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Showing 141 to 160 of 3414 Records

• 1990 (12) TMI 160
  
  Issues Involved:
  
  1. Inclusion of IT refunds in net wealth.
  2. Inclusion of deposits in minor children's names in net wealth.
  3. Exemption of silver cups and trophies as works of art.
  4. Valuation of unquoted equity shares.
  5. Inclusion of compulsory deposits in net wealth.
  6. Allowance of debts related to exempt assets.
  
  Issue-wise Detailed Analysis:
  
  1. Inclusion of IT Refunds in Net Wealth:
  
  In WTA No. 1021/Mds/87, the Department's appeal contested the deletion of Rs. 11,305 from the net wealth of the assessee by the AAC. The Department argued that the excess advance tax paid for the assessment year 1976-77 should be included in the net wealth based on precedents from the Madras High Court and the Supreme Court. The Tribunal accepted the Department's contention, referencing the Madras High Court's decision in T.V. Srinivasan vs. CWT, which held that excess advance tax paid should be considered an asset and included in the net wealth, regardless of whether a refund order was passed by the valuation date.
  
  In WTA No. 1022/Mds/87 and Co No. 144/Mds/77, the Tribunal upheld the Department's appeal, setting aside the AAC's order that deleted the addition of Rs. 62,316 towards IT refunds. The Tribunal followed the Madras High Court's decision in T.V. Srinivasan vs. CWT.
  
  In WTA No. 1023/Mds/87, the Tribunal again upheld the Department's appeal, setting aside the AAC's deletion of Rs. 62,316 towards IT refunds, following the same precedent.
  
  In WTA No. 1024/Mds/87, the Tribunal reversed the AAC's deletion of Rs. 32,986 towards IT refunds, following the Madras High Court decision.
  
  In WTA No. 1025/Mds/87, the Tribunal upheld the Department's appeal, restoring the inclusion of Rs. 32,986 towards IT refunds in the net wealth, following the same legal precedent.
  
  2. Inclusion of Deposits in Minor Children's Names in Net Wealth:
  
  In WTA No. 1022/Mds/87, the Tribunal set aside the AAC's deletion of Rs. 29,500 deposited in the names of minor children and remanded the matter back to the AAC for reconsideration in light of the IT appellate order for the assessment year 1976-77.
  
  In WTA No. 1023/Mds/87, the Tribunal also remanded the issue of deposits in minor children's names amounting to Rs. 42,825 back to the AAC for reconsideration.
  
  3. Exemption of Silver Cups and Trophies as Works of Art:
  
  In CO No. 144/Mds/87, the Tribunal rejected the assessee's contention that silver cups and trophies should be exempt from wealth tax as works of art under Section 5(1)(xii). The Tribunal followed its earlier decision in WTA No. 256/Mds/84, which held that such items, even if kept as pride of possession, do not qualify for exemption as works of art.
  
  In CO No. 145/Mds/87, the Tribunal dismissed the assessee's cross-objection regarding the inclusion of Rs. 95,770 towards the value of silver cups and trophies, following the same reasoning.
  
  In CO No. 146/Mds/87, the Tribunal upheld the inclusion of Rs. 4,500 towards the value of silver cups and trophies, rejecting the exemption claim.
  
  In CO No. 147/Mds/87, the Tribunal dismissed the cross-objection regarding the inclusion of Rs. 5,750 towards the value of silver cups and trophies, following the same precedent.
  
  4. Valuation of Unquoted Equity Shares:
  
  In WTA No. 1023/Mds/87, the Tribunal upheld the AAC's order that allowed the proposed dividend as a liability while valuing unquoted equity shares under Rule 1D of the WT Rules. The Tribunal referenced the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd vs. CIT and the Madras High Court decision in CWT vs. S. Ram.
  
  In WTA No. 1024/Mds/87, the Tribunal dismissed the Department's ground against considering the proposed dividend as a liability, citing the same legal precedents.
  
  In WTA No. 1025/Mds/87, the Tribunal dismissed the Department's ground, upholding the AAC's order to consider the proposed dividend as a liability.
  
  5. Inclusion of Compulsory Deposits in Net Wealth:
  
  In CO No. 147/Mds/87, the Tribunal dismissed the assessee's cross-objection regarding the exclusion of Rs. 42,770 towards compulsory deposits from net wealth. The Tribunal followed the Special Bench decision in Smt. Sushilaben A. Mafatlal vs. WTO, which held that compulsory deposits do not qualify as annuities and should be included in net wealth.
  
  6. Allowance of Debts Related to Exempt Assets:
  
  In CO No. 146/Mds/87, the Tribunal upheld the disallowance of Rs. 97,630 in debts related to race horses, which are exempt assets. The Tribunal cited Section 2(m)(ii) of the WT Act and the Full Bench decision of the Madras High Court in CIT vs. K.S. Vaidhyanathan, which held that debts related to exempt assets cannot be deducted in computing net wealth.
  
  Conclusion:
  
  The Tribunal allowed the Department's appeals in WTA Nos. 1021 and 1022/Mds/87, partially allowed WTA Nos. 1023, 1024, and 1025/Mds/87, and dismissed the Cross Objections 144 to 147/Mds/87. The decisions were primarily based on the legal precedents set by the Madras High Court, the Supreme Court, and the Special Bench of the Tribunal.

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• 1990 (12) TMI 156
  
  Issues:
  1. Whether the agreements dated 19-8-1980 and 20-6-1981 should be considered a supplement to the earlier partition dated 12-9-1955 or as a family arrangement not amounting to a transfer for assessing capital gains.
  2. Whether the transactions involving the transfer of assets and shares were genuine family arrangements exempt from capital gains tax.
  3. Whether the transactions could be considered as transfers subject to capital gains tax based on the Income-tax Officer's assessment.
  4. Whether the CIT(A) correctly rejected the assessee's contentions and computed the capital gains assessable.
  5. Whether the Appellate Tribunal should uphold the assessee's claim that the transactions were family arrangements not constituting transfers for tax purposes.
  
  Analysis:
  1. The assessee claimed that the agreements dated 19-8-1980 and 20-6-1981 were part of a family arrangement or a supplement to the earlier partition. The Income-tax Officer rejected this, deeming the transactions as transfers subject to capital gains tax. The CIT(A) also dismissed the claim, citing limitations on reopening partitions beyond the prescribed period. However, the Appellate Tribunal found in favor of the assessee, citing principles of family arrangements as beneficial for the family's peace and security.
  
  2. The assessee contended that the transactions were genuine family arrangements exempt from capital gains tax. The CIT(A) increased the assessable capital gains but the Appellate Tribunal disagreed, asserting that the transactions were bona fide family arrangements aligned with established legal principles. The Tribunal emphasized that realignment of interests through family arrangements does not constitute transfers subject to capital gains tax.
  
  3. The Income-tax Officer assessed the transactions as transfers subject to capital gains tax, considering the extinguishment of debts and other payments as part of the consideration. The CIT(A) upheld this assessment, leading to an enhanced capital gains amount. However, the Appellate Tribunal overturned this decision, ruling that the transactions did not amount to transfers and thus were not liable for capital gains tax.
  
  4. The CIT(A) rejected the assessee's contentions, emphasizing the completion of the partition in 1955 and the registration of shares in subsequent years. The Appellate Tribunal disagreed, citing established legal precedents on family arrangements and the absence of transfer of title in the transactions. The Tribunal held that the transactions did not attract capital gains tax.
  
  5. The Appellate Tribunal upheld the assessee's claim that the transactions were family arrangements exempt from capital gains tax. The Tribunal rejected the revenue's arguments, emphasizing the bona fide nature of the arrangements and the absence of transfers. The Tribunal directed the Income-tax Officer to re-compute the total income, deleting the capital gains assessed by the lower authorities.

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• 1990 (12) TMI 154
  
  Issues Involved:
  1. Disallowance of business promotion expenses.
  2. Disallowance of payment to Dr. Francis Brunel and M/s Khapp Communications, U.S.A.
  3. Disallowance of Bombay flat expenses.
  4. Disallowance of law and professional expenses for obtaining a valuation report.
  5. Disallowance under section 40A(8) of the IT Act.
  6. Disallowance of miscellaneous and traveling expenses.
  7. Disallowance of weighted deduction under section 35B.
  8. Disallowance of expenses for Hair Dressing Course Fee.
  9. Claim of investment allowance.
  10. Claim of depreciation for 15 months.
  11. Claim for extra shift allowance.
  12. Disallowance of law and professional fees.
  13. Disallowance of development expenses while working out capital gains.
  
  Detailed Analysis:
  
  1. Disallowance of Business Promotion Expenses:
  The assessee-company objected to the sustenance of disallowance of Rs. 20,000 out of business promotion expenses reimbursed to the Directors. The Tribunal, after considering the arguments and material on record, upheld the CIT(A)'s decision, stating there was no evidence to prove that all expenses were incurred solely for the business purposes of the assessee. Hence, the objection was rejected.
  
