1982 (3) TMI 194 - AT - Income Tax

Summary

Issues:
1. Determination of the year for claiming 80J relief on the establishment of a new plant.
2. Inclusion of assets used for scientific research in the computation of capital employed for relief under section 80J.
3. Treatment of foreign travel expenses of technical director for weighted deduction under section 35B.
4. Classification of loss on the sale of diesel generators as short-term capital loss.
5. Allowance of ex gratia payment to staff as revenue expenditure.
6. Disallowance under section 80VV for tax consultancy expenses.

Analysis:

1. The primary issue in this case was the determination of the year for claiming 80J relief on the establishment of a new plant. The controversy revolved around whether the year under consideration was the second or third year of 80J relief. The ITAT Pune upheld the CIT(A)'s decision that the year in question was the second year of relief based on the initiation of commercial production in the relevant assessment year.

2. The inclusion of assets used for scientific research in the computation of capital employed for relief under section 80J was another crucial issue. The ITAT Pune rejected the revenue's argument to exclude the cost of such assets, emphasizing that only depreciation could be deducted from the value of assets for the purpose of computing capital employed. The tribunal upheld the CIT(A)'s decision to consider the original cost of assets used for scientific research in the capital computation.

3. Regarding the treatment of foreign travel expenses of the technical director for weighted deduction under section 35B, the ITAT directed the assessing officer to verify the details provided and allow the deduction if the expenses were incurred for export promotion independently of personal travel.

4. The classification of the loss on the sale of diesel generators as short-term capital loss was also addressed. The ITAT upheld the CIT(A)'s decision to treat the loss and commission payment as short-term capital loss based on the relevant provisions of the Income Tax Act.

5. The allowance of ex gratia payment to staff as revenue expenditure was a contentious issue. The ITAT supported the CIT(A)'s decision to treat the payment as revenue expenditure, emphasizing that the expenditure was made for promoting business and profits, aligning with the principles laid down by the Supreme Court.

6. Lastly, the ITAT considered the disallowance under section 80VV for tax consultancy expenses. The tribunal upheld the CIT(A)'s decision to restrict the disallowance, taking into account the nature of the consultancy services provided and their relevance to tax planning and financial matters.

In conclusion, the ITAT Pune partially allowed the revenue's appeal, addressing each issue comprehensively and providing detailed reasoning for its decisions on the various contentious matters raised in the case.