1993 (3) TMI 164 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 40A(3) of the IT Act, 1961
2. Disallowance under section 37(2A) of the Act
3. Disallowance of deduction on account of M.P.S.T., Central Sales-tax, and entry tax
4. Disallowance of claim of deduction for delay in payment of provident fund penalty

Analysis:

Issue 1: Disallowance under section 40A(3) of the IT Act, 1961
The assessee appealed against the disallowance of Rs. 45,11,000 under section 40A(3) of the IT Act. The cash payments exceeding Rs. 10,000 were made to a sister concern due to banking restrictions. The Tribunal found no dispute regarding the identity and genuineness of the payee and payments. The second proviso to section 40A(3) exempts disallowance where payments exceed Rs. 10,000 and are not made through a crossed cheque due to banking constraints. The Tribunal noted that all payments were genuine and utilized for legitimate business purposes, leading to the deletion of the addition.

Issue 2: Disallowance under section 37(2A) of the Act
The disallowance of Rs. 2,14,756 under section 37(2A) for business promotion expenses was contested. The Assessing Officer treated the entire amount as expenses on customers' hotelling and travelling. However, the Tribunal directed the exclusion of expenses not related to customer entertainment, allowing deduction only for actual customer-related expenditures.

Issue 3: Disallowance of deduction on account of M.P.S.T., Central Sales-tax, and entry tax
The claim of deduction of Rs. 91,302 for previous assessment years' taxes and penalties was disputed. The CIT(A) disallowed the penalty portion but directed verification of past liabilities for potential deduction. The Tribunal upheld the CIT(A)'s decision, dismissing the objection.

Issue 4: Disallowance of claim of deduction for delay in payment of provident fund penalty
The claim of deduction of Rs. 26,926 for provident fund penalty was deemed non-allowable. Citing precedent, the Tribunal upheld the disallowance, emphasizing the non-deductibility of such penalties.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the disallowance under section 40A(3) but upholding the disallowances under sections 37(2A) and the claim for delay in provident fund penalty deduction.