  2. Disallowance of Payment to Dr. Francis Brunel and M/s Khapp Communications, U.S.A.:
  The assessee claimed payments to Dr. Francis Brunel and M/s Khapp Communications, U.S.A. for publicity purposes. The Tribunal found no direct nexus between the publications and the assessee's business. It was concluded that these payments appeared to be ex gratia grants rather than business expenses. Thus, the expenses of Rs. 1,05,000 and Rs. 50,000 were disallowed.
  
  3. Disallowance of Bombay Flat Expenses:
  The Tribunal referred to its earlier decision in the assessee's case for the assessment year 1983-84, where such expenses were deemed allowable. Consequently, the disallowance of Rs. 3,000 for each of the two years was directed to be deleted.
  
  4. Disallowance of Law and Professional Expenses:
  The assessee's claim for law and professional expenses incurred for obtaining a valuation report was disallowed for the assessment year 1981-82 but allowed for the assessment year 1982-83, as the liability crystallized in the latter year.
  
  5. Disallowance under Section 40A(8) of the IT Act:
  The ground was withdrawn by the assessee for both years, and hence, the objection was dismissed.
  
  6. Disallowance of Miscellaneous and Traveling Expenses:
  The Tribunal found the disallowance of Rs. 2,000 out of miscellaneous expenses for the assessment year 1981-82 and Rs. 5,000 out of traveling expenses for the assessment year 1982-83 unjustified. These disallowances were directed to be deleted.
  
  7. Disallowance of Weighted Deduction under Section 35B:
  Since the expenses claimed for weighted deduction were not considered to be incurred for the business purposes of the assessee, the objection regarding weighted deduction under section 35B was rejected.
  
  8. Disallowance of Expenses for Hair Dressing Course Fee:
  The Tribunal upheld the disallowance of Rs. 2,379 for the Hair Dressing Course Fee paid to Mrs. Maria Singh, as she was neither an employee of the assessee nor was the expenditure correlated with the business.
  
  9. Claim of Investment Allowance:
  The matter regarding the claim of investment allowance was referred back to the Assessing Officer to be decided afresh according to law, considering the Tribunal's observations in the assessee's case for the assessment year 1983-84.
  
  10. Claim of Depreciation for 15 Months:
  The Tribunal allowed the assessee's claim for additional depreciation for 15 months, citing provisions of rule 5(1) of the IT Rules and relevant case law, which permitted such a claim if the previous year exceeded one year.
  
  11. Claim for Extra Shift Allowance:
  The Tribunal restored the matter to the ITO to decide afresh the question of extra shift allowance on the value of the hotel building, considering the assessee's claim that the hotel functioned round the clock.
  
  12. Disallowance of Law and Professional Fees:
  The Tribunal directed the deletion of the disallowance of Rs. 2,000 out of law and professional fees for the assessment year 1982-83, as the assessee had furnished complete details, and there was no indication that the expenses were incurred for representation before IT authorities.
  
  13. Disallowance of Development Expenses:
  The Tribunal directed the deletion of the disallowance of Rs. 6,000 out of the claim of Rs. 16,325.69 for development expenses while working out capital gains, as complete details were available, and there was no justification for the disallowance.
  
  Conclusion:
  Both appeals were partly allowed, with certain disallowances upheld and others directed to be deleted or referred back for fresh consideration.

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• 1990 (12) TMI 153
  
  Issues:
  - Deletion of interest receivable from M/s Poddar Trading Co. Pvt. Ltd.
  - Disallowance of interest payment based on overall method
  - Deletion of expenditure incurred for road repairs
  - Disallowance of investment allowance on dumpers
  - Entitlement to investment allowance at Ratlam factory
  
  Analysis:
  
  1. Interest Receivable Deletion: The Tribunal noted that interest could not be charged on an amount due from M/s Poddar Trading Co. Pvt. Ltd. since the Award had not become a rule of the Court. The deletion of interest for various assessment years was upheld based on this reasoning, as the Award was considered non-existent. The Department's objection on this ground was dismissed.
  
  2. Interest Payment Disallowance: The Department objected to the direction given by the CIT(A) to the ITO regarding the disallowance of interest payments. The Tribunal found no issue with the CIT(A)'s order, as it merely directed the ITO to follow the overall method laid down by the Tribunal in a previous case. The Department's objection was dismissed, subject to the ITO ensuring compliance with the Tribunal's method.
  
  3. Expenditure on Road Repairs: The Department raised concerns about the deletion of expenditure incurred for road repairs, arguing that the repairs were not the responsibility of the assessee. The Tribunal held that the expenditure, being of revenue nature and necessary for the efficient operation of the assessee's business, could not be disallowed solely based on ownership of the roads. The Department's objection was rejected.
  
  4. Investment Allowance on Dumpers: The Department objected to the allowance of investment allowance on dumpers, claiming they were transport vehicles not eligible for the incentive. The Tribunal upheld the CIT(A)'s decision based on past allowances and lack of reversal of the decision, dismissing the Department's objection.
  
  5. Investment Allowance at Ratlam Factory: The Department contested the allowance of investment allowance at the Ratlam factory, citing potential loss after depreciation. The Tribunal upheld the CIT(A)'s decision, noting that the investment allowance should be granted to the assessee as a whole, not specific units. Since the assessee had positive income, the claim was justified, and the Department's objection was rejected.
  
  In conclusion, all the Department's appeals were dismissed by the Tribunal after thorough analysis and consideration of each issue raised.

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• 1990 (12) TMI 151
  
  Issues Involved:
  1. Addition of incomes earned by Smt. Shanti Devi, Smt. Mansa Devi, and M/s. Srimadhopur Textiles in the name of the assessee.
  2. Clubbing of incomes from Srimadhopur Textiles, Shanti Textiles, and Mansa Textiles.
  3. Discrepancies in the accounts of M/s. Manohar Textiles.
  4. Protective assessments of Smt. Shanti Devi and Smt. Mansa Devi.
  5. Legitimacy of cash credits and capital contributions.
  6. Depreciation claims on power looms.
  7. Trading additions and interest levied under sections 215, 217, and 139(8).
  8. Admissibility of fresh evidence and genuineness of Srimadhopur Textiles.
  
  Detailed Analysis:
  
  1. Addition of incomes earned by Smt. Shanti Devi, Smt. Mansa Devi, and M/s. Srimadhopur Textiles in the name of the assessee:
  The main dispute revolved around the addition of incomes earned by these entities to the income of the assessee. The Income Tax Officer (ITO) found that the businesses were run by the assessee under different names to divert profits. The ITO scrutinized the account books and found discrepancies, such as purchases and manufacturing exceeding sales and closing stock. The books were deemed defective, leading to the application of section 145(2). The ITO also found a cash credit in the name of a deceased person, which was considered bogus.
  
  2. Clubbing of incomes from Srimadhopur Textiles, Shanti Textiles, and Mansa Textiles:
  The ITO found that Srimadhopur Textiles was shown as a proprietary concern of the assessee in bank records, despite claims of partnership with Smt. Kamla Devi. Similarly, Shanti Textiles and Mansa Textiles were found to be managed by the assessee, with the respective women having no substantial knowledge or involvement in the businesses. The ITO concluded that these were benami concerns of the assessee, leading to the clubbing of their incomes with the assessee's income.
  
  3. Discrepancies in the accounts of M/s. Manohar Textiles:
  The ITO noted discrepancies in the accounts of Manohar Textiles, such as purchases and manufacturing exceeding sales and closing stock. The assessee's explanation was found unsatisfactory, leading to the conclusion that the books were not maintained regularly. An addition was made to the income based on these discrepancies.
  
  4. Protective assessments of Smt. Shanti Devi and Smt. Mansa Devi:
  The CIT(A) upheld the ITO's conclusion that the businesses run in the names of Shanti Devi and Mansa Devi belonged to the assessee. However, the AAC's decision to make protective assessments substantive was set aside, as the CIT(A) had already deleted the incomes earned by these parties from the assessee's income.
  
  5. Legitimacy of cash credits and capital contributions:
  The ITO found cash credits and capital contributions in the names of Smt. Kamla Devi and Smt. Shanti Devi to be unexplained and bogus. The CIT(A) reduced some of these additions but upheld the conclusion that the businesses belonged to the assessee.
  
  6. Depreciation claims on power looms:
  The CIT(A) directed the ITO to re-examine the question of depreciation on the electric motor and power looms, as the matter required reconsideration.
  
  7. Trading additions and interest levied under sections 215, 217, and 139(8):
  The CIT(A) reduced the trading addition in the case of Manohar Textiles and directed the deletion of interest charged under sections 215 and 217, as the assessment order did not make any reference to charging interest.
  
  8. Admissibility of fresh evidence and genuineness of Srimadhopur Textiles:
  The CIT(A) admitted fresh evidence in the form of a partnership deed for Srimadhopur Textiles and directed the ITO to re-examine the genuineness of the partnership. The CIT(A) also restored the matter to the ITO for reconsideration of the cash credits and registration of the concern.
  
