1993 (7) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Extent of deduction permissible under section 80HHC of the Income-tax Act.
2. Disallowance of bonus under section 43B of the Income-tax Act.
3. Disallowance of foreign traveling expenses.
4. Disallowance of farm house expenses, club expenses, repair expenses, staff welfare expenses, and expenses on samples.

Detailed Analysis:

1. Extent of Deduction Permissible under Section 80HHC:
The primary issue revolves around the extent of deduction permissible under section 80HHC of the Income-tax Act. The assessee, a limited company, claimed a deduction of Rs. 18,93,970 under this section, while the Assessing Officer (AO) restricted the deduction to Rs. 2,92,170. The AO included the turnover of other exporters (on which the assessee received a commission) in the total turnover, which the assessee contested. The Commissioner of Income Tax (Appeals) [CIT(A)] recalculated the profit derived from exports and allowed a deduction of Rs. 17,66,859. Both the assessee and the department appealed against this order.

The Tribunal examined the provisions of section 80HHC and noted that the section aims to boost exports by providing relief from taxation on profits derived from export business. It was clarified that the term "total turnover" should include only the sale proceeds of goods or merchandise and not other incomes like commission. The Tribunal concluded that the assessee's export activity was exclusively for exports, and since the export resulted in a loss, the assessee was not entitled to any deduction under section 80HHC. However, due to constraints, the Tribunal sustained the deduction allowed by the AO to the extent of Rs. 2,92,170.

2. Disallowance of Bonus under Section 43B:
The assessee challenged the disallowance of Rs. 30,634 out of bonus, as proof of payment was not placed before the AO. The Tribunal remanded this issue to the AO to verify whether the payment was made before the due date for filing the return and, if so, to allow the deduction.

3. Disallowance of Foreign Traveling Expenses:
The assessee contested the disallowance of Rs. 6,16,351 out of foreign traveling expenses, arguing that the visits were for exploring export opportunities. The Tribunal noted that the Managing Director's visits were related to his role in the International Olympic Committee and remanded the issue to the AO to verify the purpose of the visits and the RBI permits for foreign exchange, allowing the assessee sufficient opportunity to present evidence.

4. Disallowance of Farm House Expenses, Club Expenses, Repair Expenses, Staff Welfare Expenses, and Expenses on Samples:
The assessee did not seriously press the claims regarding disallowance of farm house expenses, club expenses, repair expenses, staff welfare expenses, and expenses on samples. The Tribunal rejected these grounds of appeal, noting that the allowability of expenses is based on their incurrence for business purposes. The Tribunal emphasized that unless expenses are found to be incurred for business purposes, they cannot be allowed as deductions for computing income from profits and gains of business or profession.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee in part and that of the revenue. The Tribunal sustained the deduction allowed by the AO to the extent of Rs. 2,92,170 under section 80HHC, remanded the issue of bonus disallowance to the AO for verification, and remanded the issue of foreign traveling expenses to the AO for further examination. The Tribunal rejected the grounds of appeal concerning disallowance of farm house expenses, club expenses, repair expenses, staff welfare expenses, and expenses on samples.