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TMI Blog1975 (3) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... research and feasibility of certain industrial projects in the State. The details of the expenses are given below :— Asst. yr. 1971-72 Expenditure in preparing feasibility report in lime-stone etc. 1,12,320 Asst. yr. 1972-73 -do- 1,64,437 Asst. yr. 1973-74 Iron Ore or Ilmenite research expenses. 80,532 It was claimed as a business expenditure. The ITO disallowed the same on the ground that they are capital expenses. No detailed reason has been given in the three assessment years but a reference had been made to a similar disallowance made by him for the asst. yr. 1970-71. The AAC agreed with the ITO on this point for the asst. yrs. 1971-72 and 1972-73. The assessee is on ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with the business. Para 7 of our order in I.T.A. No. 399/Coch/71-72 for the year 1970-71 dt. 6th June, 1974 is reproduced below :— "7. It was next contended that it is a case of commercial expediency. Here again, the point has not been substantiated with evidence. If it is commercial expediency, then it is necessary for the assessee to show that in order to continue the assessee's business such expenses have got to be incurred by them. The assessee should show in this case that in the earlier years the assessee had incurred such expenses and had turned over such assets to enterpreneurs in whom they had made investments and such investments had yielded the assessee a return. No such connection has been established. In the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd for establishing a glass factory and the expenses incurred in investigation were reimbursed by them. The assessee company holds shares worth Rs. 23 lakhs in that company. In addition to the share participation, they had also provided finance to the extent of Rs. 27 lakhs. 5. It will be seen that whereas we decided the year 1970-71 on the ground that no evidence was adduced, for the three years under consideration the assessee appears to be having evidences with it to establish a connection between these expenses and the business. It is no doubt true that the evidences should have been placed before the ITO or the AAC. But it appears that none of the authorities had asked the assessee to prove its point with evidences. We also find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a change of method in respect of a head of income. If the assessee had adopted cash basis in respect of the interest on advances, perhaps there would have been a case for showing that the method of accounting has been changed. But the assessee has picked up only three items out of the several and while the assessee had retained the mercantile basis in respect of all other debtors, in respect of only these three debtors the assessee claims cash system. Such a change in accounting is not visualized in the statute. What it means is that although interest has accrued the assessee is refusing to take credit for the same for fear of realization difficulties. A similar case had come up before the Kerala High Court in the case of State Bank of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarting new industries or developing industries already in existence. The ITO treated it as entertainment expenses and disallowed the same. On appeal, the AAC called for the details of this expenditure and found it to be entertainment expenses which could not be allowed as a deduction under the statute. We have seen the details of the expenses given. There is no doubt that they are in the nature of entertainment. For instance Rs. 2,064 has been spent on the dinner in connection with the visit of the Chairman of I.F.C., Rs. 3,033 spent on dinner to certain other industrialists and an item of Rs. 3,102 spent on the Officers of Hindustan Steel. There is no doubt from the details given that they are entertainment expenses as envisaged in the st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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