  Separate Judgments:
  The Judicial Member upheld the inclusion of incomes from Shanti Devi and Mansa Devi in the assessee's income, while the Accountant Member found the Department's examination insufficient and called for fresh verification. The Third Member concluded that the incomes from the power looms run in the names of Shanti Devi and Mansa Devi belonged to them and should not be included in the assessee's income, thus resolving the difference in favor of the assessee.

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• 1990 (12) TMI 150
  
  Issues:
  - Validity of assessment proceedings initiated by different Income Tax Officers for the same assessment year.
  - Jurisdiction of Income Tax Officers in framing assessments.
  - Consideration of first assessment's validity before annulling a subsequent assessment.
  
  Analysis:
  
  Issue 1: Validity of assessment proceedings initiated by different Income Tax Officers
  The case involves the department appealing against the annulment of an assessment for the Assessment year 1983-84 by the AAC of Income-tax. The dispute arose when the assessee, after a notice under section 139(2) was served by ITO A-Ward, Katni, filed returns for 1982-83 and 1983-84 without specifying the ward. The assessments for these years were completed by ITO C-Ward, Katni, leading to confusion. The AAC annulled the assessment by ITO A-Ward, citing the prior assessment by ITO C-Ward. However, it is crucial to establish the validity of the first assessment before annulling a subsequent one.
  
  Issue 2: Jurisdiction of Income Tax Officers in framing assessments
  The contention raised was whether the assessment by ITO C-Ward, Katni, was valid despite the proceedings being initiated by ITO A-Ward, Katni. The jurisdiction of the officers was questioned, with the argument that once assessment proceedings were pending before one ITO, the other had no jurisdiction to frame an assessment. It was noted that the act of ITO C-Ward, though first in time, was without jurisdiction, as the proceedings were already underway with ITO A-Ward. The assessee's awareness of this fact and communication to ITO A-Ward further supported the conclusion that the second assessment was validly framed.
  
  Issue 3: Consideration of first assessment's validity before annulling a subsequent assessment
  The judgment highlighted the importance of assessing the validity of the first assessment before annulling a subsequent one. The AAC's decision was criticized for not examining the validity of the initial assessment by ITO C-Ward, Katni, before annulling the assessment by ITO A-Ward. Reference was made to legal precedents emphasizing the need for a valid first assessment for a second assessment to be deemed invalid. The Commissioner's order under section 263, while mentioning the assessment by ITO A-Ward as wrong, did not conclusively establish its invalidity. Therefore, the decision was made to set aside the annulled assessment and refer it back to ITO A-Ward for a fresh assessment after providing the assessee with a reasonable opportunity to be heard.
  
  In conclusion, the judgment delved into the intricacies of assessment proceedings, jurisdiction of Income Tax Officers, and the necessity to establish the validity of the first assessment before annulling a subsequent one. The decision to set aside the annulled assessment and refer it back for a fresh assessment underscored the importance of procedural correctness and adherence to jurisdictional boundaries in tax assessments.

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• 1990 (12) TMI 149
  
  Issues Involved:
  
  1. Addition of Rs. 15,000 to the capital account.
  2. Addition of Rs. 30,000 on account of cash credit from Gopi Chand.
  3. Addition of Rs. 30,000 on account of cash credit from Satish Chand.
  4. Disallowance of Rs. 15,000 out of paper, stationery, and printing expenses.
  5. Disallowance of Rs. 4,000 out of postage expenses.
  6. Disallowance of 1/3rd of motor car expenses and depreciation.
  7. Disallowance of Rs. 8,358 on account of ex gratia payment.
  8. Disallowance of Rs. 5,392 on account of medical allowance.
  9. Disallowance of Rs. 5,200 on account of outstanding contract wages.
  10. Disallowance of Rs. 1,500 out of traveling expenses.
  11. Addition of Rs. 16,438 on account of low withdrawals for household and personal expenses.
  12. Adoption of Annual Letting Value (ALV) for self-occupied residential house.
  
  Detailed Analysis:
  
  1. Addition of Rs. 15,000 to the Capital Account:
  The issue revolves around the introduction of Rs. 15,000 into the capital account by the assessee, claimed to be from the sale of gold ornaments. The ITO treated this amount as concealed income due to lack of evidence regarding the acquisition and sale of the ornaments. The CIT(A) upheld this view, noting insufficient details to verify the claim. The Tribunal found that the assessee failed to provide corroborative evidence and thus agreed with the lower authorities in treating the amount as concealed income.
  
  2. Addition of Rs. 30,000 on Account of Cash Credit from Gopi Chand:
  The assessee claimed that Gopi Chand advanced Rs. 30,000 by cheque. The ITO and CIT(A) found discrepancies in Gopi Chand's statements and the bank transactions, leading to the conclusion that the transaction was not genuine. The Tribunal upheld the addition, noting that the assessee failed to prove the creditor's capacity and the genuineness of the transaction, despite Gopi Chand being an income-tax assessee.
  
  3. Addition of Rs. 30,000 on Account of Cash Credit from Satish Chand:
  The assessee claimed a loan of Rs. 30,000 from Satish Chand, who allegedly received the amount from four closely related individuals. The ITO and CIT(A) concluded that Satish Chand lacked the capacity to advance the loan. The Tribunal agreed, noting inconsistencies in the statements and the bank transactions, and upheld the addition as income from undisclosed sources.
  
  4. Disallowance of Rs. 15,000 out of Paper, Stationery, and Printing Expenses:
  The ITO disallowed Rs. 15,000 out of the claimed expenses due to a significant portion being incurred in the last month without proper records. The CIT(A) confirmed this disallowance. However, the Tribunal found that the assessee provided detailed evidence of the expenses and noted the increased turnover. Therefore, the disallowance was deleted.
  
  5. Disallowance of Rs. 4,000 out of Postage Expenses:
  The ITO disallowed Rs. 10,000, later reduced to Rs. 4,000 by the CIT(A), due to the absence of a postage register. The Tribunal found that the details provided by the assessee, including payments for franking machine usage and postage stamps, justified the expenses. Hence, the disallowance was deleted.
  
  6. Disallowance of 1/3rd of Motor Car Expenses and Depreciation:
  The ITO and CIT(A) disallowed a portion of the motor car expenses and depreciation due to possible personal use. The Tribunal agreed with the disallowance of expenses but found the IAC's direction to disallow depreciation invalid as it was not part of the draft assessment. The disallowance of depreciation was deleted, and the disallowance of expenses was reduced to 1/4th.
  
  7. Disallowance of Rs. 8,358 on Account of Ex Gratia Payment:
  The ITO and CIT(A) disallowed the ex gratia payment due to lack of evidence of its due date. The Tribunal found that the payment was made for business purposes to maintain employee relations and allowed the deduction.
  
  8. Disallowance of Rs. 5,392 on Account of Medical Allowance:
  The ITO and CIT(A) disallowed the medical allowance claim due to lack of evidence of liability during the year. The Tribunal upheld the disallowance, noting the absence of the alleged agreement and failure to prove the liability.
  
  9. Disallowance of Rs. 5,200 on Account of Outstanding Contract Wages:
  The ITO and CIT(A) disallowed the claim due to lack of a formal agreement. The Tribunal found that the disallowance was unjustified as the amount was payable for translation work done by two individuals. The disallowance was deleted.
  
  10. Disallowance of Rs. 1,500 out of Traveling Expenses:
  The ITO and CIT(A) disallowed Rs. 1,500 due to personal nature of expenses. The Tribunal upheld the disallowance, finding it reasonable based on the facts.
  
  11. Addition of Rs. 16,438 on Account of Low Withdrawals for Household and Personal Expenses:
  The ITO and CIT(A) found the withdrawals for household expenses to be low considering the assessee's status and family size. The Tribunal agreed, noting the reasonable estimation of household expenses at Rs. 2,500 per month and upheld the addition.
  
  12. Adoption of Annual Letting Value (ALV) for Self-occupied Residential House:
  The assessee contested the ALV adopted by the lower authorities. The Tribunal found no merit in the contention as it did not arise from the CIT(A)'s order and confirmed the finding.

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• 1990 (12) TMI 148
  
  Issues Involved:
  1. Whether the loss of Rs. 2,00,287 on the sale of shares should be treated as a business loss or a capital loss.
  
  Detailed Analysis:
  
  1. Treatment of Loss on Sale of Shares:

  The first ground is against the direction of the CIT(Appeals) directing the assessing officer to allow loss of Rs. 2,00,287 on sale of shares as revenue loss.

  During the year relevant to assessment year 1980-81 the assessee claimed loss on account of sale of shares of M/s. Gangeshwar Ltd. and M/s. Mahalaxmi Sugar Co. Ltd. amounting to Rs. 2,00,287. The assessing officer did not allow the loss, inter alia, on the following grounds:

  (i) The assessee had claimed a similar loss for assessment year 1979-80 which was treated as a short-term capital loss and not allowed as a business loss ;

  (ii) The assessee failed to furnish complete details of its share-dealings, details of payments made for purchase of shares, details of consideration of sale of shares, purchaser's identity etc. ; and

  (iii) The assessee HUF purchased the shares with full knowledge that it would be incurring losses on these shares and consequently the claim of loss was not genuine. The claim of the assessee was accordingly rejected by the assessing officer as per the directions of the Inspecting Assistant Commissioner.

