1984 (2) TMI 113 - AT - Income Tax

Summary

Issues:
1. Disallowance of general expenses
2. Disallowance of welfare expenses
3. Disallowance of travelling expenses
4. Disallowance of other expenses
5. Disallowance of interest paid on borrowings
6. Disallowance of repairs to the cinema

Analysis:

1. Disallowance of General Expenses:
The Income Tax Officer (ITO) disallowed a portion of general expenses due to inclusion of donations. The Commissioner of Income Tax (CIT) reduced the disallowance based on past history. The Appellate Tribunal observed the increase in expenses and donations, and decided to disallow a specific amount for donations and non-disallowable expenses, providing relief to the assessee.

2. Disallowance of Welfare Expenses:
The ITO disallowed part of welfare expenses, questioning the verifiability and necessity of the expenses. The CIT maintained the disallowance considering the sudden increase in expenses. The Appellate Tribunal, after reviewing past disallowances and nature of expenses, decided to delete the disallowance, noting the increase could be due to various factors.

3. Disallowance of Travelling Expenses:
The ITO disallowed a portion of travelling expenses for including partners' fooding and lodging costs. The CIT reduced the disallowance, but the Appellate Tribunal upheld the reduced disallowance, considering the rise in expenses and partner-related costs.

4. Disallowance of Other Expenses:
The ITO disallowed a portion of other expenses suspecting personal expenses of partners. The CIT reduced the disallowance based on estimation. The Appellate Tribunal sustained the disallowance after considering the facts of the case.

5. Disallowance of Interest on Borrowings:
The ITO disallowed interest paid on borrowings due to lower interest charged to related parties. The CIT reduced the disallowance amount. The Appellate Tribunal agreed with the lower authorities, disallowing interest on total advances made to related parties, emphasizing the need for proper documentation and interest calculation.

6. Disallowance of Repairs to the Cinema:
The ITO disallowed repairs on residential portion occupied by partners and renovation expenses, treating them as capital expenditure. The CIT upheld the disallowance, and the Appellate Tribunal confirmed the disallowance, considering the nature of expenses and legal precedents on capital vs. revenue expenditure.

In conclusion, the appeal was partly allowed, with the Appellate Tribunal providing detailed reasoning for each issue and decision made.