1994 (6) TMI 47 - AT - Income Tax

Issues Involved:

1. Disallowance of expenditure on maintenance of staff transit houses.
2. Computation of perquisite value of personal use of car by managing director.
3. Benefit of provisions of s. 40A(5)(b) in respect of salary payable to employees and managing directors while abroad.
4. Change in method of valuation of closing stock.
5. Disallowance of entertainment expenditure.
6. Disallowance of expenditure on presentation for business purposes.
7. Computation of disallowance under s. 37(3A) of the IT Act.
8. Disallowance of foreign tour expenses as capital.
9. Disallowance of foreign travelling expenses of the wife of the managing director.
10. Disallowance u/s 43B.
11. Statutory deduction u/s 80VV.
12. Disallowance u/s 37(4) for guest house expenses.
13. Disallowance of miscellaneous expenses.
14. Disallowance of salary, wages, and travelling expenses.
15. Investment allowance.
16. Treatment of travelling expenses under r. 6D.
17. Treatment of expenses incurred on different projects as capital expenditure.
18. Disallowance of excise duty paid included in closing stock.
19. Disallowance of expenses incurred by the employees' welfare trust u/s 40A(10).
20. Under-valuation of closing stock.
21. Treatment of income from shops in Alok Market.
22. Disallowance of Rs. 43,000 under s. 80VV.
23. Computation of disallowance under s. 40A(5) in respect of HRA exempt under s. 10(13A).
24. Allowance of payment to prevent competitive activities.
25. Treatment of club subscription and accident insurance premium as perquisites.
26. Disallowance of car expenses of managing director.
27. Disallowance of expenses on repair of premises occupied by the managing director.

Summary:

1. Disallowance of expenditure on maintenance of staff transit houses:
The Tribunal directed that the perquisite values towards the residential portion of the accommodation occupied by the managing directors should be deducted from the total claim and the balance apportioned in the ratio of 1/3rd and 2/3rd towards guest houses and business use respectively. This ground of appeal is partly allowed.

2. Computation of perquisite value of personal use of car by managing director:
The Tribunal decided that it would be just and fair to take the estimated value on this account at Rs. 30,000 for each of the managing directors. The assessee partly succeeds on this issue while the Revenue fails.

3. Benefit of provisions of s. 40A(5)(b) in respect of salary payable to employees and managing directors while abroad:
The Tribunal found no merit in the contention of the assessee and decided this ground of appeal against the assessee.

4. Change in method of valuation of closing stock:
The Tribunal allowed the assessee's claim, following the order of the Special Bench in the case of ITO vs. Food Specialities. The change in the method of accounting by excluding excise duty on unsold goods from the closing stock was bona fide and supported by a Supreme Court decision.

5. Disallowance of entertainment expenditure:
The Tribunal allowed a further relief of 15% for the Fibre Division and directed recomputation of disallowance under s. 37(2A) accordingly. This ground of appeal is allowed in part.

6. Disallowance of expenditure on presentation for business purposes:
The Tribunal allowed a further relief of Rs. 3,00,000, finding the disallowance of Rs. 6,07,491 by the Revenue to be excessive. This ground of appeal is partly allowed.

7. Computation of disallowance under s. 37(3A) of the IT Act:
The Tribunal directed the Assessing Officer to exclude expenses on repairs and taxes for working out disallowance under s. 37(3A). However, the commission paid to selling agents was not considered as sales promotion for the purpose of disallowance under s. 37(3A).

8. Disallowance of foreign tour expenses as capital:
The Tribunal deleted the disallowance of Rs. 10,728, Rs. 6,772, and Rs. 50,278 related to the travel of Shri K.K. Modi, Shri Wakil, and Shri I.K. Gupta respectively. However, the disallowance of Rs. 22,608 for Shri V.K. Singhal's travel was upheld.

9. Disallowance of foreign travelling expenses of the wife of the managing director:
The Tribunal confirmed the disallowance of Rs. 7,790, finding no material to justify the business expediency of the wife accompanying the managing director.

10. Disallowance u/s 43B:
The Tribunal allowed the assessee's claim for contributions towards provident fund and gratuity fund, cess on water consumption, and Textile Committee cess but upheld the disallowance of sales-tax. The claim for excise duty paid in advance was also allowed.

11. Statutory deduction u/s 80VV:
The Tribunal directed that the statutory deduction of Rs. 5,000 under s. 80VV be allowed.

12. Disallowance u/s 37(4) for guest house expenses:
The Tribunal upheld the disallowance for Sham Nivas, Bombay, but allowed the claims for Sterling Apartment and Cottage at Marve Malad. For other accommodations, partial relief was granted based on usage for office purposes.

13. Disallowance of miscellaneous expenses:
The Tribunal allowed relief of Rs. 73,000, finding the expenditure to be for additional duty on imported items, except for Rs. 1,242 for traffic violations.

14. Disallowance of salary, wages, and travelling expenses:
The ground was not pressed.

15. Investment allowance:
The ground was not pressed as the allowance was already granted under s. 154.

16. Treatment of travelling expenses under r. 6D:
The Tribunal rejected the ground, following its earlier orders for asst. yrs. 1982-83 and 1983-84.

17. Treatment of expenses incurred on different projects as capital expenditure:
The Tribunal allowed relief of Rs. 3,57,174 for the nylon tyre cord project but the claim for Rs. 4,700 on the soyabeen project was not pressed.

18. Disallowance of excise duty paid included in closing stock:
The Tribunal allowed the ground, following the Special Bench order in the case of Indian Communication Network Pvt. Ltd.

19. Disallowance of expenses incurred by the employees' welfare trust u/s 40A(10):
The Tribunal allowed the ground, following its earlier orders for asst. yrs. 1982-83 and 1983-84.

20. Under-valuation of closing stock:
The Tribunal upheld the CIT(A)'s order allowing the change in the method of valuation of closing stock, following earlier Tribunal orders.

21. Treatment of income from shops in Alok Market:
The Tribunal dismissed the Revenue's appeal, following earlier Tribunal orders treating the income as business income.

22. Disallowance of Rs. 43,000 under s. 80VV:
The Tribunal upheld the CIT(A)'s finding that the amount was not covered by the provisions of s. 80VV.

23. Computation of disallowance under s. 40A(5) in respect of HRA exempt under s. 10(13A):
The Tribunal upheld the CIT(A)'s finding that HRA to the extent exempt under s. 10(13A) would not constitute part of salary for s. 40A(5).

24. Allowance of payment to prevent competitive activities:
The Tribunal upheld the CIT(A)'s finding that the payment to prevent Shri T.M. Sen from entering into competitive activities was revenue in nature.

25. Treatment of club subscription and accident insurance premium as perquisites:
The Tribunal held that club subscription would not constitute perquisites for s. 40A(5) and restored the issue of accident insurance premium to the Assessing Officer to determine the beneficiary.

26. Disallowance of car expenses of managing director:
The Tribunal dismissed the Revenue's appeal, following its earlier decision.

27. Disallowance of expenses on repair of premises occupied by the managing director:
The Tribunal treated this ground as consequential to the earlier decision on guest house expenses.

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