1992 (5) TMI 56 - AT - Income Tax

Summary

Issues:
1. Classification of expenditure on filing fees for additional shares as capital or revenue expenditure.
2. Disallowance of staff welfare expenses under the head of entertainment expenditure.

Issue 1:
The appeal dealt with the classification of expenditure on filing fees for additional shares as capital or revenue expenditure for the assessment year 1986-87. The assessee claimed the expenditure of Rs. 11,310 as business expenditure, while the Assessing Officer disallowed it. The CIT(A) held the expenditure to be capital in nature but allowed 1/10th of the eligible expenditure for the year. The main argument by the assessee was based on conflicting judicial opinions from various High Courts. The Delhi High Court's decision in Bharat Carbon & Ribbon Mfg. Co. Ltd. vs. CIT was cited, where the court held such expenditure to be capital in nature. The ITAT, Delhi, noted that the majority of High Courts considered such expenses as not deductible, and since the matter was covered by the Delhi High Court decision, it had to be decided against the assessee. The ITAT upheld the decision that the expenditure was not business expenditure, as claimed by the assessee.

Issue 2:
The second issue revolved around the disallowance of Rs. 25,000 under the head of staff welfare expenses, specifically related to the distribution of utensils, cashew nuts, and sweet boxes. The Assessing Officer disallowed the amount due to lack of details on distribution. The CIT(A) upheld the disallowance based on an expanded definition of "entertainment" expenses. The ITAT agreed with the authorities, stating that the distribution of utensils, even if customary, falls under entertainment expenditure as per the amended law. The lack of distribution details and the considerable amount spent supported the disallowance of Rs. 25,000, which was deemed reasonable and upheld by the ITAT.

In conclusion, the ITAT dismissed the appeal, ruling in favor of the IT authorities on both issues, classifying the filing fee expenditure as capital and upholding the disallowance of staff welfare expenses under entertainment expenditure.