1993 (9) TMI 153 - AT - Income Tax

2013 (9) TMI 360 - AT

Issues Involved:

1. Exemption of profit earned on the sale of import entitlement.
2. Addition of Rs. 7,400 under section 40A(3) of the IT Act.
3. Disallowance of Rs. 24,53,232 under section 43B on account of sales tax.
4. Disallowance of Rs. 2,500 for advertisement in souvenir and contribution to employees.
5. Disallowance of Rs. 64,761 as entertainment expenditure.
6. Disallowance of Rs. 1,500 paid to the Employees' Union of New Bank of India.
7. Inclusion of insurance of cars and salary paid to drivers under section 37(3A).
8. Disallowance of extra shift allowance on pipeline fittings of Rs. 7,21,412.
9. Disallowance of investment allowance on electric installations.
10. Addition of Rs. 3 lakhs on account of sale of scrap.
11. Disallowance of weighted deduction under section 35B on foreign commission.
12. Withdrawal of investment allowance on weighing bridge and weighing machine.
13. Levy of interest under sections 139(8) and 215.
14. Exemption of cash subsidy (CCS) received by the appellant.

Issue-wise Detailed Analysis:

1. Exemption of profit earned on the sale of import entitlement:
The assessee contested the inclusion of Rs. 23,30,465 earned from the sale of import entitlements as taxable income, arguing it was a capital receipt. The Tribunal noted that previous judicial pronouncements and the ITAT's own decision for the assessment year 1983-84 treated such receipts as revenue and taxable under section 28(iv) of the IT Act. The Tribunal decided to remit the issue back to the CIT (Appeals) for reconsideration after the Finance Bill, which proposed amendments affecting this matter, was passed.

2. Addition of Rs. 7,400 under section 40A(3) of the IT Act:
The assessee made cash payments exceeding Rs. 2,500, which were disallowed under section 40A(3). The CIT (Appeals) upheld the disallowance, noting the absence of exceptional circumstances and the failure to produce necessary certificates. The Tribunal confirmed the disallowance, finding no justification for the cash payments.

3. Disallowance of Rs. 24,53,232 under section 43B on account of sales tax:
The assessee collected sales tax but did not deposit it with the government, leading to a disallowance under section 43B. The CIT (Appeals) confirmed the addition, referencing the ITAT's decision for the previous year and the mandatory nature of section 43B. The Tribunal upheld the disallowance, emphasizing the clear statutory requirement.

4. Disallowance of Rs. 2,500 for advertisement in souvenir and contribution to employees:
The assessee's expenditure on advertisements in souvenirs and contributions to employees was disallowed as it was not proven to be for advertisement purposes. The CIT (Appeals) upheld the disallowance due to a lack of evidence linking the expenditure to business activities. The Tribunal confirmed the disallowance, finding no grounds for interference.

5. Disallowance of Rs. 64,761 as entertainment expenditure:
The assessee's claim for sales promotion expenses, including entertainment, was partly disallowed. The CIT (Appeals) allowed partial relief but confirmed the disallowance of Rs. 64,761. The Tribunal upheld the disallowance, noting that the assessee failed to justify the expenditure as non-entertainment.

6. Disallowance of Rs. 1,500 paid to the Employees' Union of New Bank of India:
The assessee's contribution to the employees' union was disallowed as non-business expenditure. The CIT (Appeals) upheld the disallowance. The Tribunal, however, allowed the deduction, recognizing the commercial expediency and direct nexus to the business activity.

7. Inclusion of insurance of cars and salary paid to drivers under section 37(3A):
The CIT (Appeals) included the expenditure on car insurance and drivers' salaries in the disallowance calculation under section 37(3A). The Tribunal upheld this inclusion, interpreting the statutory provisions to encompass such expenses as part of running and maintenance costs.

8. Disallowance of extra shift allowance on pipeline fittings of Rs. 7,21,412:
The assessee's claim for extra shift allowance on pipeline fittings was disallowed, with the CIT (Appeals) interpreting the relevant depreciation rules to exclude such items. The Tribunal confirmed the disallowance, agreeing with the interpretation that pipeline fittings were not eligible for extra shift allowance.

9. Disallowance of investment allowance on electric installations:
The CIT (Appeals) disallowed the investment allowance on electric installations, treating them as part of the building account rather than plant and machinery. The Tribunal upheld this decision, noting the proper classification and depreciation treatment.

10. Addition of Rs. 3 lakhs on account of sale of scrap:
The IAC (Asst.) added Rs. 3 lakhs to the assessee's income, suspecting unaccounted sales of scrap due to a lack of quantitative details. The CIT (Appeals) confirmed the addition. The Tribunal, however, reduced the addition to Rs. 2 lakhs, acknowledging the assessee's consistent accounting method and the absence of concrete evidence of suppression.

11. Disallowance of weighted deduction under section 35B on foreign commission:
The assessee's claim for weighted deduction on foreign commission was disallowed. The CIT (Appeals) upheld the disallowance, referencing judicial precedents. The Tribunal remitted the issue back to the CIT (Appeals) for reconsideration, instructing a review of relevant circulars and judicial findings.

12. Withdrawal of investment allowance on weighing bridge and weighing machine:
The CIT (Appeals) withdrew the investment allowance on the weighing bridge and weighing machine, previously allowed by the IAC. The Tribunal reversed this decision, citing the ITAT's precedent favoring the assessee and the absence of a clear legislative prohibition.

13. Levy of interest under sections 139(8) and 215:
The CIT (Appeals) directed the IAC to levy interest after recomputation of income. The Tribunal confirmed this direction, with a modification to align it with the present order.

14. Exemption of cash subsidy (CCS) received by the appellant:
The Tribunal remitted the issue of CCS exemption back to the CIT (Appeals) for reconsideration, aligning it with the treatment of the sale of import entitlements. The CIT (Appeals) was directed to decide the matter in accordance with the final legislative provisions.

Separate Judgments:

- The Judicial Member and the Accountant Member delivered separate judgments on certain issues, leading to differences in opinion. The Third Member resolved these differences, aligning with the Judicial Member on the applicability of the amended law for CCS and agreeing with the Accountant Member on the treatment of sales tax under section 43B, the inclusion of sales promotion expenses under section 37(3A), the allowance of extra shift on pipeline fittings, and the deletion of the addition on account of sale of scrap.

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