Partial success for assessee in tax appeal for Section 32AB deduction. Department's appeal partially allowed on share issue.

The appeals in the case were partially allowed for the assessee regarding the deduction under Section 32AB of the Income Tax Act for both assessment years. The Tribunal directed that the assessee be allowed the deduction under Section 32AB, emphasizing its benefits for encouraging industrial growth. However, the Department's appeals were partially allowed concerning the disallowance of expenditure on account of the issue of shares, upholding the disallowance made by the Assessing Officer.

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Issues Involved:
1. Grounds of Appeal Nos. 3 and 4 for both assessment years.
2. Ground of Appeal No. 5 for the assessment year 1989-90.
3. Ground of Appeal No. 5 for the assessment year 1990-91.
4. Grounds of Appeal Nos. 1 and 2 for both assessment years.
5. Claim of deduction under Sections 32A and 32AB of the Income Tax Act, 1961 for the assessment years 1989-90 and 1990-91.
6. Deletion of addition made by the Assessing Officer on account of sales promotion expenses.
7. Disallowance of expenditure on account of issue of shares.

Issue-wise Detailed Analysis:

1. Grounds of Appeal Nos. 3 and 4 for both assessment years:
The learned counsel for the assessee submitted that these grounds are not pressed as the CIT(A) has set aside the assessments to the file of the Assessing Officer for determining the allowability under Sections 80-I and 80HHC of the IT Act, 1961. Consequently, these grounds were dismissed.

2. Ground of Appeal No. 5 for the assessment year 1989-90:
The assessee raised the ground regarding the set-off of unabsorbed depreciation and investment allowance before the CIT(A), but it was not decided. The Tribunal directed the CIT(A) to decide this ground afresh.

3. Ground of Appeal No. 5 for the assessment year 1990-91:
The counsel for the assessee did not press this ground, leading to its dismissal for non-prosecution.

4. Grounds of Appeal Nos. 1 and 2 for both assessment years:
The Tribunal noted that these grounds required their decision for both assessment years. The Tribunal discussed the procedural aspects, including the filing of returns, the issuance of notices under Sections 143(1)(a) and 143(2), and the revised return filed by the assessee after the Finance Minister's speech on 19th March 1990.

5. Claim of deduction under Sections 32A and 32AB of the Income Tax Act, 1961 for the assessment years 1989-90 and 1990-91:
The Tribunal compared the provisions of Sections 32A and 32AB, noting the differences in their applicability, conditions, and benefits. The assessee initially claimed deduction under Section 32A but later revised the claim under Section 32AB. The Assessing Officer rejected the revised claim, stating that the original return was filed after the due date and that the revised return did not qualify under Section 139(5). The CIT(A) upheld this view, but the Tribunal found that the assessee had filed the required audit report in Form No. 3AA and that the revised return was valid. The Tribunal emphasized that the provisions of Section 32AB were more beneficial and should be interpreted to encourage industrial growth. Consequently, the Tribunal directed that the assessee be allowed the deduction under Section 32AB for both years.

6. Deletion of addition made by the Assessing Officer on account of sales promotion expenses:
The Tribunal upheld the CIT(A)'s order, finding that the expenses on clocks, watches, and table diaries did not qualify as advertisement expenses unless they bore the name of the assessee.

7. Disallowance of expenditure on account of issue of shares:
The Tribunal considered conflicting decisions of the Bombay High Court. While the CIT(A) relied on the decision in CIT vs. Glaxo Laboratories (India) Ltd., the Tribunal found that the facts were more aligned with the decision in Bombay Burmah Trading Corpn. Ltd. vs. CIT, which held that fees paid for enhancement of capital were not allowable as revenue expenditure. Thus, the Tribunal upheld the disallowance of Rs. 3,500 made by the Assessing Officer.

Conclusion:
- The assessee's appeals were allowed in part regarding the deduction under Section 32AB.
- The Department's appeals were allowed in part concerning the disallowance of expenditure on account of issue of shares.

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