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TMI Blog1988 (10) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of expenses in accordance with r. 6D. The ITO has mentioned that as per the details, it was noted that the expenses included expenses on hotel, conveyance expenses and other expenses and it was stated that these were in accordance with r.6D. The ITO found that the expenses claimed as conveyance and other expenses did not contain details or evidence and, therefore, could not be considered as allowable in accordance with r. 6D 10.2 Shri Mehra has filed a copy of details in accordance with r. 6D and stated that the claim was fully allowable as the expenses were below the rate fixed in the Rules. 10.3 It is seen from the details filed that the expenses on hotels, conveyance and other expenses exceeded the rate fixed in Rules and in the absence of proper evidence relating to the claim put under the head other expenses, some disallowance is justified. After taking into the fact that expenses claimed under the head hotel, including conveyance expenses somewhat less than the Daily Allowance allowable under the Rules, the disallowance is sustained to the extend of Rs. 15,000 on estimate. Income is reduced by Rs. 10,570." The details of the expenses in question have been placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalties payable by the assessee for infringement of contract. Art addition of Rs. 1,65,311 was also made in respect of liquidated damages paid by the assesses treating the said amount as a non-business expenditure. The observations of the ITO while making the aforesaid disallowance's were, inter alia as below: 'The assessee coy, has been engaged in the manufacturing of cables for supplying to various State Electricity Boards. The assessee coy. had claimed an amount of Rs. 1,35,963 under the head 'Commission and discount' and Rs. 1,65,312 under the head 'liquidated damages'. These amounts represent the penalty imposed by the various State electricity Boards including Rajasthan Electricity Board andPunjabElectricity Board for late supply of goods, supplying goods non-conforming to the order etc. The assessee's explanation in this behalf has been examined and placed on records viz. letter dated9th March, 1985. This letter only states in general as to the deductions made by Electricity Boards in the Bills raised against them on account of various reasons. The assessee has filed correspondence with these Electricity Boards to press for its claim which has been examined, the Correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and deductions made on account of it are entirely incidental to business purpose and to say that there is any violation of law involved in this operation, would be contrary to the facts. The presumption of the ITO was thus wrong and so it was urged before the learned CIT(A)that the addition in question should be deleted. Similar was the situation with regard to the payment of Rs. 1,65,312. There too the deductions in question had been made on account of short supply etc. and, therefore, it was wrong to regard the said deductions as non-business deductions or deductions on account of violation of law. 7. The learned CIT(A) found the above reasoning of the assesses acceptable on facts and in law. Accordingly, he deleted the additions in question. 8. The Revenue is in appeal against the aforesaid deletions. According to the learned departmental representative full facts having a barring on the aforesaid deductions have not been placed on record and that, therefore, the matter deserves to be restored to the ITO. On behalf of the assessees however, it was stated that all the facts were already on record and the nature of the: deductions was clear therefrom and, therefore, no useful p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee under the broad heading Research & Development. The ITO made the disallowance, as according to him, the assessee gave no details of the various projects of research on which the said expenditure might have been incurred. The assessee went in appeal against the aforesaid finding of the ITO to the CIT(A) and pointed out to him that: "...the company has been manufacturing products under the mark of ISI specifications. and, therefore, has to maintain laboratory and records of testing of the goods. Expenses of Rs. 49,268 have been incurred, expenses relating to the laboratory on raw materials used for testing and also 50 Per cent of the salary of the Engineers employed." It was further pointed out that otherwise details regarding the purchase of raw materials and debited under the aforesaid head had been placed before the ITO and that, therefore, there was no justification for the ITO to reject the claim on the ground that the details had not been given. It was also brought to the attention of the learned CIT(A) that in the earlier years, the expenses on research and development had been claimed at Rs. 1,03,263, and they were of the same nature as this year and that these were al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct facts are available is the grievance of the Revenue. This grievance, in our opinion, is correct. We, therefore, set aside the order of the learned CIT(A) on this point and direct him to recompute the disallowance under this head keeping the observations made by us above in view. 15. The ITO had made the addition of Rs. 40,455 by invoking the provisions of s. 40A (S) of the IT Act, 1961. On appeal, the learned CIT(A) held that the provisions of s. 40(c) govern the disallowance in the case of Directors and inasmuch as none of the Directors was being paid salary above Rs. 72,000 including the value of perquisites, no disallowance was justified in respect of the emoluments paid to them. He, accordingly, deleted the addition of Rs. 40,455. The Department is aggrieved of the aforesaid finding of the learned CIT(A). In our opinion, however, the finding of the learned CIT(A) that the disallowances in respect of the Directors salaries should be done under s. 40(c) and not under s. 40A(S), appears to be correct and, accordingly, we see no justification in making the disallowance. 16. The 7th ground of appeal is with regard to the deletion of Rs. 2,500 which was added by the ITO out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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