1982 (6) TMI 86 - AT - Income Tax

Issues Involved:
1. Assessee's claim for weighted deduction under Section 35B of the IT Act.
2. Assessee's claim for Rs. 5,798 as interest paid to the sales-tax department for delayed payment of sales-tax.
3. Disallowance of Rs. 29,000 claimed by the assessee as irrecoverable advance.

Issue-wise Detailed Analysis:

1. Weighted Deduction under Section 35B of the IT Act
The primary dispute revolves around the assessee's claim for weighted deduction under Section 35B of the IT Act. The assessee has challenged the disallowance of several expenses by the authorities below. The specific expenses in question include:
- Remuneration paid to Director Shri D.S. Mazda (Rs. 58,800)
- Packing & Forwarding expenses (Rs. 6,49,288)
- Interest on Export packing Credit facilities (Rs. 78,726)
- Port Commissioner charges for export (Rs. 2,40,690)
- Establishment of the Export Department (Rs. 10,000)
- Inland Travelling with a view to obtaining information (Rs. 2,224)
- E.C.G. Premium (Rs. 31,481)
- Inspection charges for export (Rs. 1,08,135)
- Adhesive stamps for export (Rs. 31,378)
- Sales promotion (Expenses for foreign customers) (Rs. 34,862)
- Freight (Rs. 49,46,012)

The Tribunal considered the Special Bench decision in the case of J.H. & Co. as a guiding precedent. The Tribunal decided not to deviate from the principles laid down by the Special Bench. The Tribunal noted that the authorities below did not provide a categorical finding on whether the assessee is a wholly export-oriented company. The Tribunal directed the ITO to re-examine the remuneration paid to Director Shri D.S. Mazda and the establishment of the Export Department in light of the Special Bench decision. Other items such as Packing & Forwarding expenses, Interest on Export packing Credit facilities, Port Commissioner charges, Inland Travelling, Inspection charges, Adhesive stamps, and Freight were deemed ineligible for weighted deduction based on the Special Bench decision.

2. Interest Paid to Sales-Tax Department
The assessee's claim for Rs. 5,798 as interest paid to the sales-tax department for delayed payment of sales-tax was another point of contention. The ITO disallowed this claim, considering it not a business expenditure. However, the Tribunal referred to the Supreme Court decision in Mahalakshmi Sugar Mills Co. Ltd. vs. CIT, where it was held that interest paid on arrears of cess was not a penalty but an allowable deduction under Section 10(2)(xv) of the Indian IT Act, 1922. The Tribunal concluded that the interest paid by the assessee was in the nature of compensation for delay in payment and thus an allowable deduction.

3. Disallowance of Rs. 29,000 as Irrecoverable Advance
The third ground regarding the disallowance of Rs. 29,000 claimed by the assessee as an irrecoverable advance was not pressed during the hearing and was accordingly dismissed.

Conclusion
The appeal was partly allowed. The Tribunal directed the ITO to re-examine certain claims in light of the Special Bench decision and allowed the claim for interest paid to the sales-tax department. The claim for Rs. 29,000 as an irrecoverable advance was dismissed.

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