1992 (9) TMI 123 - AT - Income Tax

Issues Involved:
1. Reopening of original assessment under Section 147(b) of the IT Act.
2. Allowability of provision for purchase tax.
3. Status of the assessee as an industrial company.
4. Disallowance of commission paid to foreign agents.
5. Disallowance under Section 40A(5) of the IT Act.
6. Inclusion of cash assistance in the income of the assessee.
7. Disallowance of 'pepper-vaida' as speculation loss.
8. Addition under Section 40A(8) of the IT Act.
9. Allowability of contribution to the approved gratuity fund.
10. Allowance of deduction under Section 35B by the CIT(A).
11. Allowance of bonus paid in excess of 8.1/3% of wages and salaries.

Detailed Analysis:

1. Reopening of Original Assessment under Section 147(b) of the IT Act:
The original assessments for the assessment years 1980-81 and 1981-82 were reopened based on an audit objection, which stated that the provision for purchase tax liability was wrongly allowed. The assessee contended that the reopening was not valid as there was no fresh information. The Tribunal held that the audit objection did not constitute 'information' as per the decision in Indian and Eastern Newspaper Society vs. CIT, and thus, the reopening of assessments under Section 147(b) was invalid.

2. Allowability of Provision for Purchase Tax:
The Tribunal agreed with the assessee that the provision for purchase tax liability was allowable as long as the sales-tax assessments were pending, thus deciding the issue in favor of the assessee on merits.

3. Status of the Assessee as an Industrial Company:
The assessee, engaged in tea business involving buying, blending, packing, and selling, claimed to be an industrial company. The Tribunal, referencing the decision in G.A. Renderian Ltd. vs. CIT, held that the assessee was indeed an industrial company and entitled to concessional tax rates.

4. Disallowance of Commission Paid to Foreign Agents:
The assessee claimed weighted deduction on commission payments to foreign agents. The Tribunal, following the decision in Srivilas Cashew Co. vs. CIT, held that the assessee was entitled to the deduction, as the foreign agency need not work exclusively for the assessee.

5. Disallowance under Section 40A(5) of the IT Act:
The Tribunal upheld the disallowance of remuneration to whole-time directors under Section 40A(5), following the decision in Kesaria Tea Co. Ltd. vs. CIT, which stated that such remuneration should be governed by Section 40A(5) and not Section 40(c).

6. Inclusion of Cash Assistance in the Income of the Assessee:
The Tribunal, referencing the decision in Kesaria Tea Co. Ltd. vs. CIT, held that cash assistance received by the assessee was income liable to tax, as it was received during the course of business and was not a capital receipt.

7. Disallowance of 'Pepper-Vaida' as Speculation Loss:
The Tribunal agreed with the CIT(A) that the amount debited as 'pepper-vaida' was a speculation loss and thus upheld its disallowance as a speculation loss.

8. Addition under Section 40A(8) of the IT Act:
The Tribunal found that the interest paid was not on any deposits and thus should not be disallowed under Section 40A(8), referencing the decision in CIT vs. Kalani Asbestos (P) Ltd.

9. Allowability of Contribution to the Approved Gratuity Fund:
The Tribunal found no grievance for the assessee as the CIT(A) directed the ITO to obtain necessary details and allow gratuity as per rules.

10. Allowance of Deduction under Section 35B by the CIT(A):
The Tribunal upheld the allowance of deduction under Section 35B by the CIT(A) for the reasons discussed in the issue of commission paid to foreign agents.

11. Allowance of Bonus Paid in Excess of 8.1/3% of Wages and Salaries:
The Tribunal upheld the CIT(A)'s decision to allow the bonus paid in excess of 8.1/3%, referencing the decision in CIT vs. Jayashree Cashew Co., where such payments were allowed if made as per agreement and customary practice.

Conclusion:
The appeals by the assessee for ITA Nos. 456 & 457 (Coch)/87 were allowed, ITA Nos. 458 & 459 (Coch)/87 were partly allowed, and the appeals by the Revenue for ITA Nos. 530 & 531 (Coch)/87 were dismissed.

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