1998 (3) TMI 173 - AT - Income Tax

Business Income, Unclaimed Deposit, Profit And Loss Account, Investment Allowance, Leasing Business, Plant And Machinery

Issues Involved:
1. Addition of Rs. 1,30,464 in respect of outstanding credit balances written back.
2. Disallowance of Rs. 86,946 on account of investment allowance on leased machinery.
3. Treatment of Rs. 3,75,571 and Rs. 39,412 as sales promotion expenses.
4. Treatment of Rs. 72,614 and Rs. 43,869 as expenses covered under section 37(3B).
5. Disallowance of Rs. 28,408 as entertainment expenditure.
6. Disallowance of Rs. 10,000 on account of traveling expenses on an estimate basis.

Detailed Analysis:

Issue 1: Addition of Rs. 1,30,464 in respect of outstanding credit balances written back
The assessee contended that the sum of Rs. 44,209 and Rs. 86,255 represented credit balances from deposits taken from customers against excise duty, which were not refunded and thus written back. The Assessing Officer (AO) added this amount to the income, arguing it was taxable under section 28(iv) or section 41(1). The Tribunal considered various judicial precedents, including Parimisetti Seetharamamma v. CIT and CIT v. Bennett Coleman & Co. Ltd, but ultimately upheld the addition, citing the Supreme Court's decisions in CIT v. T.V. Sundaram Iyengar & Sons Ltd and CIT v. Karam Chand Thapar, which treated such unclaimed balances as taxable income.

Issue 2: Disallowance of Rs. 86,946 on account of investment allowance on leased machinery
The AO disallowed the investment allowance, arguing that the lease agreement effective from 1-4-84 indicated that the machinery was not installed during the relevant accounting period. The Tribunal, after considering the arguments and relevant case laws, including CIT v. Mercantile Construction Co. and First Leasing Co. of India Ltd., found that the AO had not properly verified the installation and use of the machinery. The Tribunal remanded the issue back to the AO for further verification and a fresh decision.

Issue 3: Treatment of Rs. 3,75,571 and Rs. 39,412 as sales promotion expenses
The AO treated these amounts as sales promotion expenses under section 37(3A), while the assessee claimed them as commission and brokerage. The Tribunal, referring to CIT v. Bata India Ltd. and CIT v. Hindusthan Motors Ltd., held that commission and brokerage should not be treated as sales promotion expenses and directed that these amounts not be disallowed under section 37(3A).

Issue 4: Treatment of Rs. 72,614 and Rs. 43,869 as expenses covered under section 37(3B)
The AO treated Rs. 72,614 as advertisement expenses and Rs. 43,869 as hotel expenses, both falling under section 37(3B). The Tribunal found no substantial argument from the assessee regarding the advertisement expenses but noted that the hotel expenses should not be disallowed under section 37(3A). However, the Tribunal upheld the AO's treatment of these expenses as covered under section 37(3B).

Issue 5: Disallowance of Rs. 28,408 as entertainment expenditure
The assessee argued that the amount was spent on providing food and beverages to employees on outside duty, not as entertainment. The Tribunal noted the lack of detailed evidence from the assessee and upheld the AO's disallowance, finding no reason to interfere with the impugned order.

Issue 6: Disallowance of Rs. 10,000 on account of traveling expenses on an estimate basis
The AO made an estimated disallowance of Rs. 15,000, which the CIT(A) reduced to Rs. 10,000. The Tribunal found the estimate justified, noting the absence of specific instances of incorrectness in the expenses and upheld the disallowance.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding some of the AO's disallowances while remanding the issue of investment allowance on leased machinery for further verification.

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