2005 (6) TMI 230 - AT - Income Tax

Bonus or commission, Business expenditure, Carry Forward And Set Off , Income escaping assessment

Summary

Issues Involved:
1. Disallowance on account of provisions made against FL 39 License fees under Section 43(b) of the IT Act, 1961.
2. Addition of Rs. 1,44,000 on account of gifts made under Section 37(1) of the IT Act, 1961.
3. Disallowance of set off of losses/depreciation of erstwhile Ramganga Fertilizers Ltd.
4. Disallowance of interest on deposits under Section 68 of the IT Act, 1961.
5. Disallowance of entertainment expenses.
6. Deduction under Sections 80-I and 80-IA before deducting the amount of deduction under Section 80HH of the IT Act, 1961.
7. Disallowance of Rs. 3 lakhs as commission payable to non-executive directors.

Detailed Analysis:

1. Disallowance on account of provisions made against FL 39 License fees under Section 43(b) of the IT Act, 1961:
The assessee did not press this ground of appeal. Consequently, the ground of appeal was dismissed for want of prosecution.

2. Addition of Rs. 1,44,000 on account of gifts made under Section 37(1) of the IT Act, 1961:
The AO disallowed Rs. 14,440 incurred by the assessee on gifts to business clients, arguing it was not allowable under Rule 6(b) of the IT Rules, 1962. The CIT(A) upheld the disallowance as the assessee could not justify the necessity of the gifts for business purposes. However, the Tribunal vacated the disallowance, finding the facts similar to the case of CIT vs. Associated India Export, where such gifts were deemed not as advertisement expenses.

3. Disallowance of set off of losses/depreciation of erstwhile Ramganga Fertilizers Ltd.:
The AO disallowed the set off of losses of Ramganga Fertilizers Ltd. in reassessment proceedings under Section 147, citing the restrictive nature of Section 147. The CIT(A) upheld this view. The Tribunal, however, found that the loss of Ramganga Fertilizers Ltd. should be considered in reassessment proceedings as it was not a fresh claim but a determined loss. The Tribunal directed the AO to examine the claim of loss considering the order of the BIFR and allow the same if the conditions were fulfilled.

4. Disallowance of interest on deposits under Section 68 of the IT Act, 1961:
The AO disallowed interest payments on deposits deemed unexplained under Section 68. The CIT(A) found the deposits genuine and deleted the disallowance. The Tribunal upheld the CIT(A)'s order, noting that the interest was allowable since the deposits were genuine.

5. Disallowance of entertainment expenses:
The AO disallowed Rs. 21,25,710 out of entertainment expenses. The CIT(A) allowed 10% of the expenditure, considering it not as entertainment expenses. The Tribunal upheld the CIT(A)'s decision, following the Delhi High Court's ruling in CIT vs. Expo Machinery Ltd., which allowed a portion of such expenses as deductible.

6. Deduction under Sections 80-I and 80-IA before deducting the amount of deduction under Section 80HH of the IT Act, 1961:
The AO allowed deductions under Sections 80-I and 80-IA only on the balance after allowing deduction under Section 80HH. The CIT(A) directed the AO to allow deductions under Sections 80-I and 80-IA without considering the deduction under Section 80HH, following the M.P. High Court's decision in J.P. Tabacco Products (P) Ltd. The Tribunal upheld the CIT(A)'s order, citing similar decisions from various High Courts.

7. Disallowance of Rs. 3 lakhs as commission payable to non-executive directors:
The AO disallowed the commission as it was not claimed through a revised return. The CIT(A) allowed the claim, stating that a claim can be made during assessment proceedings without a revised return. The Tribunal upheld the CIT(A)'s decision, following the reasoning that the AO is duty-bound to examine such claims.

Conclusion:
The Tribunal provided a detailed analysis of each issue, often referring to precedents and legal principles to support its decisions. The appeals of the assessee were partly allowed, and those of the Revenue were dismissed.