1991 (7) TMI 140 - AT - Income Tax

Issues Involved:
1. Taxability of cash compensatory support and duty drawback.
2. Taxability of profit on sale of import entitlements and additional licenses.
3. Disallowance under Section 37(3A) to 37(3D) of the Act.
4. Addition of perquisite value of telephone installed at the residence of the Director.
5. Disallowance of traveling expenses under Rule 6D.
6. Disallowance of car hire charges.
7. Classification of repairs and maintenance expenses as capital expenditure.
8. Disallowance of general expenses.
9. Disallowance of car expenses.
10. Notional interest on advance given to M/s Vivek Associates.
11. Disallowance of export market development expenses.
12. Disallowance of foreign traveling expenses.
13. Disallowance of guest house expenses.
14. Computation of deductions under Sections 80HH and 80-I.
15. Levy of interest under Section 216.
16. Levy of interest under Section 215.
17. Deduction under Section 80-I after reducing deductions under Sections 80HH and 80HHC.
18. Addition on account of Directors' remuneration.
19. Addition on account of staff welfare and Diwali expenses.

Detailed Analysis:

1. Taxability of Cash Compensatory Support and Duty Drawback:
The assessee's appeal contested the taxability of cash compensatory support amounting to Rs. 57,33,622 and duty drawback amounting to Rs. 32,34,555 as revenue receipts. The Tribunal upheld the CIT(A)'s decision, noting the retrospective amendment by the Finance Act, 1990, which inserted these amounts into taxable revenue receipts under Section 2(24)(vb)/28. This ground was decided against the assessee.

2. Taxability of Profit on Sale of Import Entitlements and Additional Licenses:
The assessee's appeal also contested the taxability of profit on the sale of import entitlements and additional licenses amounting to Rs. 2,22,946 and Rs. 1,25,409, respectively. The Tribunal referenced the retrospective amendment and the Special Bench decision in M/s Gedore Tools (India) Pvt. Ltd., ruling against the assessee.

3. Disallowance under Section 37(3A) to 37(3D) of the Act:
The disallowance of Rs. 75,938 under Section 37(3A) to 37(3D) was contested. The Tribunal allowed part of the car expenses for repairs (Rs. 37,741) but upheld the disallowance of the remaining car expenses, car depreciation, and taxi hire charges. However, the Tribunal found substance in the assessee's claims regarding advertisement expenses, free samples, and fair & exhibition expenses, ruling these could not be disallowed under Section 37(3A) to 37(3D).

4. Addition of Perquisite Value of Telephone:
The Tribunal sided with the assessee, referencing a prior year's decision, and set aside the CIT(A)'s order, deleting the Rs. 800 addition for the perquisite value of the Director's telephone.

5. Disallowance of Traveling Expenses under Rule 6D:
The Tribunal agreed with the assessee that disallowance under Rule 6D should be calculated by aggregating all journeys undertaken by an employee during the year, not on a journey-wise basis. The matter was sent back for recalculating the disallowance accordingly.

6. Disallowance of Car Hire Charges:
The Tribunal deleted the disallowance of Rs. 18,000 for car hire charges, citing similar deletions in previous years. However, it noted that 20% of the expenditure should be disallowed under Section 37(3A).

7. Classification of Repairs and Maintenance Expenses:
The Tribunal ruled that Rs. 57,717 spent on repairs and maintenance of rented premises should be classified as revenue expenditure, not capital expenditure, and directed the ITO to delete the disallowance.

8. Disallowance of General Expenses:
The Tribunal partially allowed the assessee's claim regarding entertainment expenses for foreign buyers, restricting the disallowance to 60% and allowing 40% of the expenditure.

9. Disallowance of Car Expenses:
The Tribunal deleted the disallowance of Rs. 14,638 for car expenses but noted that 20% of the expenditure should be disallowed under Section 37(3A).

10. Notional Interest on Advance to M/s Vivek Associates:
The Tribunal deleted the disallowance of Rs. 14,310 for notional interest, referencing a prior year's decision and noting the mixed account of borrowed and own funds.

11. Disallowance of Export Market Development Expenses:
The Tribunal set aside the CIT(A)'s order and allowed the claim for Rs. 1,62,840 spent on export market development, referencing decisions that supported treating such expenses as allowable deductions.

12. Disallowance of Foreign Traveling Expenses:
The Tribunal partially allowed the assessee's claim, reducing the disallowance from Rs. 35,738 to Rs. 15,000, acknowledging that the assessee had surrendered part of the sanctioned entertainment allowance.

13. Disallowance of Guest House Expenses:
The Tribunal allowed depreciation on the guest house maintained by the assessee, referencing Tribunal and Bombay High Court decisions.

14. Computation of Deductions under Sections 80HH and 80-I:
The Tribunal directed the IAC (Asst) to compute deductions under Sections 80HH and 80-I by allocating 10% of the fixed overhead expenses incurred by the head office for the Mathura Unit. For the Jamna Kinara Unit, the Tribunal directed recomputation by taking 25% of the overhead expenses for 4 months.

15. Levy of Interest under Section 216:
The Tribunal ruled that interest under Section 216 could not be charged, as the assessee's failure to pay advance tax was due to a bona fide belief that cash compensatory support and duty drawback were capital receipts.

16. Levy of Interest under Section 215:
This ground was deemed consequential and did not require discussion.

17. Deduction under Section 80-I after Reducing Deductions under Sections 80HH and 80HHC:
The Tribunal admitted this ground and ruled that deduction under Section 80-I should be allowed without reducing deductions under Sections 80HH and 80HHC, referencing prior Tribunal decisions.

18. Addition on Account of Directors' Remuneration:
The Tribunal rejected the Revenue's appeal, upholding the CIT(A)'s deletion of the Rs. 12,000 addition, referencing similar decisions in previous years.

19. Addition on Account of Staff Welfare and Diwali Expenses:
The Tribunal rejected the Revenue's appeal, upholding the CIT(A)'s deletion of the Rs. 60,000 addition, referencing similar decisions in previous years.

Conclusion:
The assessee's appeal was partly allowed, with several disallowances being deleted or reduced, while the Revenue's appeal was dismissed.

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