1996 (5) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of foreign travel expenses.
2. Disallowance of professional and consultancy services expenses.
3. Disallowance of commission payment.
4. Disallowance of cash credits and related interest.
5. Disallowance of repairs and maintenance expenses.

Detailed Analysis:

1. Disallowance of Foreign Travel Expenses:
The primary issue was whether the foreign travel expenses of Rs. 19,679 incurred by a partner were for business purposes. The Assessing Officer (AO) disallowed the amount, arguing that the firm was not engaged in producing high-tech goods nor had any import/export dealings, thus deeming the trip unrelated to business. The CIT(A) upheld this disallowance, noting discrepancies in the partner's itinerary and suggesting the trip was more personal than business-related.

Upon appeal, the Tribunal considered the detailed submissions and itinerary provided by the assessee, which included visits to trade fairs and technical plants. The Tribunal found that the lower authorities had not justified the disallowance adequately, especially since other travel expenses were allowed. Consequently, the Tribunal deleted the disallowance of Rs. 19,679.

2. Disallowance of Professional and Consultancy Services Expenses:
The AO disallowed Rs. 7,200 each for the assessment years 1986-87 and 1987-88 and Rs. 23,200 for 1988-89, paid for consultancy services, arguing that the recipients were not professionally qualified and the payments were for extra-commercial considerations. The CIT(A) confirmed these disallowances.

The Tribunal, however, noted that the services rendered by the consultants, including representation in tax matters and quality control, were legitimate business expenses. The Tribunal held that the AO's focus on professional qualifications was misplaced and allowed the disallowed expenses for all the assessment years under consideration.

3. Disallowance of Commission Payment:
The AO disallowed Rs. 4,520 out of the total commission paid to M/s Nema Marketing Pvt. Ltd., citing that the commission was payable only upon receipt of payment for goods sold, which had not occurred. The CIT(A) upheld this disallowance.

The Tribunal agreed with the lower authorities, emphasizing that the commission liability accrues only upon receipt of payment as per the agreement terms. However, the Tribunal directed the AO to allow the commission in the relevant assessment year when the payment was realized.

4. Disallowance of Cash Credits and Related Interest:
For the assessment year 1987-88, the assessee did not press the ground related to the addition of Rs. 24,000 as cash credits and Rs. 1,106 as interest thereon. Consequently, this ground was dismissed.

5. Disallowance of Repairs and Maintenance Expenses:
The AO disallowed Rs. 4,291 out of the total repairs and maintenance expenses, arguing that the expenditure was capital in nature. The CIT(A) upheld this disallowance, noting that the purchase of wood logs was likely for making new furniture rather than repairing existing ones.

The Tribunal directed the AO to allow depreciation on the disallowed amount of Rs. 4,291 in subsequent years if not already granted, acknowledging the assessee's concession on the disallowance but ensuring the correct treatment of the expenditure.

Conclusion:
The appeals were allowed to the extent indicated, with the Tribunal providing relief on several disallowances while upholding others based on the merits of each issue.