1981 (8) TMI 165 - AT - Income Tax

Summary

Issues:
1. Disallowance of drag expenses claimed by the assessee.
2. Allowance of relief under section 80C on borrowed capital.
3. Disallowance of stores consumption expenditure.

Detailed Analysis:
1. The judgment addresses two Departmental Appeals and cross objections of the assessee concerning the disallowance of drag expenses claimed. The assessee, a registered firm engaged in the manufacture and sale of hard coke, claimed drag expenses of Rs. 4,774, but the Income Tax Officer mistakenly considered it at Rs. 68,496. The dispute arose as the ITO disallowed 1/4th of the expenses at Rs. 17,124 due to the scrap value of the drags. The AAC accepted the assessee's argument that the drags had a short life and deleted the addition, concluding that the expenses were revenue in nature. The Tribunal upheld this decision, emphasizing that the expenditure was correctly claimed as revenue, and the ITO's mistake did not impact the total income.

2. The next issue pertains to the allowance of relief under section 80C on borrowed capital for the assessment years 1976-77 and 1977-78. The Department contended that the AAC erred in allowing this relief, citing pending writs before the Supreme Court on similar matters. The Tribunal modified the finding, directing the ITO to reconsider the issue under amended law or after the Supreme Court's decision. The assessee was granted an opportunity to be heard in this regard, highlighting the importance of compliance with legal provisions and judicial decisions.

3. The final issue concerns the disallowance of Rs. 15,000 out of stores consumption expenditure in the assessment year 1977-78. The ITO disallowed this amount, including the expenditure on drags, following the previous year's disallowance. However, the Tribunal reiterated that the expenditure on drags was revenue in nature, as established in the earlier assessment year. Consequently, the AAC's deletion of the Rs. 15,000 addition was deemed justified, emphasizing consistency in decision-making based on the nature of expenses.

In conclusion, the Tribunal allowed the Departmental appeals for statistical purposes while dismissing the cross objections of the assessee, indicating a balanced approach in addressing the various issues raised during the proceedings.