1999 (1) TMI 67 - AT - Income Tax

Issues Involved:
1. Disallowance under Section 43B.
2. Disallowance under Section 40A(2)(b).
3. Claim of bad debt.
4. Disallowance of depreciation and investment allowance, addition in respect of purchase of mould, and addition in respect of suppressed production.
5. Disallowance under Section 40A(2)(b) concerning purchases and sales with sister concerns.
6. Disallowance of Rs. 1,00,000 paid to ex-director and ex-works manager.
7. Addition on account of sale of brass scrap.
8. Addition on account of sale of plastic scrap.
9. Disallowance of discount given to sister concerns.
10. Addition on account of ink sold at a lower price to sister concerns.

Detailed Analysis:

1. Disallowance under Section 43B:
The Revenue's appeal contested the disallowance of Rs. 1,89,724 under Section 43B, which included unpaid sales tax amounts. The CIT(A) directed the AO to verify the payments made within the time allowed by the sales-tax authorities. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decisions in Allied Motors vs. CIT and Chowringhee Sales Bureau (P) Ltd. vs. CIT, confirming that sales-tax collected is a revenue receipt. This ground of appeal was dismissed.

2. Disallowance under Section 40A(2)(b):
The AO disallowed Rs. 18,000 and Rs. 36,000 paid to sister concerns for rent, running charges, and technical services, deeming them excessive and unreasonable. The CIT(A) restricted the disallowance to 50%. The Tribunal found the expenses fully vouched and reasonable, thus deleting the entire disallowance of Rs. 54,000.

3. Claim of Bad Debt:
The AO disallowed a bad debt claim of Rs. 6,150 due to lack of details. The CIT(A) accepted the claim based on documentary evidence showing the debt became bad in 1979. The Tribunal upheld the CIT(A)'s decision, directing the AO to verify if the claim was not made in earlier years.

4. Disallowance of Depreciation and Investment Allowance, Addition in Respect of Purchase of Mould, and Addition in Respect of Suppressed Production:
The CIT(A) set aside these issues for verification by the AO. The Tribunal dismissed these grounds as infructuous since the matters were already reconsidered by the AO.

5. Disallowance under Section 40A(2)(b) Concerning Purchases and Sales with Sister Concerns:
The AO disallowed Rs. 12,683 for purchases from Sanghvi Sharp Refills and Rs. 13,500 for sales to Sanghvi Sales Co., suspecting inflated purchase rates and suppressed sale rates. The CIT(A) deleted these additions, finding the purchase and sale prices justified by quality differences and market conditions. The Tribunal upheld the CIT(A)'s findings.

6. Disallowance of Rs. 1,00,000 Paid to Ex-Director and Ex-Works Manager:
The AO disallowed Rs. 1,00,000 paid to an ex-director and ex-works manager, considering it capital expenditure. The CIT(A) upheld this view. The Tribunal, applying principles from Supreme Court rulings, found the expenditure to be for preserving existing assets and thus revenue in nature, allowing the claim.

7. Addition on Account of Sale of Brass Scrap:
The AO added Rs. 1,33,621 for under-reported brass scrap sales. The CIT(A) reduced this addition by 50%. The Tribunal found the AO's estimates based on rough approximations and later dates, thus deleting the entire addition.

8. Addition on Account of Sale of Plastic Scrap:
The AO added Rs. 13,353 for under-reported plastic scrap sales. The CIT(A) reduced this addition by 50%. The Tribunal found the AO's estimates unjustified and based on suspicion, deleting the entire addition.

9. Disallowance of Discount Given to Sister Concerns:
The AO disallowed Rs. 1,74,790 for discounts given to sister concerns, considering them excessive. The CIT(A) found the discounts reasonable and in line with market practices, deleting the addition. The Tribunal upheld the CIT(A)'s decision.

10. Addition on Account of Ink Sold at a Lower Price to Sister Concerns:
The AO disallowed Rs. 4,55,410 for ink sold at a lower price to sister concerns. The CIT(A) found the actual quantity sold was lower and reduced the addition to Rs. 1,12,095. The Tribunal found the AO's estimates unwarranted and deleted the entire addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal (ITA No. 764/Ahd/90) and partly allowed the assessee's appeal (ITA No. 785/Ahd/90), providing relief on several disallowances and additions made by the AO.

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