1989 (5) TMI 109 - AT - Income Tax

Tribunal Partially Allows Appeals on Expenses Disallowance: Details on Upheld & Allowed Claims

The Tribunal partly allowed both appeals, upholding disallowances on expenses like air-ticket for the Managing Director's wife, garden expenses, sales ... - Issues:1. Disallowance of cost of air-ticket for wife of Managing Director.2. Disallowance of garden expenses.3. Disallowance of expenditure on sales conference.4. Weighted deduction claim on specific expenditures.5. Disallowance of repair expenditure on building.6. Weighted deduction on commission to indenting agencies abroad.7. Grant of investment allowance for electric fans.Issue 1: Disallowance of cost of air-ticket for wife of Managing Director:The appeal involved a disallowance of Rs. 47,226 for the air-ticket of the Managing Director's wife on a foreign business trip. The Tribunal upheld the disallowance as it was not deemed necessary for the company's business, citing precedents where similar expenses were not allowed. Despite the company's resolution authorizing the expenditure, the Tribunal found it lacked evidence to establish the necessity of the wife's presence for business purposes.Issue 2: Disallowance of garden expenses:The Tribunal considered the disallowance of Rs. 20,000 out of total garden expenses of Rs. 28,864. The assessee argued that the garden upkeep was essential for maintaining a suitable atmosphere around the factory premises. However, the Tribunal deemed the expenditure as capital in nature due to the extensive nature of the garden and the potential long-term benefits from tree planting, thus upholding the disallowance.Issue 3: Disallowance of expenditure on sales conference:The Tribunal addressed the disallowance of Rs. 22,453 (50% of total expenditure) incurred on holding a sales conference in Goa. The Tribunal agreed with the CIT(A) that the entire expenditure was not necessary for business purposes and deemed 50% as entertainment expenses, thus upholding the disallowance.Issue 4: Weighted deduction claim on specific expenditures:The Tribunal rejected the weighted deduction claim on various expenditures like export inspection fee, premium to Export Credit Guarantee Corporation, and membership fees, as they did not fall under the relevant clauses for weighted deduction. The Tribunal upheld the lower authorities' decision, stating that the expenses did not qualify for weighted deduction under the amended rules.Issue 5: Disallowance of repair expenditure on building:The Tribunal discussed the disallowance of repair expenditure on the building, amounting to Rs. 2,06,483. While the ITO initially disallowed the expenditure as capital in nature, the CIT(A) allowed it, considering the necessity for shifting machinery and renovation. The Tribunal upheld the CIT(A)'s decision, deeming the expenditure as revenue in nature.Issue 6: Weighted deduction on commission to indenting agencies abroad:The Tribunal addressed the weighted deduction claim on commission to indenting agencies abroad, allowing the deduction as it fell under specific clauses of Section 35-B(1)(b). The Tribunal upheld the CIT(A)'s decision on this matter.Issue 7: Grant of investment allowance for electric fans:The Tribunal discussed the grant of investment allowance for electric fans installed in the factory premises. The CIT(A) allowed the investment allowance, considering electric fans as plant and machinery. The Tribunal upheld the CIT(A)'s decision, concluding that electric fans qualified for investment allowance.In conclusion, the Tribunal partly allowed both appeals, addressing various disallowances, weighted deduction claims, and investment allowances based on the specific circumstances and legal provisions governing each issue.