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of <h1>Tribunal Ruling on Surtax Liability, Consultant Payments, Land Development Cess, & Deductions</h1> The Tribunal upheld the disallowance of Surtax liability citing relevant precedents and judgments. It confirmed the disallowance of payments to ... Business Expenditure, Industrial Undertaking, Profits And Gains, Revenue Expenditure, Scientific Research Issues Involved:1. Disallowance of Surtax liability.2. Addition under the head 'Audit fees and legal expenses'.3. Treatment of Land Development Cess as capital or revenue expenditure.4. Disallowance of depreciation on assets for Scientific Research.5. Addition relating to Dealers Development Fund.6. Deduction under section 35B of the Income-tax Act.7. Revenue's contest on certain reliefs granted by the Commissioner (A).Detailed Analysis:1. Disallowance of Surtax Liability:The Tribunal upheld the disallowance of Surtax liability amounting to Rs. 36,78,128, citing precedents such as Amar Dye Chem. Ltd. and judgments from various High Courts including Molins of India Ltd., CIT v. International Instruments (P.) Ltd., and A. V. Thomas & Co. Ltd. The Surtax was deemed a tax on the company's income and thus disallowable under section 40(a)(ii) of the Act.2. Addition Under 'Audit Fees and Legal Expenses':The Tribunal considered payments totaling Rs. 67,500 made to retainers/consultants. The Income-tax Officer had disallowed Rs. 52,500 under section 80VV of the Act. The Commissioner (A) allowed partial relief, which was contested by both the assessee and the Revenue. The Tribunal upheld the disallowance of payments to M/s S.R. Dinodia & Co. due to lack of primary evidence but allowed the deduction of Rs. 15,000 paid to Shri H.P. Agarwal, confirming the factual findings that these payments were not for representation before tax authorities.3. Treatment of Land Development Cess:The Tribunal analyzed the provision for Land Development Cess payable to the Haryana Government. The Income-tax Officer had treated the liability for Sector 27 partly as contingent and for Sector 15A as non-existent. The Tribunal found this approach fallacious, holding that the liability accrued in 1976 and was not contingent. The Cess was deemed revenue in nature, citing the Supreme Court's judgment in Lakshmiji Sugar Mills Co. (P.) Ltd. v. CIT. The Tribunal vacated the related additions, holding that the Cess was necessary for the smooth running of the business and did not provide any enduring benefit.4. Disallowance of Depreciation on Assets for Scientific Research:The Tribunal noted that the operation of the retrospective amendment to section 35(2)(iv) was stayed by the Supreme Court. Therefore, the status quo from the assessment was maintained, and the assessee did not get relief at present.5. Addition Relating to Dealers Development Fund:The Tribunal upheld the disallowance of the company's contribution to the Dealers Development Fund as revenue expenditure but deleted the addition of the dealers' matching contribution of Rs. 1,58,718 as the company's income. It was determined that the dealers' contribution was not utilized by the assessee and was ultimately transferred to a separate entity, Escorts Dealers Development Association Ltd.6. Deduction Under Section 35B:The Tribunal confirmed the Commissioner (A)'s order allowing 65% of the expenses incurred by the Export Section of each division for weighted deduction under section 35B, following the Tribunal's decision in the assessee's own case for earlier years.7. Revenue's Contest on Certain Reliefs:- Contribution to Escorts Employees Welfare Trust: The Tribunal upheld the Commissioner (A)'s deletion of the addition of Rs. 10,01,000, recognizing the trust as a genuine entity with substantial welfare expenses incurred in subsequent years.- Interest Earned by Escorts Employees Welfare Trust: The Tribunal rejected the Revenue's appeal, affirming that the trust was independent and the contributions were of revenue nature.- Sale Promotion Expenses: The Tribunal upheld the Commissioner (A)'s reduction of the disallowance from Rs. 2,25,000 to Rs. 75,000, considering the increased expenditure on sales promotion.- Inauguration Ceremony Expenses: The Tribunal upheld the Commissioner (A)'s decision to allow Rs. 1,20,884 as revenue expenditure, citing judgments from the Bombay High Court in Tata Sons (P.) Ltd. and Nirlon Synthetic Fibres & Chemicals Ltd.- Deduction Under Section 35B for Farm Equipment and Spare Parts Divisions: The Tribunal upheld the Commissioner (A)'s directions, finding no basis for interference.- Disallowance Under Section 40A(5): The Tribunal upheld the Commissioner (A)'s inclusion of H.R.A. and other cash allowances in salary, following the Delhi High Court's decision in Instalment Supply (P.) Ltd. v. CIT.- Relief Under Section 80J: The Tribunal upheld the Commissioner (A)'s direction to allow full relief under section 80J for the Diesel Engine Unit, citing judgments from the Madras, Madhya Pradesh, and Kerala High Courts.Conclusion:The Tribunal allowed the assessee's appeal in part and dismissed the Revenue's appeal, providing a detailed analysis of each issue and upholding the Commissioner (A)'s decisions where justified.
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