1997 (6) TMI 50 - AT - Income Tax

1999 (10) TMI 755 - AT

Issues Involved:
1. Non-adjudication of ground by CIT(A)
2. Disallowance of car perquisite under Section 40A(5)
3. Disallowance of salary and perquisite under Section 40A(5) for employees' stay abroad
4. Disallowance of salary paid to certain employees
5. Disallowance of entertainment expenses/business gifts
6. Disallowance under Section 37(3A) of advertisement/sales promotion expenses
7. Disallowance of Rs. 5,000 for feasibility report preparation
8. Disallowance of ex gratia payment to employees
9. Disallowance of provision for expenses
10. Disallowance under Section 43B
11. Exemption of export incentives
12. Disallowance of foreign travelling expenses
13. Disallowance of expenses pertaining to earlier years
14. Disallowance of deduction under Section 80M
15. Deduction in respect of trading loss
16. Double taxation on payment received from Usha International Ltd.
17. Deduction under Section 80HHC
18. Taxability of sundry creditors returned back under Section 41(1)
19. Chargeability of interest under Section 216
20. Charging of interest under Section 215

Detailed Analysis:

1. Non-adjudication of ground by CIT(A):
The assessee contended that the CIT(A) did not adjudicate on ground No. 1 for the assessment years 1985-86 and 1986-87, deeming it too general. The Tribunal confirmed the CIT(A)'s view, stating the ground was too wide and general.

2. Disallowance of car perquisite under Section 40A(5):
The AO disallowed 50% of the actual car expenditure, which was reduced to 30% by the CIT(A). The Tribunal directed the AO to work out the perquisite value in accordance with Rule 3(c)(ii) of the IT Rules and allow appropriate relief to the assessee.

3. Disallowance of salary and perquisite under Section 40A(5) for employees' stay abroad:
The AO and CIT(A) held that the salary/perquisite paid to employees for their short stays abroad could not be excluded from the total salary/perquisite for disallowance under Section 40A(5). The Tribunal agreed, noting that short stays do not constitute "employment outside India."

4. Disallowance of salary paid to certain employees:
The AO disallowed the salary payments to Smt. Santosh D. Shriram and Smt. Urmila Dongre due to lack of evidence of services rendered. The CIT(A) upheld this. However, the Tribunal directed the AO to allow the claim based on a previous Tribunal order favoring the assessee.

5. Disallowance of entertainment expenses/business gifts:
The AO disallowed amounts under Section 37(2A), which the CIT(A) confirmed. The Tribunal, considering various case laws, allowed 30% of the total expenses on account of employees' participation.

6. Disallowance under Section 37(3A) of advertisement/sales promotion expenses:
The AO included various expenses for disallowance under Section 37(3A), which the CIT(A) upheld. The Tribunal directed the AO to exclude driver's salary, car insurance, and recruitment advertisement expenses from the disallowance.

7. Disallowance of Rs. 5,000 for feasibility report preparation:
The AO and CIT(A) treated the expenditure as capital in nature. The Tribunal upheld this view, noting that the report was for setting up a new industrial unit, not an expansion of existing business.

8. Disallowance of ex gratia payment to employees:
The AO disallowed ex gratia payments, which the CIT(A) upheld. The Tribunal allowed the payments, citing commercial expediency and relevant case laws.

9. Disallowance of provision for expenses:
The AO disallowed the provision for replacement of defective goods due to lack of evidence. The CIT(A) upheld this. The Tribunal allowed the provision, supported by relevant case laws and documentation.

10. Disallowance under Section 43B:
The AO disallowed sales-tax payments made after the accounting year. The Tribunal directed the AO to verify the payment dates and allow deductions as per the Supreme Court's decision in Allied Motors (P) Ltd. vs. CIT.

11. Exemption of export incentives:
The assessee did not press these grounds, and they were rejected.

12. Disallowance of foreign travelling expenses:
The AO treated certain foreign travelling expenses as entertainment expenses and disallowed them. The CIT(A) upheld this. The Tribunal agreed, noting no evidence of employees' participation.

13. Disallowance of expenses pertaining to earlier years:
The AO disallowed expenses identified by the auditor as pertaining to earlier years. The CIT(A) upheld this. The Tribunal declined to interfere, citing lack of evidence.

14. Disallowance of deduction under Section 80M:
The AO estimated expenses attributable to earning dividend income and reduced the deduction under Section 80M. The CIT(A) upheld this. The Tribunal restored the issue to the AO to determine actual expenses incurred in earning the dividend.

15. Deduction in respect of trading loss:
The ground was not pressed by the assessee and was rejected.

16. Double taxation on payment received from Usha International Ltd.:
The ground was not pressed by the assessee and was rejected.

17. Deduction under Section 80HHC:
The AO restricted the deduction based on the reserve created. The CIT(A) upheld this. The Tribunal directed the AO to allow the assessee to create additional reserve for the deduction.

18. Taxability of sundry creditors returned back under Section 41(1):
The Tribunal, citing the Supreme Court's decision in CIT vs. T.V. Sundaram Iyengar & Sons Ltd., upheld the taxability under Section 41(1).

19. Chargeability of interest under Section 216:
The Tribunal held that no interest under Section 216 is chargeable, supported by relevant High Court decisions.

20. Charging of interest under Section 215:
The Tribunal directed the AO to allow consequential relief to the assessee.

Conclusion:
The appeals were allowed in part, with the Tribunal providing specific directions to the AO on various issues, ensuring appropriate relief to the assessee based on relevant case laws and documentation.

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