  Commissioner of Income-tax (Appeals) found that the assessee vide its letter dated 21-10-1982 had given details of the opening balance of shares, their purchase, sale etc. The names of the companies, number of shares and the value of shares had also been disclosed in the statement. Commissioner of Income-tax (Appeals) further noted that in its letter dated 13-10-1982 the assessee had given the history of its share business. He, therefore, did not find any substance in the finding of the assessing officer that the details were not furnished by the assessee before him. CIT (Appeals) further found that the rates quoted by the company showed that the assessee's sale price was not less than the prevailing market price. He, therefore, held that the loss of Rs. 2,00,287 suffered by the assessee on the sale of shares was a genuine loss.

  As regards the question whether the loss should be allowed as a business loss or a capital loss the observation of the learned Commissioner of Income-tax (Appeals) was that the assessee had purchased and sold shares of only three companies, namely, M/s. Gangeshwar Ltd., M/s. Mahalaxmi Sugar Mills Co. Ltd. and M/s. RBL Tirath Ram Shah (India) Ltd. which appear to belong to the same group. He also noticed that the assessee had trading relations with them and had earned commission on the sale of sugar from the first two companies. He found that at no stage had the assessee purchased shares of any other companies. According to the learned Commissioner of Income-tax (Appeals), therefore the shares were not held as the stock-in-trade. It was also mentioned by the CIT (Appeals) that for assessment year 1979-80 loss in shares transactions was held by Appellate Assistant Commissioner/Tribunal as business loss, but the Department's appeal on this point was dismissed by the Tribunal on technical grounds and not on merits and thus, the Tribunal's decisions would not serve as a guide for arriving at a proper decision for assessment year 1980-81. It was, however, pleaded by the assessee before the CIT (Appeals) that the shares of the aforesaid three companies had been purchased by way of business expediency and the assessee had earned substantial income from these companies. Relying on the decision of the Supreme Court in the case of Patnaik & Co. Ltd. v. CIT [1986] 161 ITR 365/27 Taxman 287 the learned CIT(Appeals) directed the Income-tax Officer to allow the loss of Rs. 2,00,287 incurred by the assessee on share transactions as a revenue loss.

  Smt. Sheba Bhattacharya, the learned Departmental Representative, strongly submitted that the assessee was not carrying on any business in share dealings and, as such, the loss on sale of shares could not be treated as a business loss. It was also emphasised that for assessment year 1979-80 the Revenue's appeal did not succeed on technical grounds and the Tribunal's order for that year did not deal with the merits of the case. It was submitted that if the whole idea in purchasing the shares of the aforesaid three companies was to come closer to the managements of the companies and thereby to promote the business then there was no question of sale of these shares. In this connection it was pointed out that the assessee had purchased 52,854 shares of M/s. Gangeshwar Ltd. which were sold within three weeks of their purchase on 11-4-1978 thereby resulting in a loss of Rs. 55,497 to the assessee. Similarly, it was submitted that the assessee purchased 45,000 shares of Mahalaxmi Sugar Mills Co. Ltd. on 23-3-1978 out of which 25,000 shares were sold on 24-5-1979 resulting in a loss of Rs. 34,987. Thus, the submission was that it was argued that the assessee purchased 43,500 shares of M/s. Gangeshwar Ltd. on 7-12-1978 and all the shares were sold on 10-3-1980 resulting in a loss of Rs. 1,65,300. It was also pointed out that out of the 45,000 shares purchased of M/s. Mahalaxmi Sugar Mills Co. Ltd. on 23-3-1978 the balance 20,000 shares were sold on 24-5-1979 resulting in a loss of Rs. 34,987. Thus the submission was that the loss incurred for assessment year 1979-80 amounting to Rs. 1,12,309 and the loss of Rs. 2,00,287 for assessment year 1980-81 could not be said to be business loss as these did not arise out of any commercial expediency. It was vehemently argued that if the purpose of the assessee was to promote business or to facilitate its operations with the sugar mills then there was no point in disposing of the shares in a few days or in a few months of their purchase. It was vehemently argued that the CIT (Appeals) should not have directed the Income-tax Officer to allow a sum of Rs. 2,00,287 as business loss.

  Dr. S. Narayanan, the learned authorised representative of the assessee, on the other hand, submitted that the assessee was not a dealer in shares. According to him the assessee was a commission agent and dealer in sugar. Giving the history of the case it was submitted that for assessment years 1975-76, 1976-77 and 1977-78 the assessee had only share income from a partnership firm which came to Rs. 3,034, Rs. 72 and Rs. 21,882 respectively. It was pointed out that the assessee started its own sugar business in the year relevant to assessment year 1978-79 and thereafter the share income from the partnership firm remained very little, but the business income from sugar dealings increased considerably in the subsequent years. It was pointed out that though for assessment year 1979-80 the business income was a loss of Rs. 1,22,947, it was a profit of Rs. 78,087 for assessment year 1980-81 and for subsequent three assessment years the assessee had shown profits of more than Rs. 3.5 lakhs in each year. It was also pointed out that the assessee had purchased shares of the three companies mentioned above and these three companies belonged to the same group. It was submitted that the assessee had to borrow money for the purchase of big blocks of shares of these companies and the idea behind purchasing the shares was that the assessee would get more business from these companies. The underlying purpose for purchasing these shares, according to the learned counsel was, that the assessee should be able to augment its business and to indirectly facilitate it further. It was emphasised again and again that the assessee had voluntarily purchased these shares with a view to coming closer to the managements of these companies. Our attention was drawn to pages 474, 626 and 628 of the Law & Practice of Income-tax by N.A. Palkhiwala and B.A. Palkhiwala (8th Edition, Volume I). Similarly our attention was drawn to pages 1493 and 1494 of Sampath Iyengar's book Law of Income Tax (Vol. 2 - 8th Edition). Reliance was placed on the Supreme Court decision in Patnaik & Co. Ltd.'s case and Allahabad High Court decision in CIT v. Dhampur Sugar Mills Ltd. [1988] 171 ITR 675. The sum and substance of the submissions was that the assessee had incurred loss on sale of shares out of commercial expediency and that it should be allowed as a business loss.

  We have carefully considered the rival submissions as also the facts on record. Each case has to be decided on its own facts. We have, therefore, to decide this case also on the basis of its own facts.

  It has been admitted by the learned counsel for the assessee that the assessee was not dealing in shares. We would, therefore, not go into the question whether the assessee was a dealer in shares and whether the shares were being held as stock-in-trade. The Revenue has not questioned the genuineness of the transactions and the CIT (Appeals) has also found that the assessee had furnished full details regarding purchase, sale etc. of shares. The only question to be decided by us is whether the CIT(A) was justified in directing the Income-tax Officer to allow the loss of Rs. 2,00,287 as revenue loss. We find that the assessee had purchased shares only of the three above-mentioned companies. Only 92 shares of M/s. RBL Tirath Ram Shah (India) had been purchased and these were not sold up to 31-3-1980 relevant to assessment year 1980-81. The main shares were, however, of M/s. Gangeshwar Ltd. and M/s. Mahalaxmi Sugar Mills Co. Ltd. As per the details furnished before us and as submitted by the learned Departmental Representative we find that for assessment year 1979-80 the assessee had purchased 52,854 shares of M/s. Gangeshwar Ltd. which were sold on 11-4-1978 i.e, within three weeks of their purchase. Similarly, out of 45,000 shares of M/s. Mahalaxmi Sugar Mills Co. Ltd. purchased on 23-3-1978, 25,000 shares were sold on 11-4-1978 and the balance 20,000 shares on 24-5-1979. The assessee purchased another block of 43,500 shares of M/s. Gangeshwar Ltd. On 7-12-1978 and the entire lot was sold in 15 months period on 10-3-1980. If the assessee's arguments were to be accepted that the shares were purchased with a view to facilitating its business or promoting its business then it is not understood as to why these shares were sold so soon after the purchase. If the idea was to come closer to the managements of the three companies then that purpose was not being achieved by the disposal of the shares, but by their retention. The learned counsel for the assessee has submitted that as a result of the sale of shares the assessee's profits had gone up phenomenally in the subsequent years particularly in assessment years 1981-82, 1982-83 and 1983-84. According to him there was a live link and a direct nexus between the purchase of shares and the increase in the business of the assessee. In this regard we find that there is no direct nexus or live link between the purchase of shares and the increase in business. No direct nexus has been established in this regard. From the details available at page 56 of the assessee's compilation, we find that for assessment year 1978-79 which was the first year of assessee's business with the three companies aforesaid as a dealer, the gross commission earned amounted to Rs. 1,23,975. This was for a period of about 6 months because the assessee became a dealer in sugar only with effect from September 1977. On this basis the gross commission for a whole year would have amounted to Rs. 2.5 lakhs. For assessment years 1979-80 and 1980-81 the figures of gross commission mentioned are Rs. 3,99,460 and Rs. 3,22,517. It is worth noting that the first purchase of shares by the assessee of M/s. Gangeshwar Ltd. and M/s. Mahalaxmi Sugar Mills Co. Ltd. was on 23-3-1978 which was almost towards the close of the accounting year relevant to assessment year 1978-79. Thus, in the absence of purchase of any shares the assessee had earned gross commission of Rs. 1,23,975 for a period of about 6 months. If the commission increased to more than Rs. 3,00,000 in the subsequent years it was a normal feature and there was nothing unusual, extraordinary or spectacular about the increase in the commission income as a result of the purchase of shares.

