-Tax and Scrap Sales in Turnover for Section 80HHC Deduction:
An additional ground was raised regarding the inclusion of sales-tax and scrap sales in the turnover for computing the deduction under Section 80HHC. The Tribunal admitted this additional ground and restored the matter to the CIT(A) for consideration, directing the CIT(A) to decide this issue after providing reasonable opportunity to the assessee.

7. Deduction Under Section 80-I Before Deducting Investment Allowance and Other Deductions:
In the Revenue's appeal, the issue was whether the deduction under Section 80-I should be allowed before deducting the investment allowance and other deductions. The Tribunal noted that since the issue of the assessee's claim under Section 80-I had been set aside, this issue should also be reconsidered by the AO. The Tribunal directed the AO to consider this aspect while deciding the deduction under Section 80-I afresh, providing reasonable opportunity to the assessee.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was allowed for statistical purposes. The Tribunal provided detailed reasoning for each issue, referencing relevant case law and maintaining legal consistency throughout the judgment.

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