1998 (7) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance under Rule 6D of the IT Rules.
2. Disallowance under Rule 6B(1)(a) of the IT Rules.
3. Disallowance of relief under Sections 80HH and 80-I of the IT Act.
4. Failure to consider an additional ground regarding profit on sale of fixed assets.
5. Disallowance of deductions under Sections 80HH and 80-I for the asst. yr. 1990-91.
6. Withdrawal of investment allowance under Section 32A of the IT Act.
7. Disallowance of Rs. 5,20,558 as excess income accounted in the previous year.

Detailed Analysis:

1. Disallowance under Rule 6D of the IT Rules:
The assessee contested the disallowance of Rs. 38,950 under Rule 6D, arguing that the expenses included payments for multiple occupants in a room and also telephone and postal charges. However, the AO and CIT(A) both found no evidence to support this claim. The Tribunal upheld the CIT(A)'s decision, noting the absence of proof and finding no reason to interfere with the disallowance.

2. Disallowance under Rule 6B(1)(a) of the IT Rules:
The assessee challenged the disallowance of Rs. 18,465 under Rule 6B(1)(a), claiming the expenses were for employee welfare in the form of festival gifts. However, the AO and CIT(A) determined that the expenses were initially claimed as advertisement costs and exceeded the allowable limit per item. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of evidence for the welfare claim and the statutory auditors' classification of the expenses.

3. Disallowance of relief under Sections 80HH and 80-I of the IT Act:
The assessee claimed eligibility for deductions under Sections 80HH and 80-I, arguing it was an industrial undertaking. However, the Tribunal referred to its previous decision for the assessment years 1979-80 to 1982-83, which concluded that the assessee did not qualify as an industrial undertaking. Consequently, the Tribunal upheld the CIT(A)'s rejection of the deductions.

4. Failure to consider an additional ground regarding profit on sale of fixed assets:
The assessee raised an additional ground regarding the failure of the AO to deduct Rs. 3,85,931 from the net profit. The Tribunal noted that the CIT(A) had not adjudicated on this matter and that it was pending before the first Appellate Authority through a rectification petition. Therefore, the Tribunal dismissed this ground as no issue arose from the appellate order.

5. Disallowance of deductions under Sections 80HH and 80-I for the asst. yr. 1990-91:
For the assessment year 1990-91, the AO disallowed deductions under Sections 80HH and 80-I, citing the same reasons as the previous year. The Tribunal upheld the Revenue authorities' decision, reiterating that the assessee did not qualify as an industrial undertaking.

6. Withdrawal of investment allowance under Section 32A of the IT Act:
The CIT(A) withdrew the investment allowance under Section 32A after issuing a notice of enhancement. The Tribunal upheld this decision, consistent with its earlier finding that the assessee was not an industrial undertaking engaged in manufacturing or production.

7. Disallowance of Rs. 5,20,558 as excess income accounted in the previous year:
The AO disallowed the deduction of Rs. 5,20,558, which the assessee claimed as a reversal of excess income from the previous year. The CIT(A) confirmed this decision. The Tribunal reviewed the facts and agreed with the Revenue authorities, noting that the adjustment did not represent an expenditure incurred during the year. However, the Tribunal allowed the assessee to raise this issue as an additional ground for the assessment year 1989-90, directing the AO to verify the claim regarding the excess contract receipt.

Conclusion:
The appeal for the assessment year 1989-90 was partly allowed, permitting the assessee to raise an additional ground regarding the excess contract receipt. The appeal for the assessment year 1990-91 was dismissed.