  The case of Patnaik & Co. Ltd. was decided on its own facts which are distinguishable. In that case the assessee was told that if it subscribed for the Government loan, preferential treatment would be granted to it in the placing of orders for motor-vehicles required by the various Government departments and to the further benefit of an advance from the Government up to 50 per cent of the value of the orders placed. Pursuant to that understanding, an advance to the extent of Rs. 18,37,062 was received by the assessee and a circular was also issued by the State Government to various departments to make purchases of the vehicles required by them from the assessee. It was also noticed that the sales shot up substantially. On September 4, 1961 the assessee made a deposit of Rs. 5,00,000 consequent upon a resolution of Board of Directors passed about 6 weeks before, after a statement made by the Chairman during the Board Meeting that the Government had approached him to subscribe to the Government loan and the company should do so as good number of orders would be expected. The purchase of the loan was approved by the Board of Directors and was ratified in the Annual General Meeting of the shareholders held on 31-12-1961. This was the sequence of events, looking to this and the close proximity of the investment with the receipt of the Government orders the Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and the Supreme Court found that the Tribunal was right in coming to the above conclusion.

  If we compare the facts of the above case with those of the instant case it immediately becomes clear that the facts are absolutely distinguishable. Here the assessee has failed to prove any sequence of events. The learned counsel's emphasis on the voluntary nature of purchase assumes added significance because there was no suggestion or understanding from the side of the sugar companies for the assessee to purchase their shares. The assessee has also not proved any direct nexus between the purchase of shares and the earning of profits. The increase in profits appears to be a normal feature of the assessee's business.

  In the case of Dhampur Sugar Mills Ltd. also the facts were somewhat similar to the facts in the case of Patnaik & Co. Ltd. In that case the assessee had purchased U.P. State Development Bonds for Rs. 3,23,190. Those bonds had been purchased at the behest of the Distt. authorities and it was found that it was necessary for the mill to maintain the goodwill of and good relations with the Distt. authorities for otherwise the business of the sugar mill would have suffered. The Tribunal in that case recorded a finding that the purchase of the bonds was connected with the business of the assessee and the Hon'ble High Court applying the principles laid down in Patnaik & Co. Ltd.'s case held that the loss incurred on the sale of such bonds was a revenue loss. The facts of this case are also distinguishable from those of the instant case.

  Having regard to the entire facts and circumstances of the case, we hold that there was no business expediency in purchasing the shares of the aforesaid company and, as such, the loss incurred on the sale of shares cannot be held as a business loss. It will be treated as a capital loss.

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• 1990 (12) TMI 147
  
  Issues Involved:
  1. Taxability of cash assistance received by the assessee.
  2. Deductibility of cash assistance paid to manufacturers.
  3. Applicability of public policy to the transfer of export incentives.
  4. Treatment of duty drawback and export incentives as income.
  
  Issue-wise Detailed Analysis:
  
  1. Taxability of Cash Assistance Received by the Assessee:
  The assessee received cash assistance of Rs. 38,23,642 during the assessment year 1981-82, out of which Rs. 30,83,920 was paid to various manufacturers. The balance amount of Rs. 7,39,722 was declared as the assessee's income. The Income-tax Officer (ITO) initially disallowed the amount of Rs. 30,83,920, considering it as the assessee's income. The CIT(Appeals) directed the ITO to verify if the transfer of cash assistance was permissible under public policy and the relevant import-export regulations. Upon further appeal, it was held that the cash assistance received by the assessee was taxable as a trading receipt, supported by the retrospective amendment of section 2(24)(vb) and section 28(iiib) with effect from 1-4-1967 by the Finance Act, 1990. The cross-objection by the assessee challenging the taxability of Rs. 7,39,723 was dismissed.
  
  2. Deductibility of Cash Assistance Paid to Manufacturers:
  The ITO disallowed the deduction of Rs. 30,83,920 paid to manufacturers, citing lack of business expediency under section 37(1) and public policy concerns. The CIT(Appeals) noted that the ITO did not fully verify the facts as directed by the IAC and instructed the ITO to re-examine the matter. On further appeal, it was determined that the agreements between the assessee and manufacturers included provisions for the transfer of export entitlements, including cash assistance, to the manufacturers. The Tribunal concluded that the transfer of cash incentives was in conformity with public policy and the relevant import-export regulations, thus allowing the deduction of Rs. 30,83,920.
  
  3. Applicability of Public Policy to the Transfer of Export Incentives:
  The ITO argued that sharing export incentives with non-exporters was against public policy and could not be allowed as a deduction. However, the CIT(Appeals) and the Tribunal found that the agreements between the assessee and manufacturers were in line with the import-export policy, specifically para 165, which allowed third-party claims on export entitlements with proper disclaimers. The Tribunal confirmed that the transfer of export incentives was not against public policy, supported by clarifications from the Engineering Export Promotion Council and the Federation of Indian Export Organisations.
  
  4. Treatment of Duty Drawback and Export Incentives as Income:
  The ITO included the entire amount of duty drawback and export incentives as the assessee's income, while the assessee argued that a significant portion was passed on to manufacturers. The CIT(Appeals) held that the duty drawback and export incentives were transferable and excluded the amounts passed on to manufacturers from the assessee's income. The Tribunal upheld this view, stating that the agreements created a charge by which the income from cash incentives was diverted at the source to the manufacturers. The Tribunal also referenced the CBDT Circular No. 466, which supported the treatment of such transfers as allowable business expenditure under section 37(1).
  
  Conclusion:
  The appeal by the department and the cross-objection by the assessee were both dismissed. The Tribunal affirmed that the cash assistance and duty drawbacks were transferable and their transfer did not violate public policy. The amounts transferred to manufacturers were excluded from the assessee's income, and the remaining cash assistance was taxable as a trading receipt.

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• 1990 (12) TMI 146
  
  Issues:
  Penalty under section 273(1a) of the Income-tax Act, 1961 - Deletion of penalty by CIT(A)-XIV, New Delhi - Disparity between estimated income and assessed income - Justification for estimating income at a lower figure - Application of mind by Assessing Officer before levying penalty - Burden of proof on revenue to establish the estimate was untrue - State of mind of the assessee when filing the estimate - Material basis for estimating income - Knowledge or belief of the assessee regarding the accuracy of the estimate.
  
  Analysis:
  The appeal pertains to the deletion of a penalty imposed under section 273(1a) of the Income-tax Act, 1961 by the Assessing Officer, which was subsequently cancelled by the CIT(A)-XIV, New Delhi. The penalty was imposed due to a disparity between the estimated income and the assessed income, with the Assessing Officer alleging that the assessee knowingly furnished an untrue statement of advance-tax payable. The assessee, a registered firm, had estimated its income at Rs. 3 lakhs for the relevant year but filed a return declaring an income of Rs. 5,59,010. The assessment was made at Rs. 5,56,015, leading to scrutiny of the estimate and the justification for the lower figure. The Assessing Officer contended that the estimate was knowingly inaccurate, citing discrepancies and reliance on previous court decisions to support the penalty imposition.
  
  The counsel for the assessee argued that the Assessing Officer did not apply his mind before levying the penalty and failed to consider the explanation provided by the assessee. The counsel relied on court decisions emphasizing that the revenue must establish that the default was without a reasonable cause and that rejecting an explanation as unsatisfactory does not justify penalty imposition. The basis for the estimate of Rs. 3 lakhs was explained by the assessee, including factors such as previous year's income, turnover, and an accounting error regarding an escalation claim. The counsel highlighted the need for the revenue to prove the estimate was untrue to levy the penalty under section 273.
  
  The Tribunal analyzed the contentions of both parties and referred to relevant court decisions to determine the legal principles governing penalty imposition under section 273. It emphasized that the word 'estimate' implies approximation and does not necessitate accuracy. The Tribunal reiterated that the burden of proof lies with the revenue to demonstrate that the estimate was knowingly false. The Tribunal highlighted that the state of mind of the assessee at the time of filing the estimate is crucial, and subsequent events may not be determinative unless they were foreseeable at the time of filing. Applying these principles to the case at hand, the Tribunal concluded that the penalty was unwarranted as there was no evidence to suggest that the estimate was knowingly untrue or that the assessee had reason to believe it was inaccurate.
  
