1987 (10) TMI 89 - AT - Income Tax

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Disallowance of interest paid to the IT Department.
3. Additional grounds regarding traffic violation fines and gratuity liability.
4. Deduction under Section 35 for capital expenses on a plant.
5. Deduction under Section 80-O for withholding tax.
6. Computation of disallowance under Section 37(3A).
7. Exclusion of reimbursement of medical expenses under Section 40A(5).
8. Disallowance of perquisites under Section 40A(5) for municipal tax and repair charges.
9. Disallowance of provision for gratuity exceeding 8.33% of salary.
10. Disallowance of fines levied by forest authorities.

Detailed Analysis:

1. Disallowance of Foreign Travel Expenses:
The assessee claimed Rs. 83,582 for foreign travel expenses, which included expenses for Smt. G.P. Birla and Smt. B.P. Singhi. The ITO disallowed Rs. 13,042, deeming the travel of the two ladies unrelated to the business. The CIT(A) upheld this disallowance, stating there was no compulsion for the ladies to travel for business purposes. The Tribunal confirmed the CIT(A)'s decision, noting the lack of evidence such as Board resolutions or RBI correspondence to substantiate the business necessity of the ladies' travel.

2. Disallowance of Interest Paid to the IT Department:
The assessee paid Rs. 40,221 as interest under Section 221 of the IT Act for the assessment year 1976-77, which was disallowed by the ITO and confirmed by the CIT(A). The Tribunal upheld this disallowance, citing the Calcutta High Court decision in National Engineering Industries Ltd. vs. CIT, which ruled that such interest is not an allowable deduction.

3. Additional Grounds:
- Traffic Violation Fines: The assessee sought to allow Rs. 2,970 paid as fines for traffic violations. The ITO and CIT(A) disallowed this, considering it an infraction of law. The Tribunal restored this issue to the ITO for fresh determination, following its previous order for the assessment year 1979-80.
- Gratuity Liability: The assessee claimed Rs. 6,07,449 paid as gratuity, adjusted against provisions from earlier years. The ITO disallowed this, and the CIT(A) upheld the disallowance. The Tribunal confirmed this decision, following its order for the assessment year 1979-80, stating that the same deduction cannot be allowed twice.

4. Deduction under Section 35 for Capital Expenses on a Plant:
The assessee claimed Rs. 17,90,692 for a neration cum oxidation plant under Section 35. The ITO disallowed this, treating it as capital expenditure. The CIT(A) allowed the deduction, but the Tribunal reversed this, directing the ITO to allow depreciation and investment allowance instead, following its earlier orders for the assessment years 1978-79 and 1979-80.

5. Deduction under Section 80-O for Withholding Tax:
The ITO added Rs. 3,10,919 to the assessee's income, representing Kenyan tax deducted at source, and denied deduction under Section 80-O. The CIT(A) allowed the deduction, and the Tribunal upheld this decision, following its previous orders for the assessment years 1978-79 and 1979-80.

6. Computation of Disallowance under Section 37(3A):
The ITO included expenses on commission, diaries, calendars, and presents in the disallowance computation under Section 37(3A). The CIT(A) excluded these expenses, and the Tribunal confirmed this exclusion, following its order for the assessment year 1979-80.

7. Exclusion of Reimbursement of Medical Expenses under Section 40A(5):
The ITO treated reimbursed medical expenses as perquisites, disallowing Rs. 48,951 under Section 40A(5). The CIT(A) excluded these expenses from perquisites, and the Tribunal upheld this decision, following its order for the assessment year 1979-80.

8. Disallowance of Perquisites under Section 40A(5) for Municipal Tax and Repair Charges:
The ITO disallowed Rs. 20,000 as estimated perquisites for municipal tax and repair charges for premises occupied by Shri B.P. Singhi. The CIT(A) deleted this disallowance, and the Tribunal confirmed this deletion, following its order for the assessment year 1979-80.

9. Disallowance of Provision for Gratuity Exceeding 8.33% of Salary:
The ITO disallowed Rs. 30,000, estimating it as excess provision over 8.33% of salary. The CIT(A) deleted this disallowance, and the Tribunal upheld this deletion, following its order for the assessment year 1979-80.

10. Disallowance of Fines Levied by Forest Authorities:
The ITO disallowed Rs. 5,213 paid as fines to forest authorities for infraction of law. The CIT(A) deleted this disallowance, and the Tribunal restored the issue to the ITO for fresh determination, following its order for the assessment year 1979-80.

Conclusion:
Both appeals were partly allowed, with specific issues restored to the ITO for fresh determination or confirmed based on previous Tribunal orders.

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