1985 (9) TMI 132 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 89,180 towards purchase tax.
2. Disallowance of Rs. 39,759 out of furniture and fixtures.
3. Disallowance of Rs. 5,000 out of expenses incurred on a flat in Bombay.
4. Disallowance of Rs. 10,250 paid as retainer fees to Chartered Accountants.
5. Disallowance of Rs. 7,449 towards penalties and fines.

Detailed Analysis:

1. Disallowance of Rs. 89,180 towards purchase tax:
The first issue pertains to the disallowance of Rs. 89,180 representing the payment towards purchase tax levied on raw material and packing material used by the assessee in the manufacture of ice cream. The IAC disallowed the claim on the grounds that the demand related to a period before the formation of the current partnership and should be met out of the refund lying with the previous entity, Kwality Ice Cream Company. The assessee contested this, arguing that the liability must be allowed in the year in which the demand arose, regardless of the source of the fund from which it is to be met. The Tribunal agreed with the assessee, stating that the existence of a trading liability does not depend on the source of the fund and must be allowed as a deduction irrespective of the source from which it is met. The liability was imposed by the sales-tax Department on the assessee firm, and thus, it should be allowed as a deduction.

2. Disallowance of Rs. 39,759 out of furniture and fixtures:
The second issue involves the disallowance of Rs. 39,759 out of the furniture and fixtures that were scrapped as useless. The IAC disallowed the claim because the sale price of Rs. 5,000 was not proved. The Tribunal upheld this disallowance, noting that the sale price was not substantiated by credible evidence and that the w.d.v. of the furniture was only Rs. 8,000 in the hands of the old firm. The revaluation of the furniture to Rs. 43,030 was not considered a real loss, and thus, the disallowance was deemed proper.

3. Disallowance of Rs. 5,000 out of expenses incurred on a flat in Bombay:
The third issue concerns the disallowance of Rs. 5,000 out of Rs. 17,500 disallowed on expenses incurred on a flat in Bombay. The Department disallowed this expenditure, suspecting it included personal expenses of the partners. The Tribunal found no basis for this suspicion, noting that the partners lived in Delhi and only went to Bombay for business purposes. Therefore, the disallowance was deemed uncalled for and was deleted.

4. Disallowance of Rs. 10,250 paid as retainer fees to Chartered Accountants:
The fourth issue relates to the disallowance of Rs. 10,250 paid as retainer fees to M/s. D.M. Harish & Company and Ms. Nanu Bhai & Company, Chartered Accountants. The Tribunal noted that these amounts were paid as retainer fees and not for appearing before any IT authority. As such, these amounts fell outside the purview of section 80VV, which pertains to fees paid for appearing in proceedings before IT authorities. The disallowance was thus not justified and was deleted.

5. Disallowance of Rs. 7,449 towards penalties and fines:
The final issue involves the disallowance of Rs. 7,449 towards penalties and fines imposed for various small offences. The Tribunal noted that except for the payment of damages under section 14B of the Employees Provident Fund Act, the other amounts were very small and in the nature of deviations rather than infractions of law. Even the fine under section 14B was not considered an infraction of law but rather compensation for the delay in payment of provident fund. The disallowance of this sum was thus deemed improper and was deleted.

Conclusion:
In conclusion, the Tribunal allowed the appeal in part, granting relief on several disallowances while upholding others. The key takeaway is the Tribunal's emphasis on the nature and timing of liabilities and the substantiation of claims with credible evidence.

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