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Issues:
1. Disallowance of retrenchment compensation in freezing plant. 2. Fishing boat repair expenses. Issue 1: Disallowance of retrenchment compensation in freezing plant: The appeal addressed the disallowance of retrenchment compensation in a freezing plant. The Income Tax Officer (ITO) disallowed the compensation, which was upheld by the Appellate Authority Commissioner (AAC) on the basis that it was paid for the closure of the business. However, it was clarified that the business closure occurred on 31st Dec., 1971, and the retrenchment compensation was paid to individual employees on different dates, not as a mass retrenchment during business closure. The termination of these employees was due to specific reasons and not the closure of the business. The Appellate Tribunal found that these payments were legitimate and necessary for carrying on the business, not for business closure. Therefore, the retrenchment compensation was allowed as a deduction. Issue 2: Fishing boat repair expenses: The second issue pertained to fishing boat repair expenses. The ITO and the AAC disallowed the expenses under section 37, stating that no repairs were conducted in the relevant accounting year. However, it was revealed that the repair expenses were actually due to boat repairers, and the amounts were adjusted against their dues in the past. By the end of the accounting year, a sum was still outstanding from the repairers, which was deemed unrecoverable due to the closure of the business. The Appellate Tribunal noted that the expenses were not for repair but rather resembled a bad debt or trading loss. Considering the circumstances and the genuine belief that the amounts were irrecoverable, the Tribunal allowed the expenses as a deduction, either as a bad debt or a loss incidental to the trade. The appeal was partially allowed in this regard.
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