1989 (10) TMI 92 - AT - Income Tax

Summary

Issues:
1. Disallowance under sections 40A(5) and 40(c) of the IT Act for salary paid to Director-employees.
2. Disallowances under section 37(2A) of the IT Act.
3. Addition of unclaimed balance as income under section 41(1) of the IT Act.
4. Working of relief under section 80J of the IT Act.
5. Rejection of claim under section 80-I of the IT Act due to lack of separate books of account.

Analysis:
1. The first issue pertains to the disallowance of salary paid to Director-employees under sections 40A(5) and 40(c) of the IT Act. The Tribunal, relying on a previous order, held that the limit for Director-employees should be Rs. 72,000 as per the proviso to section 40A(5). The order of the CIT (A) was reversed, directing the Assessing Officer to apply section 40A(5) with the proviso and allow the claim accordingly.

2. The second issue involves disallowances under section 37(2A) of the IT Act. The assessee did not press these grounds during the hearing, leading to their dismissal as withdrawn.

3. The third issue concerns the addition of unclaimed balances as income under section 41(1) of the IT Act. The Tribunal upheld the order of the CIT (A) in taxing these liabilities, considering the conduct of the assessee and the payees in relation to the unclaimed balances.

4. The fourth issue relates to the working of relief under section 80J of the IT Act. The dispute centered on the deduction of liabilities like proposed dividends from the value of assets for computing capital employed under section 80J. The Tribunal held that proposed dividends were not an ascertained liability and directed the ITO to compute the relief under section 80J accordingly.

5. The fifth issue involves the rejection of the claim under section 80-I of the IT Act due to the lack of separate books of account for the industrial undertaking. The Tribunal disagreed with the Revenue's approach, stating that if combined accounts were maintained and audited, and profits were segregated, the claim under section 80-I should not be rejected. The matter was remanded to the ITO for estimating profits from the industrial undertaking on a reasonable basis.

In conclusion, the Tribunal partly allowed both appeals of the assessee, addressing various issues related to disallowances, additions, and deductions under different sections of the IT Act.