1994 (3) TMI 144 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of certain expenditures on entertainment and advertisement.
2. Disallowance under Section 43B of the Income Tax Act.
3. Deletion of addition in respect of claim under Section 35B.
4. Deletion of addition of interest income.
5. Deletion of addition on account of cash incentive for good work done by employees.
6. Deletion of addition of advance money against allotment of plots.

Issue-wise Detailed Analysis:

1. Disallowance of Certain Expenditures on Entertainment and Advertisement:

Ground Nos. 2 and 3 pertain to the disallowance of expenditures on entertainment, gifts, exhibition expenses, anniversary expenses, and the cost of samples. The assessee argued that these expenses were business expenditures and were reimbursed by the Punjab Government in subsequent years. The Departmental Representative countered that these expenses were not the assessee's but the Government's, and there was no direct evidence linking the specific expenditures to the reimbursement. The Tribunal found that without a direct link between the expenditures and the reimbursement, it was challenging to accept the assessee's plea. The expenditures were not allowable as they were not directly connected to the reimbursement. Therefore, Ground Nos. 2 and 3 were rejected.

2. Disallowance under Section 43B of the Income Tax Act:

Ground No. 4 relates to the disallowance of Rs. 3,08,037 under Section 43B, which included sales tax and provident fund contributions paid after the accounting period. The Tribunal noted that if the sales tax was paid on or before the due date for filing the return, it should be allowed under the first proviso to Section 43B. Similarly, provident fund contributions paid before the due date as defined in Section 36(1)(va) should be allowed. The issue was restored to the Assessing Officer to verify the payment dates. If payments were made on or before the respective due dates, the claim would be allowed. The assessee's appeal was partly allowed for statistics.

3. Deletion of Addition in Respect of Claim under Section 35B:

Ground No. 1 of the Revenue's appeal concerns the deletion of an addition related to a claim under Section 35B. The assessee, an Export House, claimed expenditures for foreign travel and daily allowances under Section 35B. The CIT(A) allowed most of the expenditures except Rs. 11,646, which was not pressed by the assessee's counsel. The Tribunal found that the remaining expenditures were rightly allowed by the CIT(A) for the purpose of Section 35B. Therefore, Ground No. 1 was partly allowed.

4. Deletion of Addition of Interest Income:

Ground Nos. 2 and 3 of the Revenue's appeal relate to the deletion of an addition of Rs. 44,46,374, which was interest income accrued but not received. The assessee had changed its accounting system from accrual to receipt basis. The CIT(A) agreed with the assessee's plea that the change in the accounting system was permissible. The Tribunal noted that this issue had been decided in the assessee's favor in previous years. Therefore, Grounds Nos. 2 and 3 were rejected.

5. Deletion of Addition on Account of Cash Incentive for Good Work Done by Employees:

Ground No. 4 of the Revenue's appeal pertains to the deletion of an addition of Rs. 4,56,814 paid as incentive bonus to employees. The CIT(A) allowed the claim, stating that the bonus was paid for good work and was reasonable. The Tribunal found that the incentive bonus was permissible under Section 36(1)(ii) and was in line with the Supreme Court's decision in Shahzada Nand & Sons vs. CIT. Therefore, Ground No. 4 was rejected.

6. Deletion of Addition of Advance Money Against Allotment of Plots:

Ground No. 5 of the Revenue's appeal relates to the deletion of an addition of Rs. 13,11,079, which was advance money received against the allotment of plots. The CIT(A) allowed the claim, stating that the system of accounting adopted by the assessee was consistent with past practice. The Tribunal agreed with the CIT(A) and found no justification for the addition. Therefore, Ground No. 5 was rejected.

Conclusion:

The assessee's appeal was partly allowed for statistics, while the Revenue's appeal was partly allowed. The Tribunal's decisions were based on the consistency of accounting practices, the reasonableness of expenditures, and compliance with relevant provisions of the Income Tax Act.