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Issues Involved:
1. Disallowance of Rs. 75,000 paid as service charges. 2. Treatment of Rs. 6,13,895 as income of the company. 3. Deduction on road repairs expenditure. 4. Inclusion of Rs. 15,690 under entertainment expenses. 5. Liability under ss. 139 and 215. 6. Additional grounds regarding disallowance under s. 43B and advertisement expenses for recruitment. Issue-wise Detailed Analysis: Ground No. 1: Disallowance of Rs. 75,000 paid as service charges The assessee claimed Rs. 12,07,216 as service charges, including Rs. 75,000 paid to M/s Business Enterprises, Delhi. The AO disallowed this claim because the registered letter sent to the party was returned with the remark "there is no person by this name," and the identity of the payee was not established. The CIT(A) upheld this decision. The Tribunal supported the CIT(A)'s decision, noting that the party was not traceable and no confirmation was filed. Citing precedents like Swadeshi Cotton Mills Co. Ltd. vs. CIT and Lachminarayan Madan Lal vs. CIT, the Tribunal concluded that the expenditure was not laid out wholly and exclusively for business purposes. Ground No. 2: Treatment of Rs. 6,13,895 as income of the company The assessee argued that Rs. 6,13,895, received after the amalgamation of M/s Finolex Plastics (P) Ltd. with M/s Finolex Pipes (P) Ltd., was a capital receipt. The AO and CIT(A) treated it as revenue receipt. The Tribunal held that the provisions of s. 170 were applicable, as this was a case of 'succession to business' due to amalgamation. The Tribunal noted that the impugned amount was taxable under s. 28 of the Act in the hands of the successor company, M/s Finolex Pipes (P) Ltd., and rejected the assessee's claim, distinguishing it from cases like Thermax (P) Ltd. and H.Y.T. Engineering Co. (P) Ltd. Ground No. 3: Deduction on road repairs expenditure The assessee claimed Rs. 1,34,810 as road repair expenditure. The AO disallowed the claim, considering it capital in nature. The CIT(A) allowed only 50% of the claim. The Tribunal, referring to the decision in Dy. CIT vs. Maharashtra Scooters Ltd., held that the expenditure on repairs of existing roads within the factory premises constituted revenue expenditure. Therefore, the Tribunal allowed the entire claim of Rs. 1,34,810. Ground No. 4: Inclusion of Rs. 15,690 under entertainment expenses The AO enhanced the entertainment expenses to Rs. 49,201, including Rs. 15,690 attributable to employees accompanying guests. The CIT(A) confirmed this addition. However, the Tribunal, following its consistent stance, held that expenses attributable to employees accompanying guests should not be considered for disallowance. Thus, the Tribunal decided this issue in favor of the assessee. Ground No. 5: Liability under ss. 139 and 215 This ground was not pressed by the assessee's representative and was therefore rejected. Additional Grounds: Additional Ground No. 1: Disallowance under s. 43B The assessee did not press this ground, and it was rejected. Additional Ground No. 2: Advertisement expenses for recruitment The AO enhanced the disallowance under s. 37(3A) to Rs. 3,62,437, which included Rs. 18,209 spent on advertisement for recruitment. The CIT(A) upheld this. The Tribunal, referring to the decision in United India Insurance Co. Ltd. vs. IAC, held that expenses for recruitment advertisements could not be disallowed under s. 37(3B). Therefore, the Tribunal allowed this additional ground. Conclusion: The appeal was partly allowed, with the Tribunal granting relief on grounds related to road repairs and advertisement expenses for recruitment, while upholding the CIT(A)'s decisions on other issues.
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