1995 (2) TMI 113 - AT - Income Tax

Assessing Officer, Business Expenditure, Commission Payment, In Part, Industrial Undertaking, Investment Allowance, Profits And Gains Of Business Or Profession

Summary

Issues Involved:
1. Disallowance of commission payments for assessment years 1985-86, 1986-87, and 1987-88.
2. Relief under section 37(2A) for assessment year 1985-86.
3. Deduction under section 80-I for assessment year 1985-86.
4. Treatment of house rent allowance under section 40A(5) for assessment years 1986-87 and 1987-88.
5. Disallowance of fees paid to Registrar of Companies for assessment year 1986-87.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Payments:
For assessment years 1985-86 and 1986-87, the common issue was the disallowance of commission payments amounting to Rs. 2,28,458 and Rs. 5,61,865 respectively. The commission was paid for the sale of compressors. The assessee provided information about the supplies and the parties to whom the commission was paid, supported by cheque payments and confirmations. However, the Assessing Officer (AO) collected evidence from purchasers who stated they dealt directly with the assessee without intermediaries. The AO did not summon the parties under section 131 despite the assessee's request and disallowed the commission payments. The CIT(A) set aside the issue for further enquiries. The Tribunal held that the AO should have issued notices under section 131 and remitted the matter back to the AO for fresh consideration. The appeals of the assessee were dismissed, and the revenue's appeals were partly allowed.

For assessment year 1987-88, the commission payment issue was similar, and the Tribunal directed the AO to follow the same procedure as in the earlier years.

2. Relief under Section 37(2A):
For assessment year 1985-86, the AO disallowed Rs. 32,385 under section 37(2A), but the CIT(A) allowed a statutory deduction of Rs. 5,000 and annual day expenses of Rs. 7,681. The Tribunal upheld the CIT(A)'s decision, stating that annual day expenses incurred on employees cannot be termed as entertainment expenses, dismissing the revenue's ground.

3. Deduction under Section 80-I:
The assessee claimed deduction under section 80-I before excluding depreciation and investment allowance. The CIT(A) allowed the claim based on the Tribunal's decision in a similar case, but the Tribunal referred to section 80AB and the Supreme Court's decision in CIT v. P.K. Javeri, holding that deduction under section 80-I should be computed after considering depreciation and investment allowance. The Tribunal set aside the CIT(A)'s order and restored the AO's decision, allowing the revenue's appeal on this ground.

4. Treatment of House Rent Allowance under Section 40A(5):
For assessment years 1986-87 and 1987-88, the AO treated house rent allowance as perquisites under section 40A(5), but the CIT(A) deleted the disallowance based on the Delhi High Court's decisions in CIT v. Jay Engg. Works Ltd. and CIT v. Shriram Refrigeration Industries Ltd., which stated that cash reimbursements are part of the salary and not perquisites. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's grounds.

5. Disallowance of Fees Paid to Registrar of Companies:
For assessment year 1986-87, the AO disallowed fees paid for increasing authorized capital and issuing bonus shares. The CIT(A) upheld the disallowance of Rs. 22,500 based on the Delhi High Court's decision in Bharat Carbon & Ribbon Mfg. Co. Ltd. v. CIT, but allowed Rs. 500 for issuing bonus shares based on the Bombay High Court's decision in Bombay Burmah Trading Corpn. Ltd. v. CIT. The Tribunal confirmed these decisions.

Conclusion:
The assessee's appeal for assessment year 1985-86 was dismissed, while the appeal for assessment year 1986-87 was partly allowed. The revenue's appeals for assessment years 1985-86, 1986-87, and 1987-88 were partly allowed. The Tribunal provided detailed directions for the AO to follow in re-assessing the commission payments issue.