1986 (11) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance under sections 40(C) and 40A(5).
2. Deduction of Rs. 40,000 representing loss of cash due to theft.

Issue-Wise Detailed Analysis:

1. Disallowance under sections 40(C) and 40A(5):

The assessee, a Private Ltd. Company, contested the disallowance of Rs. 37,945 under sections 40(C) and 40A(5). The IAC (Assessment) calculated the disallowance based on the remuneration paid to the company's Chairman, Managing Director, and other directors. The Commissioner (A) upheld the disallowance, stating that the total allowable expenditure was restricted to Rs. 72,000 per annum and that contributions to unapproved Provident and Superannuation Funds could not be excluded from the computation.

The assessee argued that the Provident Fund contributions should be excluded as the fund was recognized under the Employees Provident Fund Act, 1952. The Tribunal's order for the previous assessment years (1978-79 and 1979-80) supported this claim, stating that Provident Fund contributions were specifically excluded by item (iii) of the second proviso to section 40(C). The Tribunal noted that the Commissioner (A) did not pass a speaking order regarding individual items of perquisites or cash payments claimed by the assessee to be outside the purview of sections 40(C) and 40A(5). Therefore, the matter was restored to the file of the Commissioner (A) for fresh disposal, with the instruction to exclude Provident Fund contributions from the disallowance computation.

2. Deduction of Rs. 40,000 representing loss of cash due to theft:

The assessee claimed a deduction of Rs. 40,000 as a business loss, which was disallowed by the IAC (Assessment) on the ground that the loss was related to the registration of a truck, a capital asset, and hence was a capital loss. The Commissioner (A) confirmed the disallowance, stating that the loss was not incidental to the trade itself but was connected with the trade.

The Tribunal referred to the Supreme Court case of Ramchandra Shivanarain vs. CIT, where a similar loss was allowed as a business loss. The Tribunal concluded that the risk of carrying cash by the assessee's employee was directly connected with the business operations and incidental to the carrying on of the business. Therefore, the assessee's claim for deduction of Rs. 40,000 was allowable as a deduction against the business profits of the year.

Conclusion:

The appeal was deemed to be allowed in part for statistical purposes. The disallowance under sections 40(C) and 40A(5) was remanded to the Commissioner (A) for fresh disposal, with specific instructions to exclude Provident Fund contributions from the disallowance computation. The claim for deduction of Rs. 40,000 due to theft was allowed as a business loss. The alternative claim of adding the loss to the cost of the truck for depreciation was not considered necessary.