9911796707
TMI Blog1997 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... income was enhanced and the assessee contested the said enhancement and seeked (sought) refund of tax as against the enhancement. We feel that the ground is too wide and general. We, therefore, confirm the view taken by the learned CIT(A). 6. Ground No. 2 urged by the assessee in relation to all the three assessment years relates to disallowance of car perquisite under s. 40 A(5). 7. The AO noted that the assessee had offered certain amounts as disallowable under s. 40 A(5). He also observed that the said amounts had been calculated by treating cash allowance as part of salary and by treating the perquisite value of car as per r. 3(c) of the IT Rules. The AO however, declined the claim of the assessee for working out value of perquisite for car with reference to the IT Rules and observed that the said Rules were meant for quantifying perquisite for the assessment of employees and cannot be invoked for the purpose of s. 40 A(5). The AO disallowed 50 per cent of the actual expenditure incurred by the assessee. He relied on the decisions 124 ITR 535 (sic), CIT vs. Forbes Ewarts Figgis (P) Ltd. (1981) 24 CTR (Ker) 87 (FB) : (1982) 138 ITR 1 (Ker) and Bombay Burmah Trading. Corpn. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative relied on the orders of the tax authorities. 16. It is observed that the AO while interpreting the provisions of s. 40A(5)(b) held that the concerned persons were employed in India, their salary accrued and arose in India and it was also paid in India and that the employment of the concerned persons could not be said to be out of India. He, therefore, held that the salary/perquisite paid to the employees for the period of their stay outside India could not be excluded from the total salary/perquisite paid to them for working out the amount disallowable under s. 40A(5). On first appeal, the learned CIT(A) agreed with the reasoning of the AO. He, observed that tour is a part of employment within the country even though it may be a foreign tour. The decision of the Hon ble Delhi High Court 85 CTR (Del) 116 : 185 ITR 178 has been carefully seen by us. The Hon ble High Court were examining the provisions of s. 40(c) and s. 40A(5)(b) and observed that if there is a general provision and there is also a special provision, then it is the special provision which will prevail and in the circumstances, the only conclusion possible is that the case of remuneration to employee-directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee invited our attention to the order of the Tribunal dt.4th Oct., 1995, in ITA No. 5336/Del/88 placed at pp. 3 to 20 of paper-book 1 and submitted that the issue is covered in favour of the assessee. 21. The learned Departmental Representative relied on the orders of the tax authorities. 22. We have carefully considered this issue in the light of submissions made by both the parties and have also perused the orders of the tax authorities as also the order of the Tribunal relied upon by the learned counsel. It is observed that the Tribunal held in para. 6 of the said order that the claim made by the assessee is genuine and the salaries have not been paid on extraneous considerations. They held that the deduction on account of salaries paid to Smt. Santosh and Smt. Urmila Dongre is legitimate and should be allowed. Since the facts during the years under consideration are same and the tax authorities had relied on their orders in the case of the assessee for asst. yr. 1984-85, respectfully following the aforesaid order of the Tribunal, we direct the AO to allow the claim of the assessee. The addition of Rs. 27,138 and Rs. 26,938 is, therefore, deleted. 23. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o seen the case law and the decisions of the Tribunal relied upon by both the parties. It is observed that the decision of the Tribunal in the case of Tyagi Anand Co. (P) Ltd. relates to an assessee-company which was carrying on business of exhibition of films and it was held that the cost of free tickets was not an entertainment expenditure under s. 37(2A). The said case is, therefore, distinguishable on facts and cannot be applied in the case of the assessee. However, keeping in view the decision of the Hon ble Delhi High Court in (1992) 107 CTR (Del) 4 : (1992) 190 ITR 576 as also the decision of the Hon ble Supreme Court, we feel that it will be just and fair to allow 30 per cent of the total expenses on account of employees participation. 28. The next ground raised by the assessee in relation to the asst. yr. 1985-86 relates to disallowance under s. 37(3A) of advertisement/sales promotion expenses. 29. In this case, the AO noted that the assessee had offered an amount of Rs. 24,791 for disallowance under s. 37(3A). He further noted that for working out the said disallowance, advertisement expenses, sales promotion expenses, motor car expenses and car allowance totalling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted our attention to the decision of the Hon ble Calcutta High Court in the case of CIT vs. Orient Paper Industries Ltd. (1995) 128 CTR (Cal) 438 : (1995) 214 ITR 473 (Cal), wherein it has been held that expenses on repairs and insurance of motor cars are not disallowable under s. 37(3A) of the IT Act. The Hon ble Calcutta High Court followed its decision in the case of CIT vs. