2008 (1) TMI 449 - AT - Income Tax

Tribunal Decision: Expenses Disallowed, Deductions Recalculated, Appeal Partially Allowed

Comet Handicrafts. Versus Assistant Commissioner Of Income-Tax.

Comet Handicrafts. Versus Assistant Commissioner Of Income-Tax. - TTJ 114, 124, Issues Involved:1. Disallowance of telephone expenses.2. Disallowance of generator expenses.3. Disallowance of staff welfare expenses.4. Disallowance of foreign travel expenses.5. Disallowance of business promotion and trade fair expenses.6. Disallowance of repair and maintenance expenses.7. Disallowance of miscellaneous expenses.8. Disallowance of deduction u/s 80HHC towards interest income.9. Disallowance of interest expense on proportionate basis.10. Withdrawal of deduction u/s 80HHC by CIT(A).Summary:1. Disallowance of Telephone Expenses:The Tribunal upheld the disallowance of 10% of telephone expenses, acknowledging the likelihood of personal use by the non-corporate assessee.2. Disallowance of Generator Expenses:The Tribunal found no justification for the disallowance as the AO did not specify unsupported expenses. The disallowance was thus overturned.3. Disallowance of Staff Welfare Expenses:Similar to generator expenses, the Tribunal found no specific instances of unsupported expenses and overturned the disallowance.4. Disallowance of Foreign Travel Expenses:The Tribunal reduced the disallowance from 10% to 5%, recognizing the appellant as a 100% exporter and noting that the expenses were incurred for business purposes.5. Disallowance of Business Promotion and Trade Fair Expenses:The Tribunal directed the AO to restrict the disallowance to Rs. 1,00,000 instead of 5% of the total expenses, acknowledging the business nature of the expenses but noting some were not properly vouched.6. Disallowance of Repair and Maintenance Expenses:The Tribunal did not specifically address this issue in the summary provided.7. Disallowance of Miscellaneous Expenses:The Tribunal did not specifically address this issue in the summary provided.8. Disallowance of Deduction u/s 80HHC Towards Interest Income:The Tribunal cited the jurisdictional High Court's ruling in CIT vs. Shri Ram Honda Power Equip & Ors., emphasizing that interest income from surplus funds parked with banks should be treated as 'income from other sources.' The AO was directed to recalculate the permissible deduction u/s 80HHC accordingly.9. Disallowance of Interest Expense on Proportionate Basis:The Tribunal found that the partners' capital was sufficient to cover the interest-free loans/advances and that the interest paid to the bank was for the export business. Thus, the disallowance of interest expense was overturned.10. Withdrawal of Deduction u/s 80HHC by CIT(A):The Tribunal noted the amendment by the Taxation Laws (Amendment) Act, 2005, which was not available to the Revenue authorities at the time of assessment. The matter was set aside to the AO to reprocess the claim in light of the amendment.Conclusion:The appeal was allowed in part, with specific directions to the AO to reconsider certain disallowances and deductions in light of the Tribunal's observations and relevant legal precedents.