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of <h1>Tribunal upholds appeal, allows business income, reasonable capital allocation, disallows excise duty provision.</h1> The Tribunal partly allowed the appeal, upholding most decisions of the lower authorities but deleting the disallowance of the secret commission. The ... Business Expenditure, Year In Which Deductible Issues Involved:1. Taxability of profit on sale of import entitlements.2. Disallowance of secret commission.3. Section 80J deduction for Bhiwandi unit.4. Allowability of provision for excise duty.5. Interest under section 215 of the Income-tax Act.6. Additional ground regarding section 35B claim.Issue-wise Detailed Analysis:Ground No. 1: Taxability of Profit on Sale of Import EntitlementsThe assessee-company, a manufacturer of paints, claimed that the profit of Rs. 3,14,069 from the sale of import entitlements was a capital receipt and not assessable. The ITO, referencing Metal Rolling Works (P.) Ltd. v. CIT, held that the value of import entitlements received in the course of business constituted business income under section 28(iv) of the Income-tax Act, 1961. The Commissioner (Appeals) upheld this view, and the Bombay High Court in Kamani Engg. Corpn. Ltd. v. CIT supported this stance, stating that such profit was business income and not a capital or casual receipt. The assessee's counsel argued that the matter was not properly argued before the Bombay High Court and referenced K. N. Daftary v. CIT and Addl. CIT v. K. S. Sheik Mohideen. However, these cases were found inapplicable as they did not address whether import entitlements were capital assets. The Tribunal upheld the lower authorities' orders, assessing the Rs. 3,14,069 as business income.Ground No. 2: Disallowance of Secret CommissionThe IAC (Assessment) disallowed Rs. 11,800 out of a total commission of Rs. 6,28,361 due to lack of vouchers, following Goodlas Nerolac Paints Ltd. v. CIT. The Commissioner (Appeals) upheld this decision, citing McDowell & Co. Ltd. v. CTO, which held that colorable devices are not part of tax planning. The Tribunal, however, referenced First ITO v. French Dyes & Chemicals (I) (P.) Ltd., where such payments were deemed allowable. Respectfully following this decision, the Tribunal deleted the addition of Rs. 11,800.Ground No. 3: Section 80J Deduction for Bhiwandi UnitThe controversy revolved around the capital employed in the Bhiwandi unit. Initially, the share capital of Rs. 10 lakhs was treated as capital employed, but in the assessment year 1981-82, profits from past years were also included. For the assessment year 1982-83, the IAC (Assessment) apportioned the total capital and reserves, allowing section 80J deduction on Rs. 13,11,634. The assessee argued that a balance sheet prepared for the unit showed higher capital employed. The Tribunal found the IAC (Assessment)'s allocation reasonable and confirmed the orders of the lower authorities.Ground No. 4: Allowability of Provision for Excise DutyThe assessee claimed a provision of Rs. 15,85,279 for excise duty, arguing it was based on a dispute over whether post-manufacturing expenses should be included in the assessable value. The IAC (Assessment) rejected this, stating that liability arises only when a demand notice is received. The Commissioner (Appeals) upheld this view, citing Kedarnath Jute Mfg. Co. v. CIT, which applies only when there is a legally enforceable demand. The Tribunal confirmed the disallowance, noting that the enforceable demand arose only after the Supreme Court's decision in Union of India v. Bombay Tyres International Ltd., and thus the provision was a contingent liability.Ground No. 5: Interest under Section 215The issue regarding interest under section 215 was not pressed as the Commissioner (Appeals) had directed the IAC (Assessment) to give consequential effect to the charging of interest under this section.Additional Ground: Section 35B ClaimAn additional ground regarding the claim of weighted deduction under section 35B on commission of Rs. 2,28,500 was moved late and lacked details before the IAC (Assessment). The Commissioner (Appeals) had confirmed the rejection of this claim, and the Tribunal similarly rejected this ground.Conclusion:The appeal was partly allowed, with the Tribunal upholding the lower authorities' decisions on most grounds but deleting the disallowance of the secret commission.
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