2000 (1) TMI 145 - AT - Income Tax

Issues Involved:

1. Disallowance u/s 40(c)/40A(5) regarding perquisites to directors/employees.
2. Medical expenses and their treatment as perquisites u/s 40(c).
3. Disallowance of unverified travelling expenses.
4. Addition to closing stock value due to excise duty.
5. Disallowance of building repair expenses.
6. Deduction of excise duty embedded in closing stock u/s 43B.
7. Disallowance of legal expenses for defending sales tax penalty.
8. Initiation of penalty proceedings u/s 271(1)(c).
9. Levy of interest u/s 139(8) and 215.
10. Treatment of expenditure on technical know-how under section 35AB or 37(1).

Summary:

1. Disallowance u/s 40(c)/40A(5) regarding perquisites to directors/employees:
The Tribunal decided in favor of the assessee, following its earlier orders for assessment years 1982-83, 1983-84, and 1984-85, rejecting the Revenue's ground.

2. Medical expenses and their treatment as perquisites u/s 40(c):
The Tribunal, following its earlier decision for assessment year 1984-85 and judgments of the Apex Court and Jurisdictional High Court, decided in favor of the assessee, rejecting the Revenue's ground.

3. Disallowance of unverified travelling expenses:
The Tribunal, following its earlier decision for assessment year 1984-85, deleted the adhoc disallowance of Rs. 1 lakh sustained by the CIT (A) and confirmed the deletion of another Rs. 1 lakh by the CIT (A). Ground No. 4(a) of the assessee's appeal was rejected as not pressed, and Ground No. 4(b) was allowed.

4. Addition to closing stock value due to excise duty:
The Tribunal, following its decision for assessment year 1985-86, upheld the deletion of Rs. 57,07,285 by the CIT (A) and rejected the Revenue's ground.

5. Disallowance of building repair expenses:
The Tribunal upheld the disallowance of Rs. 60,538 for road construction as capital expenditure but allowed the remaining items as revenue expenditure, providing a relief of Rs. 71,509 to the assessee.

6. Deduction of excise duty embedded in closing stock u/s 43B:
The Tribunal directed the Assessing Officer to grant relief as per its earlier decisions for assessment years 1984-85 and 1985-86, ensuring no double deduction by adjusting the opening stock for the next year.

7. Disallowance of legal expenses for defending sales tax penalty:
The Tribunal allowed the legal expenses, treating them as incurred for business purposes and allowable under the Act.

8. Initiation of penalty proceedings u/s 271(1)(c):
The ground was not pressed by the assessee and thus rejected.

9. Levy of interest u/s 139(8) and 215:
The Tribunal directed the Assessing Officer to grant consequential relief.

10. Treatment of expenditure on technical know-how under section 35AB or 37(1):
The Tribunal, divided in opinion, referred the matter to the President of ITAT. The Third Member held that the expenditure was revenue in nature and allowable under section 37(1), not under section 35AB. The entire amount of Rs. 16,42,205 was directed to be allowed as revenue expenditure for the assessment year 1986-87.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The expenditure on technical know-how was held allowable under section 37(1).

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