1995 (8) TMI 94 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of deposits received by the assessee.
2. Allowance of expenses claimed by the assessee on account of advertisement, commission, and service charges.
3. Verification of gifts received from abroad.

Issue-wise Detailed Analysis:

1. Assessability of Deposits Received by the Assessee:

The primary issue revolved around whether the deposits received by the assessee from DAPL should be assessed as income. The AO had assessed these deposits as income, but the first appellate authority deleted this addition. The Tribunal referenced the case of Bharat Hotels Ltd. vs. Dy. CIT (1995) 53 ITD 450 (Del), which held that such deposits did not constitute income. This issue became academic due to the subsequent agreement dated 13th November 1987, which cancelled the earlier agreement dated 31st March 1984, and resulted in the refund of the entire deposits. Consequently, there was no longer any scope for controversy regarding the assessability of these deposits. The Tribunal affirmed the first appellate authority's decision to delete the additions, and the Revenue's appeals were dismissed.

2. Allowance of Expenses Claimed by the Assessee:

The assessee claimed deductions for expenses related to advertisement, commission, and service charges as per the agreement dated 31st March 1984. The AO disallowed these expenses, reasoning they were not incurred for earning income. The first appellate authority upheld this disallowance. The Tribunal examined whether the termination agreement dated 13th November 1987 nullified the assessee's obligation to share expenses incurred by DAPL. The termination agreement explicitly stated that the parties were no longer required to share any expenses for raising shop deposits as mentioned in the original agreement. Consequently, the Tribunal concluded that the assessee was not entitled to any deduction for these expenses. Even if the termination agreement could be interpreted differently, any expenses incurred by the assessee post-refund would be considered voluntary and not for business purposes, thus not allowable as legitimate expenditure. The Tribunal upheld the Revenue's disallowance of the expenses.

3. Verification of Gifts Received from Abroad:

For the assessment year 1985-86, the issue concerned a sum of Rs. 6,27,643 received as a gift via a bank draft dated 7th February 1984. The first appellate authority set aside this issue, directing the AO to verify the claim and decide if it pertained to the assessment year 1984-85. The assessee contended that the addition should have been deleted without verification. The Tribunal found no merit in this contention, supporting the first appellate authority's directive for verification. The Tribunal clarified that if the AO determined the gift related to the year under appeal, the decision should consider the Tribunal's earlier ruling in the related case of Smt. Shama Suri, G. Sagar & G. Sagar Suri & Sons ITA No. 3089/Del/1987, 794/Del/1986, 6738/Del/1985 dated 28th September 1990. Consequently, the Tribunal declined to interfere with the first appellate authority's order.

Conclusion:

The Tribunal dismissed the appeals of the Revenue and, subject to the observations regarding the verification of the gift, also dismissed the appeals of the assessee.