1991 (6) TMI 108 - AT - Income Tax

Issues Involved:

1. Disallowance of storage and transit wastage duty under the U.P. Excise Act.
2. Disallowance of legal expenses under Section 80VV of the Income Tax Act, 1961.
3. Disallowance under Section 40A(3) of the Income Tax Act, 1961 for cash payments exceeding the prescribed limit.
4. Disallowance of bad debts/business loss.
5. Disallowance of breakage of empty bottles.
6. Disallowance of excise duty for prior years.
7. Charging of deemed interest on debit balances of a partnership firm.
8. Deduction of obscuration duty under the U.P. Excise Act.
9. Interest charged under Sections 139(8) and 217 of the Income Tax Act, 1961.
10. Deduction for interest paid to Grindlays Bank.

Detailed Analysis:

1. Disallowance of Storage and Transit Wastage Duty:

The assessee claimed Rs. 6,12,517 under "Excise Duty on Storage and Transit Wastage" as a statutory liability under the U.P. Excise Act, 1910. The Assessing Officer (AO) disallowed Rs. 5,48,587, considering it penal in nature. The CIT(A) upheld the AO's decision, allowing only Rs. 63,930 for transit wastage on bottles. The Tribunal noted that similar claims were previously rejected, and no new facts warranted a review. Therefore, the disallowance was upheld.

2. Disallowance of Legal Expenses under Section 80VV:

The CIT(A) disallowed Rs. 13,200 under Section 80VV, limiting the allowance to Rs. 5,000 for legal expenses related to income tax matters. The Tribunal, following its decision for the previous year, directed the AO to allow the entire amount under Section 37(1) for consultancy and other services not solely related to income tax proceedings.

3. Disallowance under Section 40A(3):

The AO disallowed Rs. 95,883 for cash payments exceeding Rs. 2,500, which the CIT(A) reduced to Rs. 64,484. The Tribunal allowed certain payments under exceptional circumstances per Rule 6DD(j) of the IT Rules, 1962, but upheld others where no such circumstances were proven. Payments to Audh Sugar Mills and K.S. Wood Industries were allowed, while payments to Veer Jawan Wood Works and others were disallowed due to lack of evidence of exceptional circumstances.

4. Disallowance of Bad Debts/Business Loss:

The CIT(A) disallowed Rs. 2,11,265 claimed as bad debts/business loss. The Tribunal allowed Rs. 1,48,399 for loss of molasses due to leakage, citing the Allahabad High Court's judgment in CIT vs. U.B.S. Publishers & Distributors. However, Rs. 62,866 for irrecoverable advances was disallowed due to lack of evidence.

5. Disallowance of Breakage of Empty Bottles:

The AO allowed 5% breakage, while the CIT(A) allowed 11%. The Tribunal, noting historical acceptance of 11% breakage, allowed the entire claim of 12.17%, considering it within reasonable limits for the nature of the business.

6. Disallowance of Excise Duty for Prior Years:

The assessee claimed Rs. 11,28,000 for excise duty related to prior years. The Tribunal rejected the claim, following its decision for the previous year, stating that the issue was covered against the assessee.

7. Charging of Deemed Interest on Debit Balances:

The AO added Rs. 1,94,805 as deemed interest on debit balances of a partnership firm. The CIT(A) deleted interest from June onwards, citing a resolution passed by the assessee. The Tribunal, referencing the Supreme Court's judgment in CIT vs. Birla Gwalior Ltd., held that no interest accrued for the entire year due to the resolution passed before the accounting period.

8. Deduction of Obscuration Duty:

The assessee claimed Rs. 13,04,307 for obscuration duty, which the CIT(A) disallowed. The Tribunal upheld this, noting the Allahabad High Court's decision against the levy. However, the Tribunal allowed Rs. 6,21,225 collected from CSD, as it was refundable under a specific contract, thus not a trading receipt.

9. Interest Charged under Sections 139(8) and 217:

The assessee contested interest charged under Sections 139(8) and 217. The Tribunal found these grounds consequential, directing the AO to recalculate interest after giving effect to its order.

10. Deduction for Interest Paid to Grindlays Bank:

The CIT(A) allowed deduction for interest paid to Grindlays Bank, which the Tribunal upheld, following its decision for the previous year, as no new facts were presented.

Conclusion:

The Tribunal's decision resulted in partial relief for the assessee, particularly in the areas of breakage of bottles and obscuration duty collected from CSD, while upholding other disallowances and interest charges. The Revenue's appeal was dismissed.

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