1990 (6) TMI 100 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of commission/service charges of Rs. 3,17,126.
2. Disallowance of rent of Rs. 45,000.
3. Disallowance of expenditure of Rs. 2,55,250 on repairs.
4. Disallowance of Rs. 1,450 out of legal expenses.
5. Disallowance of Rs. 2,500 out of miscellaneous expenses.
6. Charging of interest under section 215 amounting to Rs. 2,44,670.
7. Additional ground for deduction of interest amount of Rs. 85,450.

Issue-wise Detailed Analysis:

1. Disallowance of commission/service charges of Rs. 3,17,126:
The assessee claimed Rs. 3,17,126 as commission/service charges paid to M/s Hemkunt Chemicals Pvt. Ltd. for arranging the sale of commercial space. The ITO disallowed the claim, stating that Hemkunt Chemicals did not render any services and was not a property broker. The CIT(A) upheld this disallowance. The Tribunal observed that Hemkunt Chemicals was closely connected with the assessee's chairman, Sardar Inderjit Singh, and there was no substantial evidence of services rendered. The Tribunal directed the ITO/IAC(A) to re-examine the claim and conduct further inquiries to determine the genuineness of the expenditure.

2. Disallowance of rent of Rs. 45,000:
The assessee claimed Rs. 45,000 as rent for a building hired for shifting its office. The ITO disallowed the claim, stating that the accommodation was not used for business purposes. The CIT(A) upheld this disallowance. The Tribunal found no reason to doubt that the building was taken on rent from 15-11-1981 and that the time spent on repairs and alterations should be considered as use for business purposes. The Tribunal directed the ITO to allow the expenditure of Rs. 45,000 as business expenditure.

3. Disallowance of expenditure of Rs. 2,55,250 on repairs:
The assessee claimed Rs. 2,55,250 as expenditure on repairs of tenanted accommodation. The ITO disallowed the claim, treating it as capital expenditure. The CIT(A) upheld this disallowance. The Tribunal observed that the expenditure was on extensive repairs and improvements, and the lease was for an indefinitely long period. The Tribunal held that the entire expenditure was of a capital nature and was rightly disallowed. However, there was a difference of opinion between the Members, and the matter was referred to a Third Member. The Third Member held that the expenditure was allowable as revenue expenditure, following the Delhi High Court's decision in Instalment Supply (P.) Ltd.'s case.

4. Disallowance of Rs. 1,450 out of legal expenses:
The assessee claimed Rs. 6,450 as legal expenses, out of which Rs. 1,450 was disallowed by the ITO under section 80VV without mentioning that the expenditure related to income-tax proceedings. The CIT(A) confirmed the disallowance. The Tribunal deleted the disallowance, as the learned Departmental Representative did not deny the assertion that the expenditure was incurred in connection with legal proceedings for changing the name of the assessee.

5. Disallowance of Rs. 2,500 out of miscellaneous expenses:
The ITO disallowed Rs. 2,500 out of miscellaneous expenses of Rs. 31,309, stating that no details were furnished. The CIT(A) confirmed the disallowance. The Tribunal found that the details were provided, and the learned Departmental Representative did not question them. The Tribunal deleted the disallowance of Rs. 2,500.

6. Charging of interest under section 215 amounting to Rs. 2,44,670:
The assessee filed an estimate of advance tax and paid two installments but failed to pay the balance amount. The ITO charged interest under section 215 for the deficiency in payment of advance tax. The assessee contended that interest should not be charged where the assessee filed an estimate but failed to pay the tax. The Tribunal held that interest under section 215 was chargeable, as the tax paid was less than 83 1/3% of the assessed tax. The Tribunal upheld the charging of interest.

7. Additional ground for deduction of interest amount of Rs. 85,450:
The assessee sought to raise an additional ground for deduction of Rs. 85,450 as interest on bank overdrafts, which was disallowed for the assessment year 1983-84 as it pertained to the assessment year 1982-83. The Tribunal rejected the prayer to entertain this new ground, as an application under section 154 was already moved before the IAC(A) for necessary adjustments.

Conclusion:
The appeal was partly allowed, with directions to re-examine the disallowance of commission/service charges and to allow the rent expenditure. The disallowance of expenditure on repairs was decided in favor of the assessee by the Third Member, treating it as revenue expenditure. The disallowances of legal and miscellaneous expenses were deleted, and the charging of interest under section 215 was upheld. The additional ground for deduction of interest was not entertained.