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal). The learned counsel further referred to the decision of the Tribunal, Madras Bench C in the case of R.K. Swamy Advertising Associates (P) Ltd. vs. IAC (1993) 44 ITD 99 (Mad) wherein it is mentioned at p. 103 that the amount of salary paid to the drivers employed for running the car could not be regarded as a wasteful expenditure incurred for running the car so as to be considered for disallowance under s. 37(3A). In the said decision, it is further mentioned that the expenditure incurred on insurance of vehicle could not be taken into account in applying the provisions of s. 37(3A) but was allowable under s. 31. The learned counsel further referred to the decision of the Tribunal Madras Bench A in the case of Dy. CIT vs. Addison Co. Ltd. (1996) 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntertain any plea of the learned counsel with reference to the said expenses at the appellate stage. No fresh material has been placed before us to establish that the car expenses included expenses relating to three wheelers. The details at p. 41 of paper-book 1 only mention the figure of Rs. 34,384 on account of conveyance expenses paid to various persons wrongly treated as car expenses. The said figure is not clear on this issue. We, therefore, decline to interfere. With reference to claim of the assessee regarding sample expenses, we agree with the conclusion of the learned CIT(A) that the samples would serve, the purpose of advertisement and publicity and ultimately lead to sales promotion. We feel that the decision of the Hon ble Delhi High Court in (1991) 192 ITR 619 (Cal) as relied upon by the learned counsel is distinguishable on facts. In view of the foregoing decision, the AO is directed to allow appropriate relief to the assessee and recompute the disallowance under s. 37(3A). 34. The next ground urged by the assessee in relation to asst. yr. 1985-86 relates to disallowance of Rs. 5,000 paid to Mantec consultants for preparing feasibility report for setting up an indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to putting up an industrial unit and deciding the location thereof which cannot be deemed an expansion of the existing line of activity of the assessee. 40. The next ground raised by the assessee in relation to the three years under consideration relates to disallowance of ex gratia payment made to employees at Rs. 14,400 during the asst. yr. 1985-86, Rs. 10,000 during 1986-87 and Rs. 23,000 during 1987-88. 41. During the course of hearing, the learned counsel submitted that the said payments were made to certain employees on account of good work done by them as a reward and that the same ought to have been allowed. He referred to the decision of the Hon ble Supreme Court in the case of Shahzada Nand Sons vs. CIT 1977 CTR (SC) 246 : (1977) 108 ITR 358 (SC), wherein it has been observed that the reasonableness of the payment has to be judged not from the point of view of the AO but from the point of view of commercial expediency of the assessee. It is further observed that the requirements of commercial expediency must be judged not in the light of the 19th century doctrine of laissez faire which regarded man as an economic being, but in the context of current s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said payments made by the assessee during the assessment years under consideration are allowable. The AO is, therefore, directed to allow appropriate relief to the assessee with reference to the said payments. 44. The next ground urged by the assessee in relation to asst. yr. 1985-86 relates to disallowance of provision for expenses at Rs. 3,89,300. 45. The assessee had also moved for admission of additional ground for claim of Rs. 4,10,000 but the said ground has been withdrawn on the basis that the said liability has been provided in the accounting year ending March, 1993, and the same has been allowed. The additional ground is, therefore, rejected as withdrawn. 46. The AO noted that an amount of Rs. 3,40,000 had been debited in the accounts of the assessee on account of stock due for replacement. In response to the letter dt.20th Jan., 1988from the AO, the assessee submitted that the provision of Rs. 3,40,000 was made towards liabilities for replacement of defective goods. The assessee also pointed out that the provision was made in respect of 683 folding tables valued at Rs. 197 each. The assessee also pointed out that as per terms with the buyers, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d award. He further referred to the letter dt.3rd Feb., 1988addressed to the AO wherein it was mentioned that there was no realisable value of the goods and the same had to be burnt to avoid duplicate items being introduced in the market. He further submitted that several cases were going on in the Courts as people had been using Usha name and floating duplicate items in the market. He referred to the case of Usha (India) Group where the Hon ble Delhi High Court have restrained from using the name in any form either in their product or in the name of the companies. He, therefore, submitted that the assessee acted with extra precaution and burnt/destroyed the broken/defective pieces and, therefore, no value was attached to them. He relied on the judgment of the Hon ble Supreme Court in the case of CIT vs. Kalinga Tubes Ltd. (1995) 126 CTR (SC) 132 : (1995) 215 ITR 165 (SC) for the proposition that the aforesaid liability is allowable in the asst. yr. 1985-86 having accrued and become payable in that year. He also relied on the decision of the Hon ble Madras High Court in the case of CIT vs. Gemini Pictures Circuit (P) Ltd. (1995) 123 CTR (Mad) 310 : 81 Taxman 500. He also relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the deduction has to be allowed in relation to the amounts paid before the furnishing of the report under s. 139(1). The AO is, therefore, directed to verify the dates of payment of the amounts during the asst. yrs. 1985-86 to 1987-88 and allow appropriate relief to the assessee in the light of the said decision of the Hon ble Supreme Court. 