Investment allowance and fully vouched business expenses were allowed where the statutory reserve and expense claims were substantively supported.

Investment allowance under section 32A(4) was held available where the statutory reserve was created in substance by debiting the partners' accounts, since that treatment achieved the same effect as a debit to the profit and loss account and satisfied the requirement that profits be carved out and kept apart for the prescribed purpose. The disallowance of travelling expenses, office expenses and karigar tea expenses was also deleted because the items were fully vouched and no contrary challenge was made at hearing, leaving no basis to sustain the addition.

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Issues: (i) Whether the assessee was entitled to investment allowance under section 32A(4) of the Income-tax Act, 1961 despite the reserve being created by debit to the partners' accounts instead of directly to the profit and loss account; (ii) Whether the disallowance sustained by the first appellate authority in respect of travelling expenses, office expenses and karigar tea expenses was justified.

Issue (i): Whether the assessee was entitled to investment allowance under section 32A(4) of the Income-tax Act, 1961 despite the reserve being created by debit to the partners' accounts instead of directly to the profit and loss account.

Analysis: The reserve was found to have been created in substance, and the debit to the partners' accounts achieved the same result as a direct debit to the profit and loss account would have done. The requirement of the provision was that the reserve should be carved out of the firm's profits and kept apart for the statutory purpose, which was satisfied on the facts found.

Conclusion: The assessee satisfied the condition under section 32A(4) and was entitled to the investment allowance.

Issue (ii): Whether the disallowance sustained by the first appellate authority in respect of travelling expenses, office expenses and karigar tea expenses was justified.

Analysis: The expenses were stated to be fully vouched, and that position was not disputed at the hearing. In the absence of a contrary contest, there was no basis to retain the disallowance.

Conclusion: The disallowance was deleted in full.

Final Conclusion: The appeal was allowed and the assessee obtained relief on both the investment allowance claim and the disallowed business expenses.

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