1991 (6) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Foreign travel expenses
2. Disallowance of hotel expenses under Section 37(3)
3. Disallowance of cash shortage
4. Disallowance under Section 40A(3)
5. Disallowance of interest under Section 40(b)
6. Disallowance of interest payments to trusts under Section 40(b)
7. Disallowance of expenditure for professional services
8. Disallowance of sales tax payments under Section 43B
9. Eligibility for investment allowance
10. Disallowance of commission payments under Section 37(3A)

Detailed Analysis:

1. Foreign Travel Expenses:
The first issue in the assessee's appeal for the assessment year 1984-85 concerns the disallowance of Rs. 23,440 for foreign travel expenses. The Commissioner (Appeals) had previously disallowed similar expenses for the assessment year 1983-84, citing that the trips were for excursion purposes and lacked necessary permissions from the Reserve Bank of India (RBI) for business travel. The Tribunal upheld the disallowance, agreeing with the Revenue's contention that there was no justification for the foreign travel being necessitated by business considerations.

2. Disallowance of Hotel Expenses under Section 37(3):
The second issue involves the disallowance of 20% of hotel expenses amounting to Rs. 32,636 under Section 37(3) of the Income-tax Act. The Tribunal dismissed the assessee's grievance, stating that the restriction on expenditure in connection with traveling, including hotel expenses, is prescribed under Rule 6D of the Income-tax Rules.

3. Disallowance of Cash Shortage:
The third issue is the disallowance of Rs. 2,700 due to a cash shortage in the petrol pump owned by the assessee. The Commissioner (Appeals) sustained the disallowance because no police complaint was filed. The Tribunal, however, directed the Income Tax Officer (ITO) to reconsider the allowability of the amount under Section 36(2)(iv) of the Income-tax Act, noting that a police complaint for petty amounts is not material to the decision.

4. Disallowance under Section 40A(3):
The fourth issue pertains to the disallowance of Rs. 5,845 paid in cash to employees at the Bombay branch, exceeding the limit under Section 40A(3). The Tribunal deleted the disallowance, reasoning that the payments were governed by the residuary clause of Rule 6DD(j) of the Income-tax Rules and that the circumstances justified cash payments.

5. Disallowance of Interest under Section 40(b):
The fifth issue involves the disallowance of Rs. 48,217 in interest paid to Smt. Elsy Thomas. The Tribunal deleted the disallowance, agreeing with the assessee's contention that the funds were personal and distinct from trust funds. The Tribunal cited various case laws supporting the view that interest paid to a partner in a dual capacity is allowable.

6. Disallowance of Interest Payments to Trusts under Section 40(b):
The Revenue's appeal for the assessment year 1984-85 raised the issue of disallowance of Rs. 4,03,313 paid as interest to several trusts. The Tribunal upheld the Commissioner (Appeals)'s decision to delete the disallowance, noting that the trusts were not partners in the firm and that the interest payments were taxed at the maximum marginal rate. The Tribunal rejected the Revenue's argument that the payments were a device to reduce tax liability, citing the Indian Trusts Act and the history of the trusts.

7. Disallowance of Expenditure for Professional Services:
The Revenue's appeal also challenged the deletion of a disallowance of Rs. 66,371 paid to S.B. Billimoria & Co. for professional services. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the expenditure was revenue in nature and did not result in an enduring advantage.

8. Disallowance of Sales Tax Payments under Section 43B:
The Revenue's appeal for the assessment year 1985-86 included the issue of disallowance of Rs. 5,70,356 under Section 43B. The Tribunal upheld the Commissioner (Appeals)'s decision to delete the disallowance, noting that the payments were made within the due date prescribed under the relevant tax laws.

9. Eligibility for Investment Allowance:
The Revenue's appeal for the assessment year 1985-86 also contested the eligibility of the assessee for investment allowance on machinery used for construction work. The Tribunal upheld the Commissioner (Appeals)'s decision, citing previous Tribunal decisions and various case laws that supported the view that companies engaged in construction activities are entitled to investment allowance under Section 32A.

10. Disallowance of Commission Payments under Section 37(3A):
The final issue in the Revenue's appeal for the assessment year 1985-86 was the disallowance of commission payments amounting to Rs. 9,15,177 under Section 37(3A). The Tribunal upheld the Commissioner (Appeals)'s decision to delete the disallowance, stating that the commissions were ordinary sales commissions and not promotional activities.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeal, providing detailed reasons for each decision based on legal precedents and the specifics of each case.