1989 (9) TMI 161 - AT - Income Tax

Tribunal Rulings: Deletions, Disallowances, Deductions, and Allowances

INSPECTING ASSISTANT COMMISSIONER. Versus NUCHEM PLASTICS LTD.

The Tribunal upheld the deletion of an addition of Rs. 75,40,682, reduced a disallowance of Rs. 95,122 for reconsideration, remanded the deduction issue ... - Issues Involved:1. Deletion of addition of Rs. 75,40,682.2. Reduction of Rs. 95,122 under s. 40(c)/40A(5).3. Allowance of deduction under s. 80G for donations.4. Allowance of expenditure under s. 80VV.5. Allowance of Sales Promotion Expenses.6. Allowance of expenditure on Dinner sets.7. Allowance of entertainment expenditure.8. Disallowance of claim under s. 35(1)(iv).9. Disallowance of contribution to PHD Chamber of Commerce and Industry.10. Disallowance of payments to Faridabad Industries Association and United Bank of India Employees Association.11. Addition of interest on FDRs.12. Addition under the head 'Repair and Replacement'.13. Disallowance of payment to Shri Ram Institute for Industrial Research.14. Disallowance of penalty under s. 221(1).15. Claim of deduction under s. 80G.Detailed Analysis:1. Deletion of Addition of Rs. 75,40,682:The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 75,40,682, which included differential excise duty and excise duty on synthetic resins. The Tribunal relied on the Supreme Court's decision in Kedarnath Jute Manufacturing Co. vs. CIT and the Punjab and Haryana High Court's decision in Sirsa Industries vs. CIT, stating that under the mercantile system of accounting, the liability must be allowed in the year it accrues, not when it is paid. The Department's contention regarding the refund received by the assessee was dismissed due to a lack of evidence.2. Reduction of Rs. 95,122 under s. 40(c)/40A(5):The Tribunal directed the AO to reconsider the disallowance of Rs. 95,122 under s. 40(c)/40A(5) by taking into account the assessee's submissions, including the valuation of perquisites and telephone expenses for employees. The matter was remanded for fresh determination.3. Allowance of Deduction under s. 80G for Donations:The Tribunal remanded the issue of deduction under s. 80G for donations of Rs. 10,000 and Rs. 5,000 to the AO for re-examination with reference to receipts and relevant records, following a similar direction for the previous assessment year.4. Allowance of Expenditure under s. 80VV:The Tribunal upheld the CIT(A)'s decision to allow the expenditure of Rs. 13,000 under s. 80VV, citing that the sum paid was for consultation fees, preparation of returns, and proceedings before IT authorities. This decision was consistent with the Tribunal's earlier ruling for the previous assessment year.5. Allowance of Sales Promotion Expenses:The Tribunal allowed 10% of the sales promotion expenses of Rs. 4,080 as business expenditure, considering employee participation in the sales meeting. The balance was treated as entertainment expenditure.6. Allowance of Expenditure on Dinner Sets:The Tribunal upheld the disallowance of Rs. 11,965 for expenditure on dinner sets, rejecting the assessee's claim that these were given to customers to promote business. The Tribunal found no merit in the argument that the items were parts of dinner sets.7. Allowance of Entertainment Expenditure:The Tribunal allowed 10% of the entertainment expenditure of Rs. 21,276 as business expenses, considering employee participation in sales meetings. The balance was treated as entertainment expenditure.8. Disallowance of Claim under s. 35(1)(iv):The Tribunal allowed the assessee's claim of Rs. 72,475 for the purchase of a Matador used for research and development, subject to verification of satisfaction of s. 35(1)(iv). This decision was based on stronger grounds compared to the previous year when a car was involved.9. Disallowance of Contribution to PHD Chamber of Commerce and Industry:The Tribunal allowed the contribution of Rs. 10,000 to the PHD Chamber of Commerce and Industry, considering it as business expenditure due to the indirect benefits accruing to the assessee from the construction of the Chamber's building.10. Disallowance of Payments to Faridabad Industries Association and United Bank of India Employees Association:The Tribunal allowed the payments of Rs. 1,000 and Rs. 151 under s. 37(1), considering them as business expenditure due to the indirect benefits to the assessee.11. Addition of Interest on FDRs:The Tribunal upheld the addition of Rs. 6,60,949 being interest on FDRs, following its earlier decision for the previous assessment year, as the FDRs were in the name of the assessee-company.12. Addition under the Head 'Repair and Replacement':The Tribunal deleted the addition of Rs. 10,000 under 'Repair and Replacement,' considering the expenses as current repairs for replacing worn-out and obsolete items.13. Disallowance of Payment to Shri Ram Institute for Industrial Research:The Tribunal confirmed the disallowance of Rs. 300, as the assessee had surrendered this amount before the IAC (Assessment) and did not contest it before the CIT(A).14. Disallowance of Penalty under s. 221(1):The Tribunal upheld the disallowance of Rs. 5,000 paid as penalty under s. 221(1), stating that it represented an infringement of law and could not be treated as business expenditure.15. Claim of Deduction under s. 80G:The Tribunal dismissed the ground regarding the claim of deduction under s. 80G, as no arguments were addressed on this point.Conclusion:Both the appeals were partly allowed, and the cross objection was treated as partly allowed for statistical purposes.