1992 (3) TMI 122 - AT - Income Tax

Issues Involved:
1. Justification of invoking Section 263 of the IT Act, 1961.
2. Validity of reassessment proceedings under Section 147(b) of the IT Act.
3. Eligibility for weighted deduction under Section 35B of the IT Act.
4. Taxability of cash incentives.
5. Disallowance of purchase-tax provision.
6. Disallowance under Section 40A(3) of the IT Act.
7. Disallowance of traveling expenses.
8. Disallowance of foreign travel expenses.
9. Weighted deduction on foreign travel expenses.
10. Deduction under Section 80G of the IT Act.
11. Weighted deduction under Section 35B for ECGC Premium.
12. Entitlement to investment allowance on machinery.
13. Deletion of disallowance of bonus.

Detailed Analysis:

1. Justification of invoking Section 263 of the IT Act, 1961:
The Tribunal examined whether the CIT was justified in invoking Section 263 to direct the ITO to add back Rs. 17,01,760 as purchase-tax provision. The assessee, following the mercantile system, had made this provision, which was initially allowed. The CIT referenced the Kerala High Court's decision in Neroth Oil Mills, which suggested no purchase-tax liability for sea food traders. However, the Tribunal upheld the assessee's contention that the liability was not conclusively resolved, as the State Government had appealed to the Supreme Court. Therefore, the provision was valid under the mercantile system, and the original assessment was not erroneous or prejudicial to the Revenue.

2. Validity of reassessment proceedings under Section 147(b) of the IT Act:
In ITA No. 53/Coch/1987, the original assessment allowed a provision for purchase-tax, which was later reopened based on the Kerala High Court's decision in Neroth Oil Mills. The CIT(A) validated the reassessment, citing that the ITO could initiate action under Section 147(b) if a relevant decision came to notice subsequently. The Tribunal upheld this view, referencing the Supreme Court's decision in A.L.A. Firm vs. CIT, affirming the reassessment's validity.

3. Eligibility for weighted deduction under Section 35B of the IT Act:
The assessee's claims for weighted deduction on various expenses were disallowed by the CIT(A). The Tribunal referred to the Special Bench decision in M/s J. Hemchand & Co., which determined that none of the enumerated expenditures were eligible for weighted deduction. However, the Tribunal granted relief for 75% of salaries paid to the export department staff based on the same decision.

4. Taxability of cash incentives:
The assessee contested the taxation of cash incentives received during the year. The Tribunal upheld the CIT(A)'s decision to tax these incentives, referencing the retrospective amendment to Section 28 from April 1, 1964, and supporting judicial decisions.

5. Disallowance of purchase-tax provision:
In ITA No. 54(Coch)/1987, the ITO disallowed a provision for purchase-tax, following the Kerala High Court's decision in Neroth Oil Mills. The Tribunal, noting the pending sales-tax assessments and the State Government's appeal, upheld the assessee's provision for purchase-tax, consistent with its earlier ruling.

6. Disallowance under Section 40A(3) of the IT Act:
The ITO disallowed cash payments exceeding Rs. 2,500 under Section 40A(3). The Tribunal set aside the disallowance related to Sri Francis, as the assessee was not given an opportunity to cross-examine him. However, it deleted the disallowance for payments to Aslam Zacharia Sait, as the payment was genuine and related to fish procurement.

7. Disallowance of traveling expenses:
The Tribunal declined to interfere with the disallowance of Rs. 5,000 out of traveling expenses under Rule 6D.

8. Disallowance of foreign travel expenses:
The Tribunal granted further relief of Rs. 30,000 for foreign travel expenses, recognizing the business promotion nature of the travel and subsequent procurement of orders. However, it acknowledged a personal element in such trips.

9. Weighted deduction on foreign travel expenses:
The Tribunal allowed weighted deduction on the amount of foreign travel expenses that resulted in business procurement, excluding the disallowed portion.

10. Deduction under Section 80G of the IT Act:
The Tribunal noted that the assessee had claimed deduction under Section 80G in the statement accompanying the return of income. It set aside the CIT(A)'s order and directed the ITO to examine the claim in accordance with the law.

11. Weighted deduction under Section 35B for ECGC Premium:
The Tribunal upheld the assessee's entitlement to weighted deduction for ECGC Premium, referencing the Special Bench decision in J. Hemchand & Co., which allowed such deductions due to the financial reliability ensured by the Guarantee Corporation.

12. Entitlement to investment allowance on machinery:
The Tribunal upheld the CIT(A)'s decision to allow investment allowance on machinery, following the Kerala High Court's decision in CIT vs. Poyilakkada Fisheries (P) Ltd., which supported the assessee's claim.

13. Deletion of disallowance of bonus:
The Tribunal upheld the CIT(A)'s deletion of the disallowance of bonus, recognizing it as customary bonus. It referenced the Supreme Court's decision in Shahzada Nand & Sons vs. CIT and the Kerala High Court's decision in Jaysree Cashew Co., which supported the assessee's practice.

Conclusion:
The Tribunal allowed ITA No. 1115(Coch)/86, partly allowed ITA Nos. 53(Coch)/87 and 54(Coch)/87, and dismissed ITA Nos. 213 and 214(Coch)/87.

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