1998 (9) TMI 155 - AT - Income Tax

Summary

Issues Involved:
1. Additions on account of various funds/deposits.
2. Disallowance of guest-house expenses.
3. Disallowance of depreciation on guest-house.
4. Disallowance of ceremonial expenses.
5. Disallowance of flood rehabilitation, cattle camp, 20-point programme, Gobar gas subsidy, and artificial insemination expenses.
6. Disallowance of subscription expenses.
7. Disallowance of administrative expenses.
8. Disallowance of annual general meeting expenses.
9. Disallowance of education fund.
10. Disallowance of cash payments in excess of Rs. 2,500.
11. Disallowance of interest on non-refundable deposits.
12. Disallowance of sales-tax under Section 43B of the IT Act.
13. Treatment of forfeiture of security deposit as revenue receipt.

Detailed Analysis:

1. Additions on Account of Various Funds/Deposits:
The assessee, a co-operative society engaged in the manufacture and sale of sugar, contested the confirmation of additions made on account of non-refundable deposits, sugarcane development fund, Chief Minister's fund, Chief Minister's Relief fund, hutment fund, and education fund. Both sides agreed that these issues were covered in favor of the assessee by the decision of the Special Bench of the Tribunal in the case of Shri Chhatrapati SSK Ltd. vs. Dy. CIT. Consequently, the additions were deleted, and the assessee succeeded on this ground.

2. Disallowance of Guest-House Expenses:
The assessee's grievance regarding the disallowance of Rs. 1,01,546 on account of guest-house expenses was not pressed during the hearing. Therefore, this ground was dismissed.

3. Disallowance of Depreciation on Guest-House:
Similarly, the grievance regarding the disallowance of Rs. 1,115 on account of depreciation on the guest-house was not pressed and was dismissed.

4. Disallowance of Ceremonial Expenses:
The assessee claimed expenses incurred on various ceremonial functions, but the AO disallowed half of the claim, which was confirmed by the CIT(A). The Tribunal found the disallowance excessive and directed the AO to restrict it to one-fourth of the claim, partially allowing this ground.

5. Disallowance of Flood Rehabilitation, Cattle Camp, 20-Point Programme, Gobar Gas Subsidy, and Artificial Insemination Expenses:
The AO disallowed these expenses, considering them charitable and unrelated to the manufacturing activity. The CIT(A) upheld this decision. However, the Tribunal noted that these expenses were incurred under statutory directions from the State Government, which were binding on the society under the Maharashtra State Co-op. Societies Act, 1960. The Tribunal concluded that these expenses were directly related to the business of the society and were allowable as business expenditure, thus deleting the additions.

6. Disallowance of Subscription Expenses:
The grievance regarding the disallowance of Rs. 24,616 on account of subscription was not pressed during the hearing and was dismissed.

7. Disallowance of Administrative Expenses:
The assessee claimed Rs. 19,303 as administrative expenses for providing tea and snacks to customers and employees. The Tribunal directed the AO to allow 25% of such expenditure as business expenditure.

8. Disallowance of Annual General Meeting Expenses:
The AO disallowed Rs. 13,660 claimed by the assessee for annual general meeting expenses, considering them entertainment expenses. The Tribunal directed the AO to allow 25% of such expenses as business expenses, recognizing that part of the expenses pertained to employees.

9. Disallowance of Education Fund:
Both sides agreed that the issue of disallowance of Rs. 50,000 on account of the education fund was covered in favor of the assessee by the judgment of the Bombay High Court in Krishna SSK Ltd. The Tribunal followed this judgment and deleted the addition.

10. Disallowance of Cash Payments in Excess of Rs. 2,500:
The grievance regarding the disallowance of Rs. 8,190 on account of cash payments in excess of Rs. 2,500 was not pressed and was dismissed.

11. Disallowance of Interest on Non-Refundable Deposits:
Both sides agreed that the issue of disallowance of Rs. 16,93,358 on account of interest on non-refundable deposits was covered in favor of the assessee by the decision of the Special Bench of the Tribunal in the case of Shri Chhatrapati S.S.K. Ltd. The Tribunal deleted the addition.

12. Disallowance of Sales-Tax under Section 43B of the IT Act:
The assessee contested the disallowance of Rs. 28,083 by invoking the provisions of Section 43B of the IT Act, claiming that Rs. 14,163 was paid before the due date. The Tribunal restored the issue to the AO for verification and to allow amounts paid within the statutory time prescribed by Section 43B.

13. Treatment of Forfeiture of Security Deposit as Revenue Receipt:
The grievance regarding the treatment of forfeiture of security deposit credited to the reserve fund as revenue receipt was not pressed and was dismissed.

Conclusion:
The appeal was allowed in part, with several disallowances being deleted or reduced, while some grounds were dismissed as they were not pressed during the hearing.