1997 (7) TMI 195 - AT - Income Tax

Summary

Issues Involved:
1. Loss on account of embezzlement
2. Expenditure incurred in connection with the preservation of the business
3. Deduction of trading liability on account of trade bonus
4. Disallowance under Section 43B
5. Deduction under Section 80HHC
6. Levy of interest under Section 234(B)

Issue-wise Detailed Analysis:

1. Loss on Account of Embezzlement:
The appellant, a closely held company, claimed a deduction for a loss of Rs. 1,44,47,500 due to embezzlement by its financial controller, Mr. R.P. Mahajan. The AO rejected the claim, noting several discrepancies and the existence of an internal audit control system that should have detected such withdrawals. The CIT(A) upheld the AO's decision, reasoning that the loss did not occur in the year under appeal as the company had a reasonable chance of recovery. The CIT(A) also noted contradictions in the appellant's submissions and the lack of conclusive evidence that the funds were indeed embezzled by Mr. Mahajan alone. The Tribunal found contradictions in the CIT(A)'s order and noted that the issue was not examined in proper perspective. The Tribunal set aside the CIT(A)'s order and remanded the matter for a fresh decision.

2. Expenditure Incurred in Connection with the Preservation of the Business:
The appellant claimed an expenditure of Rs. 1,25,00,000 paid to terrorists for safeguarding and preserving its business. The AO disallowed the claim, noting that such payments were illegal and there was no evidence to substantiate the claim. The CIT(A) upheld the AO's decision, observing that the circumstantial evidence provided by the appellant was insufficient to justify the claim. The Tribunal agreed with the CIT(A) and confirmed the disallowance, noting the lack of merit in the appellant's claim.

3. Deduction of Trading Liability on Account of Trade Bonus:
The appellant claimed a deduction of Rs. 1,13,60,814 on an accrual basis for trade bonus. The CIT(A) directed the AO to allow the claim after verification on an actual payment basis. The Tribunal directed the AO to pass an order in conformity with the Tribunal's decision in the appellant's pending appeals for preceding assessment years, thereby treating the ground as disposed of.

4. Disallowance under Section 43B:
The appellant did not press the grounds pertaining to the disallowance under Section 43B. Consequently, these grounds were rejected by the Tribunal.

5. Deduction under Section 80HHC:
The appellant sought deduction under Section 80HHC based on the assessed income. Both parties agreed that this ground was consequential to the relief available from the disposal of earlier grounds. The Tribunal directed the AO to allow consequential relief, if available, when giving effect to the Tribunal's order.

6. Levy of Interest under Section 234(B):
The appellant contested the levy of interest under Section 234(B). Both parties agreed that this ground was also consequential. The Tribunal directed the AO to allow consequential relief, if available, when giving effect to the Tribunal's order.

Conclusion:
The Tribunal partially allowed the appeal for statistical purposes, setting aside the CIT(A)'s order on the embezzlement issue for a fresh decision and directing the AO to follow the Tribunal's decisions in related matters for other grounds.