1990 (10) TMI 144 - AT - Income Tax

1995 (3) TMI 185 - AT

Issues Involved:
1. Disallowance of commission paid to M/s Siaram Bros.
2. Disallowance of commission paid to M/s S.R. Bearing Centre.
3. Disallowance of expenditure on presents and gifts.
4. Disallowance of expenditure under the Sales Promotion Scheme.
5. Disallowance of expenditure on caution notices and service charges.
6. Disallowance of expenditure paid to M/s Mantech Consultants.
7. Disallowance of weighted deduction under Section 35B.
8. Disallowance of expenses on soil spreading and landscaping.
9. Application of Section 40(c) and Section 40A(5) for disallowance of perquisites and salary.
10. Treatment of expenditure on repairs of directors' residences as perquisites.
11. Disallowance of travelling expenses incurred on foreign technicians.
12. Disallowance of depreciation on motor cars not registered in the assessee's name.
13. Disallowance of depreciation and investment allowance on machineries purchased on 24th June, 1982.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Paid to M/s Siaram Bros.:
The Assessing Officer disallowed the commission of Rs. 10,151 paid to M/s Siaram Bros. for sales made directly to M/s Upper India Trading Co., reasoning that no services were rendered by M/s Siaram Bros. for these sales. The CIT(A) initially deleted this disallowance, but upon appeal, it was restored by the Tribunal, which agreed with the Assessing Officer's view that the payment was not made for business purposes.

2. Disallowance of Commission Paid to M/s S.R. Bearing Centre:
The ITO disallowed Rs. 5,885 paid as commission to M/s S.R. Bearing Centre, claiming that no services were needed for government business. The CIT(A) allowed the claim, noting the necessity of liaison work due to competition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the ITO did not find that no services were rendered.

3. Disallowance of Expenditure on Presents and Gifts:
The ITO disallowed Rs. 45,955 spent on gifts, citing lack of recipient details and questioning the business purpose. The CIT(A) allowed the claim, considering the expenditure customary and reasonable given the company's turnover. The Tribunal upheld this view, noting the absence of evidence that the expenditure was for advertisement.

4. Disallowance of Expenditure under the Sales Promotion Scheme:
The ITO disallowed Rs. 3,27,671 spent on gifts to dealers, viewing it as advertisement or entertainment. The CIT(A) deleted the disallowance, finding the expenditure aimed at boosting sales. The Tribunal upheld this, referencing similar cases where such expenditures were not considered advertisement expenses.

5. Disallowance of Expenditure on Caution Notices and Service Charges:
The ITO treated Rs. 28,576 spent on caution notices and service charges as capital expenditure. The CIT(A) allowed the claim, viewing it as revenue expenditure to protect the design. The Tribunal upheld this, referencing the Supreme Court decision in Finally Mills Ltd.

6. Disallowance of Expenditure Paid to M/s Mantech Consultants:
The ITO disallowed Rs. 10,700 paid for O&M studies, considering it an enduring benefit. The CIT(A) allowed the claim, viewing it as revenue expenditure for improving office efficiency. The Tribunal upheld this decision.

7. Disallowance of Weighted Deduction under Section 35B:
The ITO allowed weighted deduction on specific expenses but disallowed the rest. The CIT(A) allowed the entire claim without detailed reasoning. The Tribunal set aside this order, directing the CIT(A) to reconsider and pass a speaking order.

8. Disallowance of Expenses on Soil Spreading and Landscaping:
The ITO disallowed Rs. 48,315 and Rs. 5,000 for soil spreading and landscaping, viewing them as capital expenditures. The CIT(A) allowed the claims, considering them revenue expenditures. The Tribunal upheld this, referencing similar cases where such expenditures were considered incidental to business.

9. Application of Section 40(c) and Section 40A(5) for Disallowance of Perquisites and Salary:
The ITO disallowed perquisites exceeding Rs. 4,320 for Shri K.K. Thirani under Section 40A(5). The CIT(A) applied the Rs. 72,000 limit under Section 40(c). The Tribunal, referencing the Delhi High Court decision in Continental Construction Ltd., held that Section 40A(5) applies to employee directors, restoring the ITO's disallowance.

10. Treatment of Expenditure on Repairs of Directors' Residences as Perquisites:
The ITO treated Rs. 42,293 and Rs. 8,892 spent on repairs of directors' residences as perquisites. The CIT(A) disagreed. The Tribunal, referencing the Full Bench decision of the Kerala High Court, held that such expenditures are perquisites, restoring the ITO's treatment.

11. Disallowance of Travelling Expenses Incurred on Foreign Technicians:
The ITO disallowed Rs. 54,342 under Rule 6D, including lodging expenses for foreign technicians. The CIT(A) allowed Rs. 41,910. The Tribunal set aside this order, directing the CIT(A) to reconsider the allowability with reference to Rule 6D.

12. Disallowance of Depreciation on Motor Cars Not Registered in the Assessee's Name:
The ITO disallowed depreciation on motor cars not registered in the assessee's name. The CIT(A) allowed the claim, noting full payment and use during the year. The Tribunal upheld this, referencing the decision in Deluxe Co-operative Transport Society Ltd.

13. Disallowance of Depreciation and Investment Allowance on Machineries Purchased on 24th June, 1982:
The ITO disallowed depreciation and investment allowance on machineries, doubting their use before the year-end. The CIT(A) accepted the assessee's claim of immediate usability. The Tribunal upheld this, agreeing that the machineries were used after purchase.

Conclusion:
The appeal was partly allowed, with certain disallowances restored and others upheld based on detailed examination of facts and applicable legal principles.

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