  In light of the above analysis, the Tribunal dismissed the appeal of the Revenue, upholding the decision of the CIT(A) to cancel the penalty imposed by the Assessing Officer.

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• 1990 (12) TMI 145
  
  Issues Involved:
  
  1. Gross capital gains on sale of shares.
  2. Deletion of addition on account of dividend accrued.
  3. Disallowance of sales tax liabilities.
  4. Disallowance of bad debts.
  
  Issue-wise Detailed Analysis:
  
  1. Gross Capital Gains on Sale of Shares:
  
  The Revenue challenged the relief of Rs. 54,97,100 granted by the CIT(A) on account of gross capital gains on the sale of shares, arguing that the CIT(A) erred in not addressing the Assessing Officer's objections to the valuation method adopted by the assessee. The assessee contended that the CIT(A) was wrong in taking the sale price of 10,000 equity shares at Rs. 33,98,500 against the declared sale consideration of Rs. 22,00,000 and in holding that the sale was aimed at reducing liability under Section 45 of the IT Act, 1961.
  
  The assessee owned 10,000 shares, including 5,000 bonus shares, of Hindustan Computers Limited (HCL) and claimed to have sold these shares at Rs. 220 per share. The ITO observed that the payments from some purchasers were not received till the end of the previous year and concluded that the sale was effected in June 1982 when the shares were transferred. The ITO also noted that the assessee purchased 6,400 shares of HCL at Rs. 339.85 per share and sold them at the same rate, resulting in no capital gain or loss. The ITO adopted the consideration for all shares at Rs. 889.56 per share, the break-up value as on 30th June 1982, and assessed the net capital gain at Rs. 1,19,13,784.
  
  The CIT(A) concluded that the sale of 10,000 shares was understated, noting discrepancies in payment rates and the acquisition of 6,400 shares at Rs. 339.85 per share. The CIT(A) fixed the consideration for 16,400 shares at Rs. 339.85 per share, resulting in capital gains of Rs. 28,98,500 for 10,000 shares and deleting the gains for 6,400 shares. The CIT(A) gave relief of Rs. 54,95,100 to the assessee.
  
  The Tribunal agreed with the CIT(A) and the Departmental Representative that the resolutions passed by the company were internal documents and could be viewed with suspicion. The Tribunal held that Section 52(1) was applicable and confirmed the sale consideration of Rs. 339.85 per share for 10,000 shares, finding it reasonable and in line with the consideration for 6,400 shares.
  
  2. Deletion of Addition on Account of Dividend Accrued:
  
  The ITO noted that 16,400 shares were transferred to individuals and entities connected to the directors of the assessee company shortly before HCL declared a high dividend. The ITO held that this was a tax avoidance method and included the dividend of Rs. 3,69,000 in the assessee's income under Section 94 of the IT Act.
  
  The CIT(A) deleted the addition, and the Tribunal agreed, noting that the provisions of Section 94 were not applicable as the sales of shares were genuine and bona fide. The Tribunal upheld the CIT(A)'s detailed reasoning and found no merit in the Revenue's appeal.
  
  3. Disallowance of Sales Tax Liabilities:
  
  The ITO disallowed sales tax liabilities aggregating to Rs. 58,770, including penalties and additional liabilities for previous years. The CIT(A) upheld the disallowance.
  
  The Tribunal found no merit in the assessee's appeal, agreeing that penalties for breach of law are not deductible and that additional demands received after the accounting period were rightly disallowed. The Tribunal also noted the lack of evidence for certain liabilities and upheld the disallowance.
  
  4. Disallowance of Bad Debts:
  
  The ITO disallowed bad debts of Rs. 32,102 due to lack of evidence and details and the absence of steps taken for recovery. The CIT(A) upheld the disallowance.
  
  The Tribunal agreed with the CIT(A)'s detailed reasoning and found no further evidence brought on record by the assessee. The Tribunal upheld the disallowance of bad debts.
  
  Conclusion:
  
  Both the appeals by the Revenue and the assessee were dismissed. The Tribunal confirmed the CIT(A)'s orders on all issues, including the relief on capital gains, deletion of dividend addition, disallowance of sales tax liabilities, and disallowance of bad debts.

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• 1990 (12) TMI 144
  
  Issues Involved:
  1. Whether the Sales-tax payable, but which has not fallen due for payment under the Sales-tax Rules, can be allowed as an expenditure in spite of the retrospective introduction of Explanation to section 43B by the Finance Act 1989?
  2. Inclusion of Rs. 63,278 for the purpose of disallowance u/s 37(3B).
  
  Summary:
  
  Issue 1: Sales-tax Payable and Section 43B
  
  The central question was whether sales-tax payable, but not yet due under Sales-tax Rules, can be allowed as an expenditure despite the retrospective introduction of Explanation 2 to section 43B by the Finance Act 1989. The Tribunal noted that section 43B was introduced to curb the practice of taxpayers claiming deductions on statutory liabilities like sales-tax and excise on an accrual basis while simultaneously challenging these liabilities in court and retaining the money. Section 43B mandates that deductions for such liabilities are allowed only in the year they are actually paid.
  
  The Tribunal referenced the Delhi High Court's decision in the case of Sanghi Motors, which upheld the disallowance of sales-tax deductions claimed on an accrual basis, emphasizing that deductions can only be claimed in the year of actual payment. The Tribunal also considered the Andhra Pradesh High Court's decision in Srikakollu Subba Rao & Co. v. Union of India, which interpreted section 43B to mean that the liability must be both incurred and statutorily payable within the same accounting year.
  
  The Finance Act 1987 introduced a proviso to section 43B effective from 1-4-1988, allowing deductions if the payment was made before the due date for filing the return. However, Explanation 2, inserted by the Finance Act 1989 with retrospective effect from 1-4-1984, clarified that "any sum payable" includes sums for which liability was incurred in the previous year, even if not statutorily payable within that year.
  
  The Tribunal concluded that the proviso to section 43B, effective from 1-4-1988, cannot be applied retrospectively to assessment years 1984-85 to 1987-88. Therefore, the disallowance of Rs. 41,902 was upheld, following the Delhi High Court's decision in Sanghi Motors.
  
  Issue 2: Disallowance u/s 37(3B)
  
  The assessee contested the inclusion of Rs. 63,278 for disallowance u/s 37(3B), arguing that these payments were commissions to agents rather than sales promotion expenses. The Tribunal agreed, noting that commissions paid to agents based on sales contracts are remuneration for effecting sales and not sales promotion expenses. This view was supported by previous Tribunal decisions in similar cases.
  
  Conclusion:
  
  The appeal was partly allowed. The Tribunal upheld the disallowance of sales-tax deductions under section 43B but allowed the assessee's claim regarding the inclusion of commission payments for disallowance u/s 37(3B).

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• 1990 (12) TMI 143
  
  Issues:
  1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 1981-82.
  2. Discrepancy in the explanation provided by the assessee regarding the source of income from the sale of jewellery.
  3. Application of Explanation 1 to section 271(1) for determining concealed income.
  
  Detailed Analysis:
  1. The judgment revolves around the confirmation of a penalty of Rs. 12,500 imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1981-82. The penalty was initially imposed by the Income-tax Officer and later confirmed by the Commissioner of Income-tax (Appeals) and the Tribunal. The penalty was related to the treatment of long-term capital gains from the sale of jewellery, which the assessing officer deemed as income from undisclosed sources. The assessee's explanation regarding the source of income was under scrutiny throughout the proceedings.
  
  2. The crux of the issue lies in the inconsistency in the assessee's explanation regarding the source of income generated from the sale of jewellery. Initially, the assessee claimed that the jewellery was purchased and sold in the same year, supported by a purchase voucher. However, the assessing officer, Commissioner of Income-tax (Appeals), and the Tribunal did not find this explanation credible. The Tribunal noted that the original purchase voucher was not submitted, and the assessee later changed the stance, claiming that the amount in question represented jewellery purchased in 1973. This inconsistency in explanations and lack of supporting evidence led to the confirmation of the penalty.
  
  3. The application of Explanation 1 to section 271(1) played a crucial role in determining the concealed income in this case. Explanation 1 stipulates that if a person fails to offer a credible explanation or provides a false explanation regarding material facts related to income computation, the concealed amount will be deemed as income. In this case, the Tribunal found that the changing stands taken by the assessee, coupled with the lack of substantiating evidence, rendered the explanation not bona fide. As a result, the penalty of Rs. 12,500 was upheld based on the provisions of Explanation 1 and the overall circumstances of the case.
  
  In conclusion, the judgment upheld the penalty imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1981-82 due to discrepancies in the explanation provided regarding the source of income from the sale of jewellery. The application of Explanation 1 to section 271(1) played a significant role in deeming the concealed amount as income, considering the changing stands and lack of supporting evidence from the assessee.

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• 1990 (12) TMI 142
  
  Issues Involved:
  1. Admission of additional ground regarding the inclusion of the value of capital work-in-progress and machinery-in-transit in the computation of capital employed for section 80J relief.
  2. Relief under section 80J for a period of 18 months in the assessment year 1972-73.
  
