Tribunal Reduces Disallowed Expenses, Confirms Industrial Status

The Tribunal reduced the disallowance of Travelling and Conveyance Expenses for the assessee from Rs. 61,846 to Rs. 19,000, finding most expenses admissible. It also confirmed the assessee's status as an Industrial Company based on precedent, rejecting the CIT's proposed questions. A dissenting opinion on the second issue led to referral to the Senior Vice-President, who ultimately agreed that the issue was not referable. The matter was returned to the original Bench, denying the CIT's reference application.

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Issues Involved:
1. Disallowance of Travelling and Conveyance Expenses.
2. Status of the Assessee-Company as an Industrial Company.

Issue-Wise Detailed Analysis:

1. Disallowance of Travelling and Conveyance Expenses:

The primary issue addressed was whether the ITAT was correct in reducing the disallowance under the head "Travelling and Conveyance Expenses" from Rs. 61,846 to Rs. 19,000. The Tribunal examined the details of the expenses claimed by the assessee, which included Rs. 45,862 for conveyance expenses, Rs. 25,450 for car repairs, and Rs. 3,414 for travelling. The Tribunal found that the assessee's business activities had not significantly decreased, contrary to the findings of the lower authorities. This conclusion was based on the examination of the assessee's balance sheet and notes submitted during the appellate proceedings. The Tribunal determined that the lower authorities were incorrect in holding that the assessee's business activities were nominal during the assessment year 1977-78. Upon further examination, the Tribunal found that the expenses claimed were largely admissible, except for a few items. The Tribunal also considered the decision from the assessment year 1978-79, where 25% of the expenses were deemed inadmissible. Consequently, the Tribunal estimated that Rs. 19,000 of the expenses were inadmissible, rejecting the CIT's proposed question as it was deemed a pure finding of fact.

2. Status of the Assessee-Company as an Industrial Company:

The second issue was whether the ITAT was correct in directing that the assessee-company be treated as an Industrial Company by following the order in the case of ITO vs. Hydle Construction Pvt. Ltd. The Tribunal noted that the Department had accepted the decision of the Special Bench in the Hydle Constructions case and had not sought a reference on that decision. The Tribunal requested the Departmental Representative to confirm this acceptance, but no information was provided. Consequently, the Tribunal accepted the statement made by the respondent's counsel that the Department had accepted the decision, thus concluding that the second question proposed by the CIT did not constitute a referable question of law.

Separate Judgments Delivered:

Dissenting Opinion:

One member, S.S. Mehra, J., disagreed with the majority opinion on the second issue. While agreeing that question No. 1 was rightly declined, he believed that question No. 2 was a reasonable question of law and warranted a reference. This difference of opinion led to the matter being referred to the Senior Vice-President under section 255(4) of the IT Act.

Third Member's Opinion:

G. Krishnamurthy, Senior Vice-President, was appointed as the Third Member to resolve the difference of opinion. He concluded that question No. 2 was not a referable question of law. He emphasized that the Department had accepted the Special Bench's decision in the Hydle Constructions case, which established the principle that a construction company engaged in constructing multi-storeyed buildings qualifies as an industrial company. Since the Department had not disputed this principle, there was no subsisting dispute requiring the High Court's opinion. Thus, he agreed with the Accountant Member's view that question No. 2 ceased to be a referable question of law.

Final Decision:

The matter was sent back to the original Bench for disposal according to the majority opinion, ultimately rejecting the reference application filed by the CIT.

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