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2008 (3) TMI 371 - AT - Income TaxAllowability deduction under s. 80JJA - misconception of the fact - Disallowance on expenses - personal use of proprietor. Allowability deduction under s. 80JJA - misconception of the fact and alleged that subsidy granted by the Agricultural Department against sales of bio-fertilizer manufactured is not an income derived from assessee s business of producing bio-fertilizers and not included in business income - HELD THAT - The present case also helps achieving the avowed object of maximizing the consumption of bio-fertilizers as against chemical fertilizers. Once the underlying purpose of an enactment is served there is no reason why the deduction should be restricted on one pretext or other. In CIT v. Krishna Copper Steel Rolling Mills 1991 (11) TMI 223 - SUPREME COURT which has held for a liberal and broader interpretation of an incentive provision under s. 80J. On perusal of facts and decisions relied upon by the parties the realization of the selling price is partly from the cultivator and partly from the Government subsidy as per the schemes of the State Government and therefore subsidy is the part of the selling price and essentially has to be -treated as a trading receipt though the same is given to the cultivator but received by the assessee manufacturer/seller and is derived from the eligible undertaking. The learned CIT(A) is not justified in disallowing the claim of the assessee under s. 80JJA of the Act. Therefore the AO is directed to allow the claim under s. 80JJA of the Act. Thus ground No. 1 of the assessee is allowed. Disallowance on expenses - personal use of proprietor - HELD THAT - The findings of the AO that there is a personal element in the expenses claimed in the absence of log book of cars call registers of telephone and vouchers for car repairs local conveyance travelling and entertainment are not properly maintained and some vouchers are self-made. Non-business purpose in the expenses claimed in view of the deficiencies pointed out by the AO cannot be ruled out. The disallowance appears to be on the higher and therefore the AO is directed to restrict the disallowance at 10 per cent of the expenses claimed. The assessee gets the relief accordingly. Thus ground No. 2 of the assessee is partly allowed. In the result the appeal of the assessee is partly allowed.
Issues Involved:
1. Disallowance of deduction under section 80JJA of the Income-tax Act, 1961. 2. Disallowance of expenses on account of alleged personal use of the proprietor. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80JJA: - Facts and Arguments: The assessee claimed a deduction under section 80JJA on a subsidy amount of Rs. 32,15,780 received from the Agricultural Department. The Assessing Officer (AO) issued a show-cause notice, arguing that the subsidy was not derived from the specified business of producing bio-fertilizers. The AO disallowed the deduction, leading to a negative net profit for the assessee. The Commissioner of Income-tax (Appeals) upheld this decision, citing that the subsidy was not derived from the specified business but was attributable to it. - Legal Precedents: The Commissioner referenced the Madras High Court decision in CIT v. Viswanathan and Co. [2003] 261 ITR 737 and the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, emphasizing the distinction between income derived from business and income attributable to it. - Assessee's Argument: The assessee contended that the subsidy was part of the selling price, received partly from the cultivator and partly from the government. They cited the Supreme Court case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253, which treated operational subsidies as trading receipts. - Tribunal's Findings: The Tribunal found the assessee's argument convincing, noting that the subsidy was part of the sales price, realized in two parts-directly from the buyer and from the government. The Tribunal referenced the Supreme Court case of CIT v. Baby Marine Exports [2007] 290 ITR 323, which included export house premiums in business profits for deductions under section 80HHC. They also cited the Supreme Court case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, which treated sales tax as part of turnover. - Conclusion: The Tribunal concluded that the subsidy was part of the sales price and a trading receipt derived from the eligible undertaking. They directed the AO to allow the deduction under section 80JJA, thus allowing ground No. 1 of the assessee. 2. Disallowance of Expenses on Account of Alleged Personal Use: - Facts and Arguments: The AO disallowed 20% of various expenses (car repair, local conveyance, petrol, depreciation on car, telephone, traveling, and entertainment) totaling Rs. 59,393, citing personal use by the assessee and family members. The Commissioner of Income-tax (Appeals) upheld this disallowance. - Tribunal's Findings: The Tribunal acknowledged the AO's findings regarding the absence of log books, call registers, and properly maintained vouchers, indicating possible personal use. However, they found the 20% disallowance excessive. - Conclusion: The Tribunal directed the AO to restrict the disallowance to 10% of the claimed expenses, thus partly allowing ground No. 2 of the assessee. Final Judgment: - The appeal of the assessee was partly allowed. The Tribunal directed the AO to allow the deduction under section 80JJA and to reduce the disallowance of expenses to 10%. The order was pronounced in the open court on March 31, 2008.
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