2006 (2) TMI 221 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of additions on account of sales promotion expenses.
2. Disallowance of deduction under Section 80-I.
3. Disallowance of travel expenses.
4. Deletion of disallowance under Section 80-IA.

Issue-wise Detailed Analysis:

1. Deletion of Additions on Account of Sales Promotion Expenses:

The Revenue challenged the deletion of additions made by the Assessing Officer (AO) on account of sales promotion expenses. The AO disallowed the expenses incurred by the assessee on presenting steel glasses and morning sets to distributors and stockists, as well as expenses on gift schemes and lucky draws, arguing that these should have been borne by the sole selling agent, M/s Herbs India (P) Ltd., as per the agreement. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, reasoning that the agreement did not bar the assessee from incurring such expenses for commercial expediency and in the interest of its business. The CIT(A) emphasized that the expenses were fully vouched and incurred to boost sales during the off-season, which was not disputed by the AO. The Tribunal upheld the CIT(A)'s decision, noting that similar expenses were allowed in past assessments and emphasizing the rule of consistency.

2. Disallowance of Deduction Under Section 80-I:

The assessee's cross-appeals for the assessment years 1990-91 and 1991-92, challenging the disallowance of deduction under Section 80-I, were not pressed by the assessee's counsel during the hearing. Consequently, these appeals were dismissed.

3. Disallowance of Travel Expenses:

The Revenue's appeal for the assessment year 1991-92 included the issue of disallowance of travel expenses incurred on the travel of the managing director of M/s Herbs India (P) Ltd., the selling agent. The AO disallowed these expenses, arguing that they should have been borne by the agent as per the agreement. The CIT(A) deleted this disallowance, and the Tribunal upheld this decision, reiterating that the assessee was not barred from incurring such expenses in the interest of its business.

4. Deletion of Disallowance Under Section 80-IA:

For the assessment year 1993-94, the Revenue challenged the deletion of disallowance of deduction under Section 80-IA. The AO disallowed the deduction, arguing that the machinery taken on lease by the assessee from a partnership firm constituted a transfer, and the value of the transferred machinery exceeded 20% of the total value, violating the conditions of Section 80-IA(2). The CIT(A) disagreed, stating that the machinery was taken on lease and not transferred, and thus, the conditions of Section 80-IA(2) were met. The Tribunal upheld the CIT(A)'s decision, citing the decision of the Hon'ble Supreme Court in Bajaj Tempo Ltd. vs. CIT and the rule of consistency, as the deduction was allowed in subsequent years by the AO.

Conclusion:

The Tribunal dismissed all the appeals of the Revenue and the assessee, upholding the CIT(A)'s decisions on the issues of sales promotion expenses, travel expenses, and deduction under Section 80-IA. The disallowance of deduction under Section 80-I was not pressed by the assessee, leading to the dismissal of those appeals.