1992 (5) TMI 62 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of hire charges for gas cylinders.
2. Security deposit added as income.
3. Disallowance of freight and cartage expenses.
4. Loss on sale of diesel generator set.
5. Disallowance for personal usage of car.
6. Disallowance of bonus paid to staff.
7. Deduction of club subscription fees.
8. Disallowance of unpaid sales tax.
9. Levy of interest under section 217(1A).
10. Disallowance of foreign tour expenses.
11. Non-allowance of deduction under section 80G.
12. Disallowance of sales promotion expenses.

Detailed Analysis:

1. Disallowance of Hire Charges for Gas Cylinders:
The assessee, a limited company, claimed deductions for hire charges of gas cylinders from PCPL for the assessment years 1986-87 and 1987-88. The AO disallowed these charges, arguing that PCPL did not possess the cylinders and that the transactions were merely book entries aimed at tax evasion. The AO's investigation included examining the Audit Report under section 44AB, conducting surveys, and scrutinizing bank transactions. The CIT(A) upheld the AO's decision, citing insufficient evidence of cylinder possession by PCPL and discrepancies in the records. However, the Tribunal found that the increased gas sales indicated the use of additional cylinders, thus justifying the hire charges. The Tribunal allowed the deduction of hire charges for both assessment years.

2. Security Deposit Added as Income:
The assessee did not press this issue during the hearing. Therefore, the Tribunal treated this ground as dismissed.

3. Disallowance of Freight and Cartage Expenses:
The assessee did not pursue this issue, and it was dismissed for not being pressed.

4. Loss on Sale of Diesel Generator Set:
This issue was also not pressed by the assessee and was dismissed accordingly.

5. Disallowance for Personal Usage of Car:
The Tribunal directed the AO to verify if the perquisite value had been added in the hands of the directors. If so, the AO should apply section 40(c) or section 40A(5) and disallow only the excess over the prescribed limits.

6. Disallowance of Bonus Paid to Staff:
The Tribunal allowed the excess bonus paid to staff as additional salary, deleting the addition made on this account.

7. Deduction of Club Subscription Fees:
The Tribunal directed the AO to allow deductions for the amounts representing club subscriptions, considering the claim as reasonable.

8. Disallowance of Unpaid Sales Tax:
The Tribunal upheld the disallowance of unpaid sales tax, citing the Delhi High Court decision in Escorts Ltd. v. Union of India. However, the AO was directed to allow the deduction in the assessment year 1987-88 after verifying the payment.

9. Levy of Interest Under Section 217(1A):
The Tribunal directed the AO to allow the assessee an opportunity to establish whether the circumstances for levying interest under section 217(1A) existed before proceeding to apply the section.

10. Disallowance of Foreign Tour Expenses:
The Tribunal remanded this issue back to the AO for re-examination, directing the AO to verify the details of the foreign tour and decide in accordance with the law.

11. Non-Allowance of Deduction Under Section 80G:
The Tribunal upheld the CIT(A)'s direction to the AO to verify the receipts of donations and allow deductions accordingly.

12. Disallowance of Sales Promotion Expenses:
This issue was not seriously challenged by the assessee and was rejected by the Tribunal.

Conclusion:
The Tribunal allowed the appeals in part, providing relief on several issues, including the hire charges for gas cylinders and the disallowance of bonus paid to staff. The Tribunal remanded the issue of foreign tour expenses for re-examination and upheld the disallowance of unpaid sales tax based on the Delhi High Court decision.