1985 (12) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 4,46,501 received as cash incentives by the assessee constituted its income.
2. Whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act.
3. Whether the disallowance of Rs. 1,000 out of postage, telegram, and telephone expenses was justified.
4. Whether the disallowance of Rs. 9,235 paid to Taj Enterprises as fabrication charges was justified.

Detailed Analysis:

1. Cash Incentives as Income:
The primary issue was whether the sum of Rs. 4,46,501 received by the assessee as cash incentives constituted its income. The assessee, Indo Gulf, had agreements with Omar Khayyam, a manufacturer, under which 80% of the cash incentives received from the government for exports were to be passed on to Omar Khayyam. The Income Tax Officer (ITO) contended that this amount was the income of the assessee and added it to their income. However, the Commissioner (Appeals) disagreed, stating that the agreements between the assessee and Omar Khayyam were genuine and had been accepted by the department in previous years. The Commissioner (Appeals) held that the obligation to pass on 80% of the cash incentives was part of the purchase price of the garments and thus could not be considered the income of the assessee. The Tribunal upheld this view, emphasizing that the agreements were valid and that the income was diverted at source to Omar Khayyam, making it not the income of the assessee.

2. Weighted Deduction under Section 35B:
The revenue contended that the Commissioner (Appeals) erred in directing the ITO to allow weighted deduction under section 35B of the Act for expenses incurred up to 31-3-1978. The assessee argued that the expenses incurred before 1-4-1978 should be considered for weighted deduction under section 35B as per the provisions of the Act. The Commissioner (Appeals) allowed the claim, and the Tribunal found this decision to be correct and supported by the material on record.

3. Disallowance of Rs. 1,000 out of Postage, Telegram, and Telephone Expenses:
In the appeal filed by the assessee, one of the contentions was whether the disallowance of Rs. 1,000 out of postage, telegram, and telephone expenses was justified. However, this ground was not pressed during the argument, and thus, the Tribunal decided this point against the assessee.

4. Disallowance of Rs. 9,235 Paid to Taj Enterprises:
The assessee also contended that the disallowance of Rs. 9,235 paid to Taj Enterprises as fabrication charges was unjustified. The payment was made by account payee cheque, and the expenses were incurred in the normal course of business. The departmental representative argued that the disallowance was justified due to the absence of proper accounts. The Tribunal, considering the details provided and the nature of the business, concluded that some tailoring charges must have been paid and thus sustained the disallowance only to the extent of Rs. 5,000.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, confirming the deletion of the addition of Rs. 4,46,501 as income, allowing the weighted deduction under section 35B, and partially sustaining the disallowance of fabrication charges. The disallowance of Rs. 1,000 out of postage, telegram, and telephone expenses was upheld as the ground was not pressed.