1989 (2) TMI 150 - AT - Income Tax

Issues Involved:
1. Allowance under Section 35B of the IT Act.
2. Determination of the assessee as a small scale industrial undertaking.
3. Specific claims under Section 35B for various expenses.
4. Disallowance of loss of money.
5. Disallowance of travelling expenses.
6. Disallowance of staff welfare expenses.
7. Investment allowance claim.

Issue-wise Detailed Analysis:

1. Allowance under Section 35B of the IT Act:
The main ground of the appeal concerns the allowance of the claim made under Section 35B of the IT Act. The assessee questioned the decision of the ITO, which was not addressed by the CIT(A). The Tribunal found that the objection raised by the Department was not wholly sustainable, as the issue was taken up by the assessee before both the ITO and the IAC. The Tribunal permitted the assessee to raise this question, noting that all necessary materials were furnished before the ITO.

2. Determination of the Assessee as a Small Scale Industrial Undertaking:
The Tribunal needed to determine whether the assessee was a small scale industrial undertaking to avail the benefits of Section 35B. According to the Finance Act, 1978, and the relevant provisions under Section 32A, the aggregate value of the machinery and plant should not exceed Rs. 10 lakhs. The balance sheet showed the value of total assets at Rs. 8,02,639, satisfying the condition. Thus, the Tribunal concluded that the assessee was indeed a small scale industrial undertaking and entitled to the benefits even after 1st April 1978.

3. Specific Claims under Section 35B for Various Expenses:
- Melting Weight Loss and Refining and Melting Charges: The Tribunal allowed the claims, referencing a prior decision by the Delhi Bench 'E' of the Tribunal in the assessee's own case for the assessment year 1977-78.
- Establishment Expenses: The Tribunal allowed the claim for the period from 1st April 1978 to 30th June 1978, as the assessee was deemed a small scale industrial undertaking.
- Staff Welfare and Staff Expenses: The Tribunal directed the allowance of weighted deduction for the entire period, treating it similarly to establishment expenses.
- Administrative, General, and Selling and Distribution Expenses: The Tribunal directed the ITO to allow weighted deduction for expenses incurred from 1st April 1978 to 30th June 1978, as the assessee was a small scale industrial undertaking.
- Financial Expenses (Interest on Pre-shipment and Post-shipment Advances): The Tribunal allowed the claim, following the decision of the Madhya Pradesh High Court in CIT vs. Vippy Solvex Product P. Ltd., which held that such interest was eligible for weighted deduction under Section 35B(1)(b)(viii).

4. Disallowance of Loss of Money:
The Tribunal allowed the claim for the loss of Rs. 3,700, finding the assessee's version of the loss credible despite the absence of an FIR. The Tribunal believed the loss was genuine and allowable.

5. Disallowance of Travelling Expenses:
The Tribunal deleted the disallowance of Rs. 7,920 incurred by Shri Puran Mal, noting that he was the father of one of the directors and could assist in the business. The Tribunal found no justification for disallowing the expenses as unrelated to the business.

6. Disallowance of Staff Welfare Expenses:
The Tribunal deleted the disallowance of Rs. 16,187, rejecting the Department's view that it was entertainment expenditure. The details provided showed the expenses were genuinely for staff welfare, with only a minor portion being for entertainment.

7. Investment Allowance Claim:
The claim for investment allowance of Rs. 13,353 was not pressed by the assessee, and thus, no further discussion was required.

Conclusion:
The appeal was allowed in part, with the Tribunal granting relief on several grounds while upholding the disallowance of the investment allowance.

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