1993 (10) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Lease rent payment for hiring plant and machinery.
2. Interest payment towards late payment of lease rent.
3. Disallowance of transport charges of cylinders.
4. Disallowance of service charges.
5. Disallowance of commission payment.

Issue-Wise Detailed Analysis:

1. Lease Rent Payment for Hiring Plant and Machinery:
The assessee took plant and machinery on hire from Asiatic Oxygen (P.) Ltd. to start a new unit called "Pennzol Gases." The Assessing Officer disallowed the lease rent payment for the period before the commencement of commercial production, treating it as capital expenditure. The CIT (Appeals) had mixed views: disallowing the claim for assessment year 1987-88 but allowing it for 1986-87, considering it as part of a composite business. The Tribunal concluded that the expenditure was for the extension of the existing business, thus allowable as revenue expenditure. The Tribunal emphasized the "unity of control" and "inter-connection and inter-lacing" between the trading and manufacturing activities, supporting the claim of the assessee.

2. Interest Payment Towards Late Payment of Lease Rent:
The interest payment of Rs. 1,16,010 to Asiatic Oxygen (P.) Ltd. towards late payment of lease rent was allowed by the CIT (Appeals) for the assessment year 1986-87. The Tribunal upheld this decision, considering the interest payment as a legitimate business expenditure.

3. Disallowance of Transport Charges of Cylinders:
The assessee claimed Rs. 2,07,440 for transport charges of cylinders. Due to a lack of detailed information, the Assessing Officer disallowed 25% of the claimed expenditure. The CIT (Appeals) reduced the disallowance to 10%, considering the high frequency and complexity of cylinder movements. The Tribunal found no basis to further reduce the disallowance and upheld the CIT (Appeals)'s decision.

4. Disallowance of Service Charges:
The assessee claimed Rs. 42,900 as service charges without providing sufficient details. The Assessing Officer disallowed 20% of the claimed amount, which was upheld by the CIT (Appeals) due to the lack of detailed evidence. The Tribunal agreed with the CIT (Appeals) that the disallowance was reasonable given the circumstances.

5. Disallowance of Commission Payment:
The assessee paid Rs. 13,01,662 as commission to NISL for introducing it to suppliers of carbon for tyre manufacturing. The Assessing Officer disallowed this payment due to insufficient evidence of services rendered. The CIT (Appeals) upheld the disallowance despite allowing a similar claim for the subsequent year. The Tribunal, after examining various letters and agreements, concluded that NISL had indeed rendered services by introducing the assessee to the suppliers. The Tribunal allowed the commission payment as a deductible business expenditure, emphasizing the importance of the introduction services provided by NISL.

Conclusion:
The Tribunal allowed the appeal of the assessee for the lease rent payment, interest payment, and commission payment, while upholding the disallowance of transport charges and service charges as decided by the CIT (Appeals). The revenue's appeal was dismissed.