  Detailed Analysis:
  
  1. Admission of Additional Ground:
  The assessee filed an application to admit an additional ground, arguing that the CIT(A) erred in not directing the ITO to include the value of capital work-in-progress and machinery-in-transit in the computation of capital employed for the purpose of section 80J relief.
  
  The Tribunal considered the submissions and reviewed the records. The original return filed by the assessee excluded borrowed capital from the capital employed, but a revised return included it. The assessee's claim under section 80J was revised before the CIT(A), but there was no clear indication of when and before whom this claim was made. The assessee's letter dated 18-4-1985, which included a balance sheet showing the value of capital work-in-progress/machinery-in-transit, was ignored by the ITO. The claim regarding work-in-progress/machinery-in-transit was made for the first time in a letter dated 18-5-1987, after the CIT(A) had passed the impugned order on 11-3-1987.
  
  The Tribunal noted that the assessee did not make this claim during the original proceedings before the ITO or the CIT(A). The grounds on appeal and statement of facts filed before the CIT(A) did not show that the claim regarding work-in-progress/machinery-in-transit was made. The Tribunal found that there was no valid reason for not making the claim at an earlier stage and declined to admit the additional ground at this stage.
  
  2. Relief Under Section 80J for a Period of 18 Months:
  The assessee claimed that relief under section 80J(1) should be allowed for a period of 18 months comprised in the previous year relevant to the assessment year 1972-73. The assessee argued that the use of the words "at the rate of 6% per annum" signified that if the previous year consisted of more than 12 months, the deduction under section 80J would be allowable for the entire period at the prescribed rate.
  
  The Tribunal considered the submissions and reviewed the relevant case law. The decision in the case of Escorts Ltd. v. ITO supported the view that relief under section 80J was to be allowed on a yearly basis and not on a proportionate basis. The Karnataka High Court in the case of Mysore Petro-Chemicals Ltd. and the Calcutta High Court in the case of Oyster Packagers (P.) Ltd. also supported the view that relief under section 80J has to be allowed for 5 years at the prescribed rate, irrespective of the duration of the previous year.
  
  The Tribunal upheld the order of the CIT(A) rejecting the assessee's contention that relief under section 80J should be allowed for the assessment year 1972-73 for a period of 18 months.
  
  Conclusion:
  The appeal was dismissed. The Tribunal declined to admit the additional ground regarding the inclusion of the value of capital work-in-progress and machinery-in-transit in the computation of capital employed for section 80J relief. Additionally, the Tribunal upheld the order of the CIT(A) rejecting the assessee's contention that relief under section 80J should be allowed for a period of 18 months.

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• 1990 (12) TMI 141
  
  Issues:
  1. Allowance of 'Investment Allowance' to the assessee.
  2. Disallowance of repairs expenses for the assessment years.
  3. Allowance of 'Extra Shift Depreciation' for the assessment year.
  
  Issue 1: Allowance of 'Investment Allowance' to the assessee
  
  The Department contended that a Hotel cannot be considered an Industrial Undertaking eligible for investment allowance. They argued that the entire Hotel business should not be covered by the provisions of s. 32A. The Department cited precedents to support their argument. However, the assessee relied on the decision of the learned CIT(A) and a previous Tribunal decision in their favor. The Tribunal, after considering arguments from both sides, decided in favor of the assessee. They held that the assessee is entitled to the claim of investment allowance under s. 32A, subject to satisfying other conditions laid down in the section. The Tribunal directed the Assessing Officer to examine the conditions and grant the investment allowance accordingly.
  
  Issue 2: Disallowance of repairs expenses for the assessment years
  
  The Department objected to the deletion of disallowance of repairs expenses by the CIT(A). The Tribunal noted that the concept of repairs for a Five Star Hotel differs from that of an ordinary trader or manufacturer. For the assessment year 1983-84, the Tribunal agreed with the Department that certain items may not qualify as current repairs. However, they found no justification for a flat-rate disallowance of 20%. For the assessment year 1984-85, the Tribunal directed the matter to be restored to the Assessing Officer for a detailed examination. The Tribunal instructed the Assessing Officer to allow the assessee a reasonable opportunity to explain their case and to disallow expenses, if necessary, after proper examination and recording of reasons.
  
  Issue 3: Allowance of 'Extra Shift Depreciation' for the assessment year
  
  The Department objected to the allowance of 'Extra Shift Depreciation' by the CIT(A) for the assessment year 1984-85. The Department argued that the hotel must be approved by the Central Government for the purpose of grant of development rebate to claim this benefit. The CIT(A) allowed the claim based on the replacement of development rebate by investment allowance and cited a Supreme Court decision in support. The Department contended that compliance with the requirements of the IT Rules was essential. The Tribunal agreed with the Department, stating that the extra depreciation allowance could not be allowed as the conditions of an approved hotel were not fulfilled. They reversed the CIT(A)'s order on this point, emphasizing that the extra depreciation could not be allowed without meeting the necessary conditions.
  
  In conclusion, the Tribunal partly allowed both appeals, ruling in favor of the assessee on the issue of 'Investment Allowance' but in favor of the Department on the issues of disallowance of repairs expenses and 'Extra Shift Depreciation'. The judgments were delivered collectively for the sake of convenience due to common points involved in both appeals.

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• 1990 (12) TMI 140
  
  Issues Involved:
  1. Addition of Rs. 37,100 as income from undisclosed sources.
  2. Addition of Rs. 41,000 as profit from business allegedly done on own account.
  
  Issue-wise Detailed Analysis:
  
  1. Addition of Rs. 37,100 as Income from Undisclosed Sources:
  
  The assessee, a partnership firm, was apprehended with Rs. 58,800 in cash. The Income Tax Officer (ITO) doubted the genuineness of Rs. 37,100 out of this amount, as certain parties denied having business transactions with the assessee or making payments. The ITO added Rs. 37,100 as income from undisclosed sources. The assessee contested this addition, arguing that the statements from the parties were collected without their knowledge and were not confronted during the assessment proceedings. The Tribunal agreed with the assessee, noting that the evidence collected at the back of the assessee could not be used against them. The Tribunal found that the assessee's books of accounts, maintained in the regular course of business, showed these parties as debtors, and the transactions were supported by various registers. The Tribunal concluded that the possession of Rs. 58,800 was satisfactorily explained as business realizations, and there was no unexplained cash. Consequently, the addition of Rs. 37,100 was deleted.
  
  2. Addition of Rs. 41,000 as Profit from Business Allegedly Done on Own Account:
  
  The ITO assumed that business transactions amounting to Rs. 4,09,526, which the assessee claimed were on commission basis, were actually on the assessee's own account. The ITO estimated a profit of 10% on this amount and added Rs. 41,000 to the income. The assessee argued that the transactions were on commission basis and that the ITO had accepted the commission income. The Tribunal found that the ITO's assumption was based on the denial by certain parties, which was not sufficient to reject the assessee's claim. Additionally, the Tribunal noted that the ITO did not demonstrate how the assessee could have earned a profit on these transactions when other similar transactions resulted in losses. The Tribunal held that the addition of Rs. 41,000 was based on conjectures and was untenable. Therefore, the addition was deleted.
  
  Conclusion:
  
  The Tribunal allowed the assessee's appeal, deleting both the additions of Rs. 37,100 and Rs. 41,000. The Tribunal emphasized that the evidence collected at the back of the assessee could not be used against them and that the ITO's assumptions were not supported by concrete evidence.

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• 1990 (12) TMI 139
  
  Issues:
  1. Disallowance under s. 40A(5) of the IT Act, 1961.
  2. Disallowance of entertainment expenses.
  3. Disallowance under s. 80VV of the IT Act, 1961.
  4. Disallowance of medical expenses under s. 40 (c).
  
  Issue 1: Disallowance under s. 40A(5) of the IT Act, 1961:
  The appeal challenges the disallowance of Rs. 48,061 made under s. 40A(5) by the Assessing Officer. The contention revolves around the interpretation of Rule 3 of the IT Rules, which provides the procedure for determining perquisites assessable to the assessee. The debate focuses on whether the disallowance should be based on the actual expenditure incurred by the company or the value of perquisites assessable in the hands of the employee. The Tribunal, citing various High Court decisions, concludes that in the case of a company, the disallowance under s. 40A(5) should be calculated based on the actual expenditure incurred by the company. The appeal on this ground is dismissed.
  
  Issue 2: Disallowance of entertainment expenses:
  The appeal challenges the disallowance of Rs. 2,79,587 on account of entertainment expenses. The Assessing Officer found that a significant portion of the expenses constituted entertainment expenditures, which are subject to disallowance under s. 37(2A) of the IT Act. The Tribunal upholds the disallowance, emphasizing that even if the expenditure is incurred for business purposes, if it falls under entertainment expenses, it must be disallowed. However, a portion of the claimed expenditure is considered separately for reassessment by the Assessing Officer. The retrospective amendment to s. 37(2A) impacts the treatment of entertainment expenses.
  
