2004 (1) TMI 318 - AT - Income Tax

2017 (1) TMI 1607 - AT

Issues Involved:
1. Disallowance under Section 43B of the Income Tax Act.
2. Restriction of entertainment expenses.
3. Disallowance of prior period expenses.
4. Disallowance of certain expenses.
5. Disallowance on account of shortage and excess of inventories.
6. Deletion of disallowance of premium on keyman insurance policy.
7. Re-computation of disallowance under Rule 6D of the Income Tax Rules.
8. Deletion of addition made on account of collections from dealers.
9. Allowability of entertainment expenditure.
10. Deduction for cost of construction of scoreboard and professional fee.
11. Deletion of disallowance of repairs expenditure.
12. Deletion of disallowance on account of unverifiable claims.
13. Deletion of disallowance of advance made to sister concern.
14. Deletion of disallowance of technology transfer fee.

Detailed Analysis:

1. Disallowance under Section 43B of the Income Tax Act:
The learned CIT(A) disallowed Rs. 1,20,649 for bonus payments under Section 43B, as the evidence was not furnished along with the return. However, the Tribunal directed the AO to verify the facts and allow the claim if payments were made before the due date, as per the CBDT circular, which emphasizes that furnishing evidence is a procedural aspect.

2. Restriction of Entertainment Expenses:
The assessee's claim for entertainment expenses was restricted to 25% by the CIT(A), but the Tribunal allowed 35% for employees' participation based on a previous Tribunal decision and the jurisdictional High Court's ruling in CIT vs. Expo Machinery Ltd.

3. Disallowance of Prior Period Expenses:
The CIT(A) disallowed Rs. 1,32,759 for prior period expenses, stating no justification was provided for crystallization during the relevant accounting year. The Tribunal allowed the claim, following a precedent where such adjustments were deemed bona fide in cases of substantial turnover.

4. Disallowance of Certain Expenses:
The CIT(A) confirmed disallowances totaling Rs. 76,625 for various expenses, including payments for permanent seat allocation at a cricket stadium and new year celebration tickets, as they were not justified as advertisement expenses under Section 37(3). The Tribunal upheld this disallowance.

5. Disallowance on Account of Shortage and Excess of Inventories:
The CIT(A) sustained a disallowance of Rs. 2 lakhs out of Rs. 4 lakhs for inventory shortages, citing the assessee's failure to furnish details. The Tribunal allowed the claim, referencing a previous Tribunal decision in the assessee's favor for a similar issue.

6. Deletion of Disallowance of Premium on Keyman Insurance Policy:
The CIT(A) deleted the disallowance of Rs. 35,917 for keyman insurance policy premium, following earlier orders and the jurisdictional High Court's decision in CIT vs. Bharat Ram Charat Ram (P) Ltd. The Tribunal upheld this deletion.

7. Re-computation of Disallowance under Rule 6D of the Income Tax Rules:
The CIT(A) directed the AO to exclude local conveyance, telephone, and telex expenses from the disallowance under Rule 6D and to consider all journeys in a composite manner. The Tribunal, however, set aside this direction and remanded the matter to the AO for fresh examination, in light of various High Court decisions and the need for detailed expenditure analysis.

8. Deletion of Addition Made on Account of Collections from Dealers:
The CIT(A) deleted an addition of Rs. 98,520 for dealer collections, following earlier orders. The Tribunal upheld this deletion, referencing a previous Tribunal decision in the assessee's favor for a similar issue.

9. Allowability of Entertainment Expenditure:
The Tribunal upheld the CIT(A)'s allowance of entertainment expenditure, consistent with its earlier decision in the assessee's appeal.

10. Deduction for Cost of Construction of Scoreboard and Professional Fee:
The CIT(A) restored the issue of deduction for the cost of constructing a scoreboard and professional fees to the AO for fresh examination. The Tribunal noted that the AO had allowed these amounts in compliance with the CIT(A)'s directions, rendering the ground infructuous.

11. Deletion of Disallowance of Repairs Expenditure:
The CIT(A) deleted disallowances of Rs. 59,054 for building repairs and Rs. 33,420 for plant and machinery repairs, treating them as revenue expenses. The Tribunal upheld this deletion, agreeing with the CIT(A)'s reasoning.

12. Deletion of Disallowance on Account of Unverifiable Claims:
The CIT(A) deleted a disallowance of Rs. 1,05,654 for re-flooring expenses, reversing the AO's classification of the expenditure as capital in nature. The Tribunal upheld this deletion, finding the expenditure verifiable and necessary for business operations.

13. Deletion of Disallowance of Advance Made to Sister Concern:
The CIT(A) deleted a disallowance of Rs. 2.5 lakhs for advances to a sister concern for product development, noting similar deductions were allowed in earlier years. The Tribunal upheld this deletion, emphasizing consistency in the Department's approach.

14. Deletion of Disallowance of Technology Transfer Fee:
The CIT(A) allowed a deduction of Rs. 40,40,121 for technology transfer fees, following various judicial precedents. The Tribunal upheld this allowance, agreeing with the CIT(A)'s application of relevant case law.

Conclusion:
The Tribunal's decisions largely favored the assessee, allowing various claims and deductions while remanding some issues for fresh examination by the AO. The judgment emphasized procedural compliance, consistency in tax treatment, and adherence to judicial precedents.

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