1981 (12) TMI 62 - AT - Income Tax

Summary

Issues Involved:
1. Maintainability of cross-objections filed by the assessee.
2. Disallowance of directors' salaries.
3. Disallowance of business development expenses.
4. Disallowance of sales promotion expenses.
5. Disallowance of bonus to directors.
6. Part allowance of interest by the Commissioner.

Issue-wise Detailed Analysis:

1. Maintainability of Cross-Objections Filed by the Assessee:
The Revenue raised a preliminary objection regarding the maintainability of the cross-objections filed by the assessee, arguing that once the right of appeal is exercised by the assessee, the right to file a cross-objection is lost. The Tribunal overruled this objection after considering the relevant provisions of law, including section 253 (1) to (4) of the Income-tax Act, 1961, and rules 22 and 27 of the Income-tax (Appellate Tribunal) Rules, 1963. The Tribunal concluded that the statute allows the filing of cross-objections even if an appeal has already been filed by the assessee, as cross-objections are not strictly equivalent to appeals. The Tribunal emphasized that cross-objections are a right that accrues upon receipt of notice of an appeal filed by the other party, and this right is not negated by the prior filing of an appeal by the assessee.

2. Disallowance of Directors' Salaries:
The Tribunal addressed the disallowance of Rs. 12,000 out of the directors' salaries for the assessment year 1977-78. The Tribunal noted that the assessee's claim for directors' remuneration had been previously allowed in full for the assessment years 1975-76 and 1976-77. Applying the principles of commercial expediency, the Tribunal found that the remuneration paid to the directors was not excessive or unreasonable, considering the increase in turnover and the nature of the business. The Tribunal allowed the assessee's claim for directors' remuneration in full for the assessment year 1977-78.

3. Disallowance of Business Development Expenses:
The Tribunal considered the disallowance of business development expenses for the assessment years 1977-78, 1978-79, and 1979-80. The Tribunal found that the expenses incurred by the assessee were for the furtherance of its business and were not in the nature of entertainment. The Tribunal concluded that the amounts sustained by the Commissioner (Appeals) were not justified and deleted the disallowances, granting relief to the assessee for all the assessment years under appeal.

4. Disallowance of Sales Promotion Expenses:
The Tribunal examined the disallowance of sales promotion expenses for the assessment years 1977-78, 1978-79, and 1979-80. The Tribunal found that the Income-tax Officer (ITO) had not provided sufficient details to justify the disallowance under rule 6B of the Income-tax Rules, 1962. The Tribunal concluded that the disallowances were not warranted and deleted them, allowing the assessee's claim for sales promotion expenses in full for all the assessment years under appeal.

5. Disallowance of Bonus to Directors:
The Tribunal addressed the disallowance of Rs. 4,500 claimed by the assessee as bonus for the assessment year 1977-78. The Tribunal found that the bonus paid to the directors was justified as part of their remuneration for services rendered to the assessee's business. The Tribunal allowed the bonus payment in full, rejecting the Revenue's contention.

6. Part Allowance of Interest by the Commissioner:
The Tribunal considered the appeals of the Revenue challenging the part allowance of interest by the Commissioner (Appeals). The ITO had disallowed interest paid to directors and their relatives at a rate exceeding 18% per annum, invoking sections 40A(8) and 40(c)(i) of the Income-tax Act, 1961. The Commissioner (Appeals) had allowed relief based on the Tribunal's earlier judgment for the assessment year 1976-77, which held that section 40A(8) was applicable but not section 40(c). The Tribunal upheld the Commissioner (Appeals)'s decision, agreeing that the specific provision of section 40A(8) should prevail over the general provision of section 40(c). Consequently, the Tribunal dismissed the Revenue's appeals.

Conclusion:
The Tribunal allowed all the appeals of the assessee, dismissing the appeals of the Revenue and the cross-objections of the assessee. The Tribunal's decisions were based on a detailed analysis of the relevant legal provisions and prior judgments, ensuring that the assessee's claims were justified and the disallowances made by the Revenue were not warranted.