2003 (12) TMI 277 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition under the head donation.
2. Deletion of addition under the head sales promotion expenses.
3. Non-allowance of investment allowance on increased cost of plant and machinery due to foreign exchange fluctuation.

Issue-wise Detailed Analysis:

1. Deletion of Addition under the Head Donation
The Revenue contested the deletion of Rs. 44,200 under the head donation by the CIT (A), arguing that the expenses were not verified and the assessee failed to establish their business necessity. The Assessing Officer had disallowed the donations as inadmissible. However, the CIT (A) accepted the assessee's claim that these expenses were incurred in the normal course of business and were fully for business purposes. The Tribunal upheld the CIT (A)'s decision, noting that the Assessing Officer had disallowed the donations without providing any reasons, while the assessee had demonstrated the business relevance of these donations before the CIT (A).

2. Deletion of Addition under the Head Sales Promotion Expenses
The Revenue challenged the deletion of Rs. 2,00,000 under sales promotion expenses by the CIT (A), arguing that the details and nature of these expenses were not properly verified. The Assessing Officer had disallowed the amount, suspecting that it included entertainment expenses. The CIT (A) deleted the addition, stating that the disallowance was based on mere estimation and suspicion. The Tribunal, however, found that the expenses debited under sales promotion included items not related to sales promotion and were not adequately substantiated by the assessee. Consequently, the Tribunal sustained the addition made by the Assessing Officer and reversed the CIT (A)'s decision on this ground.

3. Non-allowance of Investment Allowance on Increased Cost of Plant and Machinery Due to Foreign Exchange Fluctuation
The assessee appealed against the CIT (A)'s confirmation of the Assessing Officer's decision to disallow an investment allowance of Rs. 12,80,285, which was claimed due to foreign exchange fluctuation increasing the cost of plant and machinery. The Assessing Officer held that the machinery was installed in the assessment year 1989-90, and thus, no investment allowance could be allowed on the foreign exchange fluctuation capitalized in the current year. The CIT (A) upheld this view, noting that section 32A allows investment allowance only in the year of installation or the immediately succeeding year. The Tribunal agreed with the lower authorities, citing relevant case law, and concluded that the assessee was not entitled to investment allowance on the additional liability arising from foreign exchange fluctuation in a year subsequent to the installation of the machinery.

Conclusion
- The Tribunal upheld the CIT (A)'s decision to delete the addition under the head donation.
- The Tribunal reversed the CIT (A)'s decision and sustained the addition under the head sales promotion expenses.
- The Tribunal upheld the CIT (A)'s decision to disallow the investment allowance on the increased cost of plant and machinery due to foreign exchange fluctuation.

In summary, the Tribunal provided a detailed analysis of each issue, considering the arguments and evidence presented by both parties, and made decisions based on the relevant legal provisions and case law.