Deemed payment under State sales-tax scheme and consultancy fees outside section 80VV, with travelling disallowance also deleted.

Deferred sales-tax liability covered by a State incentive scheme was treated as deemed paid under the relevant State provisions, and the Board circular accepted that such deeming fiction satisfies section 43B; the disallowance was therefore unsustainable. Retainership fee paid to an advocate for consultation on income-tax matters was held to fall outside section 80VV because it was not expenditure for representation in proceedings before the tax authorities, and the disallowance was not justified. Travelling expenses were also deleted because the Assessing Officer's rule 6D disallowance was computed without proper regard to the nature of the items and the persons to whom they related, leaving no sustainable addition on the facts.

---

---

Issues: (i) whether deferred sales-tax liability under the State incentive scheme could be disallowed under section 43B of the Income-tax Act, 1961; (ii) whether retainership fee paid to an advocate for consultation in income-tax matters fell within section 80VV of the Income-tax Act, 1961; and (iii) whether the travelling expenses disallowance was warranted under rule 6D of the Income-tax Rules, 1962.

Issue (i): whether deferred sales-tax liability under the State incentive scheme could be disallowed under section 43B of the Income-tax Act, 1961.

Analysis: The deferred sales-tax was covered by the State scheme and the relevant State provisions treated the deferred tax as deemed to have been paid. The Board circular recognised that where the State law creates such a deeming fiction, the requirement of section 43B stands satisfied. On the facts, the statutory deeming provision and the circular operated together to place the case outside the mischief of section 43B.

Conclusion: The disallowance under section 43B was not sustainable and had to be deleted, in favour of the assessee.

Issue (ii): whether retainership fee paid to an advocate for consultation in income-tax matters fell within section 80VV of the Income-tax Act, 1961.

Analysis: Section 80VV applies to expenditure incurred in proceedings before an income-tax authority, the Appellate Tribunal, or a court in relation to determination of liability under the Act. The payment in question was for consultation on income-tax matters and not for representation in any proceeding before the tax authorities. Such consultative retainership expenditure did not attract section 80VV.

Conclusion: The amount was allowable and the disallowance was not justified, in favour of the assessee.

Issue (iii): whether the travelling expenses disallowance was warranted under rule 6D of the Income-tax Rules, 1962.

Analysis: On examination of the expense details, the disallowance was found to have been computed without proper regard to the nature of the items and the persons to whom they related. The materials showed that the excess worked out by the Assessing Officer was not properly attributable in the manner assumed, and no sustainable disallowance survived on the facts.

Conclusion: The travelling expenses disallowance was to be deleted, in favour of the assessee.

Final Conclusion: The addition under section 43B and the two disallowances relating to professional fees and travelling expenses were set aside, with the assessee obtaining complete relief in the appeal.

Ratio Decidendi: Where the State sales-tax law deems deferred tax to have been paid and the Board's circular recognises such deeming fiction, section 43B does not justify disallowance; and consultancy retainership fee not paid for representation in proceedings before the tax authorities is outside section 80VV.

---