  Issue 3: Disallowance under s. 80VV of the IT Act, 1961:
  The appeal contests the disallowance of Rs. 15,210 under s. 80VV, specifically focusing on a retainership fee paid to auditors. The Tribunal examines the allocation of the fee towards income-tax proceedings and other work. It concludes that since a separate fee was paid for attending to income-tax cases, no disallowance is warranted from the retainership fee. The disallowance under s. 80VV is recalculated, providing relief to the assessee.
  
  Issue 4: Disallowance of medical expenses under s. 40 (c):
  The appeal challenges the disallowance of Rs. 2,814 on account of medical expenses under s. 40 (c). The Tribunal analyzes the nature of the cash reimbursement of medical expenses and its characterization as salary. It notes that the cash payment, even if considered a part of the salary, falls under the provisions of s. 40 (c) regarding excessive or unreasonable expenditure resulting in remuneration or benefit to a director. The Tribunal upholds the disallowance, citing the application of s. 40 (c) to the expenditure incurred by the company.
  
  The Tribunal partly allows the appeal, providing relief on specific grounds while upholding disallowances on others.

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• 1990 (12) TMI 138
  
  Issues:
  1. Calculation of expected yield of lime and addition made by Assessing Officer
  2. Discrepancy in stock statement and books of accounts leading to addition by Assessing Officer
  3. Disallowance of bad debts by Assessing Officer
  
  Issue 1: Calculation of expected yield of lime and addition made by Assessing Officer
  
  The Assessing Officer observed a low production of lime by the assessee firm and invoked proviso to s. 145(2) of the IT Act, 1961. He calculated a suppressed yield of lime and Samuda, resulting in an addition of Rs. 10,06,605. The CIT(A) analyzed the defects in the calculation and, based on an expert's certificate, determined the expected yield to be 51.9%, considering factors like process loss, recovery rate, and wastage. The CIT(A) found the production shown by the assessee at 50% to be reasonable and deleted the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the yield variation is common and the burden of proof lies on the Revenue in cases of sales suppression. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal.
  
  Issue 2: Discrepancy in stock statement and books of accounts leading to addition by Assessing Officer
  
  The Assessing Officer made an addition of Rs. 21,260 due to a difference in stock as per the pledged stock statement to the bank and the books of accounts. The CIT(A) upheld this addition. The assessee contended that the stocks of a partner were included with consent in the pledged stocks, supported by evidence like certificates and statements. The departmental representative argued against relying on the partner's evidence, stating inability to verify the actual stock availability. The Tribunal noted that the partner's evidence was admissible, and in the absence of contrary evidence, the addition was unjustified. The Tribunal deleted the addition, emphasizing the importance of substantiated evidence.
  
  Issue 3: Disallowance of bad debts by Assessing Officer
  
  The Assessing Officer disallowed a claim of bad debts amounting to Rs. 10,953, stating lack of proof of recovery steps taken. The assessee clarified that the bad debts were in relation to specific transactions with parties from Amritsar, supported by correspondence and efforts made for recovery. The Tribunal highlighted that legal proceedings are not mandatory for bad debt allowance and considered the circumstances of the cases. The Tribunal found the disallowance unsustainable and deleted the addition, allowing the assessee's appeal.
  
  This judgment addressed issues related to the calculation of expected yield of lime, discrepancy in stock statements, and disallowance of bad debts. The Tribunal ruled in favor of the assessee, emphasizing the importance of substantiated evidence, reasonableness in production variations, and the absence of mandatory legal proceedings for bad debt allowance.

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• 1990 (12) TMI 137
  
  Issues:
  1. Levy of penalty under section 273 of the IT Act, 1961 for the assessment year 1980-81.
  
  Detailed Analysis:
  The appellant company, dealing in products of M/s. General Motors of USA, appealed against the penalty of Rs. 25,000 imposed by the CIT(A) under section 273 of the IT Act, 1961. The appellant submitted revised income estimates based on sales figures up to March 10, 1980, with a gross profit rate of 20%, considering variations due to unexpected increases in sales post-March 10, 1980, and additional commission income received. The appellant argued that the estimate of Rs. 10 lakhs was accurate, citing reliance on the g.p. rate of the preceding year and the judgment of the Calcutta High Court in a similar case (CIT vs. Birla Cotton Spinning and Weaving Mills Ltd.).
  
  The Departmental Representative contended that the penalty was justified, alleging that the appellant deliberately underestimated income to defer advance tax payment, citing wide variations in monthly sales figures, historical g.p. rates, and delayed tax filings as evidence of intentional tax avoidance. The assessing authority and CIT(A) upheld the penalty, emphasizing the appellant's history of non-compliance, including a previous penalty in the preceding assessment year.
  
  The Tribunal considered both parties' arguments and reviewed the relevant facts. It noted that the estimate of current income for advance tax purposes should be based on the assessee's bona fide estimate at the time of filing. The Tribunal analyzed sales figures and profit rates, concluding that the appellant's estimate of Rs. 10 lakhs was reasonable given the circumstances, such as unexpected sales spikes and additional income received post-estimate submission. The Tribunal referenced a detailed reconciliation of estimated and assessed income to support its decision, emphasizing that slight discrepancies in estimates do not warrant penalties under section 273 of the IT Act.
  
  Ultimately, the Tribunal ruled in favor of the appellant, canceling the penalty imposed by the CIT(A) and allowing the appeal based on the genuine nature of the appellant's income estimate and the absence of deliberate tax evasion.
  
  This judgment highlights the importance of bona fide income estimates for advance tax purposes, considering the circumstances and reasonableness of the assessee's calculations to determine the applicability of penalties under tax laws.

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• 1990 (12) TMI 136
  
  Issues Involved:
  
  1. Timeliness of the appeal.
  2. Addition of rent on property based on annual value estimation.
  3. Disallowance of interest on borrowed sum invested in a firm.
  4. Addition of income from undisclosed sources.
  5. Charging of interest under sections 139(8) and 217(1)(a) of the IT Act.
  
  Issue-wise Detailed Analysis:
  
  1. Timeliness of the Appeal:
  
  The Department raised a preliminary ground that the appeal is time-barred. However, it was found that the order of the CIT(A) was received by the assessee on 17th Aug., 1987, and the appeal was filed on 14th Sept., 1987. The appeal filed is within time as no contrary proof was provided by the Department to show service of the order earlier than 17th Aug., 1987.
  
  2. Addition of Rent on Property Based on Annual Value Estimation:
  
  The first grievance relates to the addition of rent on property let out by the assessee and self-occupied property on the basis of annual value adopted and estimated by the Revenue authorities. The assessee had shown income from property based on actual rent received. The ITO estimated the value at Rs.1,000 per month, considering the rent received from the tenant, who was the assessee's brother, to be very low. The CIT(A) upheld this estimation relying on decisions of the Calcutta and Madras High Courts.
  
  The assessee argued that the annual value should be determined based on actual rent received, not on hypothetical calculations. The Supreme Court in Dr. Balbir Singh & Ors. vs. M.C.D. and Ors. held that where the property is let out and governed by the Rent Control Act, the standard rent should be taken for determining the bona fide annual value. The Municipal valuation, which considered relevant factors, supported the assessee's claim. The Tribunal concluded that the CIT(A) was wrong in determining the annual value at a hypothetical figure and directed the ITO to give relief to the assessee.
  
  3. Disallowance of Interest on Borrowed Sum Invested in a Firm:
  
  The next grievance related to the disallowance of interest on a borrowed sum invested in the firm M/s Sain Industries. The ITO disallowed the interest under s. 67(3) of the IT Act, stating that the firm had not commenced business, and the assessee did not derive any share income from the firm.
  
  The assessee argued that the loan was for business purposes, and the interest paid should be allowable under ss. 67(3), 37(1), and 36(1)(iii) of the IT Act. The Tribunal found that the interest is allowable under s. 37 only if the business was set up in the relevant assessment years. The matter was remanded to the ITO to re-examine the claim and determine if the business was set up in the relevant years.
  
  4. Addition of Income from Undisclosed Sources:
  
  The assessee deposited Rs.5,000 in cash, with Rs.2,500 explained as withdrawal from M/s Bengali Sweet House. The remaining Rs.2,500 was partly explained by Rs.1,900 shown in the wealth-tax return. The ITO held Rs.600 as unexplained.
  
  The Tribunal found that Rs.1,900 was properly explained, and only Rs.600 could be considered income from undisclosed sources. The order of the CIT(A) was modified to reflect this.
  
  5. Charging of Interest under Sections 139(8) and 217(1)(a) of the IT Act:
  
  The final grievance related to the charging of interest under ss. 139(8) and 217(1)(a) of the IT Act. This was deemed a consequential relief, requiring no further discussion.
  
  Conclusion:
  
  The appeal was partly allowed, with the Tribunal providing relief on the issues of property rent estimation and undisclosed income, while remanding the issue of interest on borrowed sums for further examination.

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