1990 (12) TMI 154 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of business promotion expenses.
2. Disallowance of payment to Dr. Francis Brunel and M/s Khapp Communications, U.S.A.
3. Disallowance of Bombay flat expenses.
4. Disallowance of law and professional expenses for obtaining a valuation report.
5. Disallowance under section 40A(8) of the IT Act.
6. Disallowance of miscellaneous and traveling expenses.
7. Disallowance of weighted deduction under section 35B.
8. Disallowance of expenses for Hair Dressing Course Fee.
9. Claim of investment allowance.
10. Claim of depreciation for 15 months.
11. Claim for extra shift allowance.
12. Disallowance of law and professional fees.
13. Disallowance of development expenses while working out capital gains.

Detailed Analysis:

1. Disallowance of Business Promotion Expenses:
The assessee-company objected to the sustenance of disallowance of Rs. 20,000 out of business promotion expenses reimbursed to the Directors. The Tribunal, after considering the arguments and material on record, upheld the CIT(A)'s decision, stating there was no evidence to prove that all expenses were incurred solely for the business purposes of the assessee. Hence, the objection was rejected.

2. Disallowance of Payment to Dr. Francis Brunel and M/s Khapp Communications, U.S.A.:
The assessee claimed payments to Dr. Francis Brunel and M/s Khapp Communications, U.S.A. for publicity purposes. The Tribunal found no direct nexus between the publications and the assessee's business. It was concluded that these payments appeared to be ex gratia grants rather than business expenses. Thus, the expenses of Rs. 1,05,000 and Rs. 50,000 were disallowed.

3. Disallowance of Bombay Flat Expenses:
The Tribunal referred to its earlier decision in the assessee's case for the assessment year 1983-84, where such expenses were deemed allowable. Consequently, the disallowance of Rs. 3,000 for each of the two years was directed to be deleted.

4. Disallowance of Law and Professional Expenses:
The assessee's claim for law and professional expenses incurred for obtaining a valuation report was disallowed for the assessment year 1981-82 but allowed for the assessment year 1982-83, as the liability crystallized in the latter year.

5. Disallowance under Section 40A(8) of the IT Act:
The ground was withdrawn by the assessee for both years, and hence, the objection was dismissed.

6. Disallowance of Miscellaneous and Traveling Expenses:
The Tribunal found the disallowance of Rs. 2,000 out of miscellaneous expenses for the assessment year 1981-82 and Rs. 5,000 out of traveling expenses for the assessment year 1982-83 unjustified. These disallowances were directed to be deleted.

7. Disallowance of Weighted Deduction under Section 35B:
Since the expenses claimed for weighted deduction were not considered to be incurred for the business purposes of the assessee, the objection regarding weighted deduction under section 35B was rejected.

8. Disallowance of Expenses for Hair Dressing Course Fee:
The Tribunal upheld the disallowance of Rs. 2,379 for the Hair Dressing Course Fee paid to Mrs. Maria Singh, as she was neither an employee of the assessee nor was the expenditure correlated with the business.

9. Claim of Investment Allowance:
The matter regarding the claim of investment allowance was referred back to the Assessing Officer to be decided afresh according to law, considering the Tribunal's observations in the assessee's case for the assessment year 1983-84.

10. Claim of Depreciation for 15 Months:
The Tribunal allowed the assessee's claim for additional depreciation for 15 months, citing provisions of rule 5(1) of the IT Rules and relevant case law, which permitted such a claim if the previous year exceeded one year.

11. Claim for Extra Shift Allowance:
The Tribunal restored the matter to the ITO to decide afresh the question of extra shift allowance on the value of the hotel building, considering the assessee's claim that the hotel functioned round the clock.

12. Disallowance of Law and Professional Fees:
The Tribunal directed the deletion of the disallowance of Rs. 2,000 out of law and professional fees for the assessment year 1982-83, as the assessee had furnished complete details, and there was no indication that the expenses were incurred for representation before IT authorities.

13. Disallowance of Development Expenses:
The Tribunal directed the deletion of the disallowance of Rs. 6,000 out of the claim of Rs. 16,325.69 for development expenses while working out capital gains, as complete details were available, and there was no justification for the disallowance.

Conclusion:
Both appeals were partly allowed, with certain disallowances upheld and others directed to be deleted or referred back for fresh consideration.