56. The next ground in relation to the three assessment years relates to exemption of export incentives. The said grounds were not pressed and the same are, therefore, rejected. 57. The next ground raised by the assessee in relation to asst. yr. 1985-86 relates to disallowance of Rs. 3,200 out of foreign travelling expenses. 58. The AO noted that an amount of $ 265 was relatable to entertainment allowance as per exchange utilisation report submitted to the RBI. He, therefore, treated the amount of Rs. 3,200 as entertainment expenses out of the foreign travelling expenses and disallowed the same. 59. On first appeal, the learned counsel for the assessee contended that the said expenditure was incurred out of foreign exchange allowed by the RBI and would fall under s. 37(1) and not under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim deduction for the same in the earlier years because the accounts are audited few months after the end of the accounting period and till then a deduction for these type of liabilities can be easily claimed, after ascertaining the position from the concerned suppliers and this was obviously not done by the assessee and, therefore, he would not be entitled to claim the same against the profits of the assessment year under consideration. 66. The learned counsel submitted that the provision was made on the basis of the date on which the liability was known. In this connection, he invited our attention to the details given at p. 117 of the paper-book 1. He, therefore, urged that the claim may be allowed in this year. In the alternative, he submitted that directions may be given to the AO for allowing the same in the relevant year. 67. The learned Departmental Representative relied on the orders. 68. We have carefully considered the rival submissions on this issue and have also perused the details of various expenses known at p. 117. We feel that the submissions made by the learned Departmental Representative have force and that in the circumstances, no interference is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the dividend and to that extent, the dividend income should be reduced and relief under s. 80M should be allowed. In the circumstances, we feel that it will be just and fair to restore this issue for the three assessment years under consideration to the file of the AO who may find out the expenditure, if any, actually incurred by the assessee in earning the dividend. In doing so, he may allow reasonable opportunity of being heard to the assessee and thereafter allow appropriate relief to the assessee in the light of the aforesaid decision. 75. The next ground in relation to asst. yr. 1985-86 relates to deduction in respect of trading loss. 76. The said ground was not pressed by the learned counsel and the same is, therefore, rejected. 77. The next ground in relation to asst. yrs. 1985-86 and 1986-87 relates to double taxation on payment received from Usha International Ltd. 78. The aforesaid ground was not pressed by the learned counsel and the same is, therefore, rejected. 79. The next ground in relation to asst. yrs. 1986-87 and 1987-88 relates to deduction under s. 80HHC. 80. The AO had restricted the deduction under s. 80HHC at Rs. 7,10,000 during the asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to asst. yr. 1987-88 relates to sundry creditors returned back and claimed as not taxable under s. 41 (1). 86. During the course of hearing, the learned counsel invited our attention to the decision of the Hon ble Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar Sons Ltd. (1996) 136 CTR (SC) 444 : (1996) 222 ITR 344 (SC) and submitted that the aforesaid judgment is against the assessee on this issue. 87. The learned Departmental Representative relied on the orders of the AO. 88. We have carefully considered the rival submissions on this issue and in view of the aforesaid decision of the Hon ble Supreme Court in (1996) 136 CTR (SC) 444 : (1996) 222 ITR 344 (SC), we decline to interfere with the orders of the learned CIT(A). 89. The next ground in relation to asst. yr. 1987-88 relates to chargeability of interest under s. 216. 90. During the course of hearing, the learned counsel submitted that interest under s. 216 is not chargeable as advance-tax was paid in June on an estimated basis and it was revised in September after the accounts were completed for the year ending June, 1986, and advance-tax was paid in September at Rs. 1,24,000 as against Rs. 19,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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