[Citation -1984-LL-0315-1]

Citation 1984-LL-0315-1
Court ITAT
Relevant Act Income-tax
Date of Order 15/03/1984
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags commercial expediency • personal expenditure • scientific research • superannuation fund • plant and machinery • capital expenditure • development rebate • company law board • judicial decision • legal expenditure • draft assessment • medical expenses • sales promotion • stock exchange • supply of coal • penal interest • purchase price • internal audit • special bench • extra amount • hire charges • late payment • audit party • written off • guest house • motor car • diwali
Bot Summary: Except for the business of the assessee, we see no reason why the assessee should have parted with an amount of money. As held in the case of CIT vs. Malayalam Plantations Ltd. 53 ITR 140, it is not merely expenditure of an immediate nature, but other expenditure which would advance the cause of the assessee s business would also be an allowable expenditure. The learned counsel for the assessee has pointed out that the visits of the share-holders to the factory were arranged with a view to acquaint and inform the share-holders about the business of the assessee and the manner of its working. Even if the administrative procedure did not warrant the user of the motor cars outside the city limits, so long as they were utilised by the officials and the expenditure was incurred by the assessee for its business that would be proper expenditure. The learned counsel for the assessee has pointed out that even in the case of the assessee in the past, 50 per cent of the expenditure was disallowed but the Tribunal in the case of Synthetic Chemical Ltd. has held that the disallowance was not proper. For the assessee it is pointed out that the penalty clauses are of a deterent nature to be used sparingly and in order to ensure smooth handling of the coal for the factory, the assessee would not have enforced these clauses. The association of Manmade Fibre Industry was one in which the assessee was professionally involved, commercial expediency required the assessee s pursuing the activities of this association.

DR. V. BALASUBRAMANIAN, VICE PRESIDENT ORDER first appeal is by assessee and second by Department. points raised in appeal are considered in seriatim below. 2 . Advertisements in souvenirs : assessee claimed sum of Rs. 2,32,000 as amount paid by way of advertisements in souvenirs. above amount was paid on two dt. 12th June, 1975 and 11th July, 1975, payment on each date being Rs. 1,16,000 in account payees cheques of Rs. 2,000 each to different district organisations of All India Congress Committee. ITO disallowed above amount for reason that payment was by way of donation to political party and with no business advantages. According to him, assessee did not produce souvenirs or even vouchers relative to payment. On appeal, CIT(A) confirmed addition. 3. Before us learned counsel for assessee has pointed out that this was clear expenditure under head Advertisement . payments have been proved having been made by account payee cheques and properly entered in accounts. bill issued by committee in respect of payment has been produced before authorities and vouchers were also available. mere fact that assessee was not in position to produce souvenirs could not be reason for disallowing expenditure. Advertisement under aegis of all Indian body has substantial business advantages from point of view of advertisement itself. That apart, according to learned counsel, payment was to politically active body not by way of donation but for encouragement of assessee s activities. From point of view of commercial expediency also expenditure was allowable. Orders of Tribunal allowing such expenditure have been produced to support assessee s case. 4. For Department stress is laid on orders of authorities below. It is pointed out that fact of payment for advertisement purposes has not been proved by assessee. At original stage vouchers were also not available. souvenirs were not produced to indicate purpose for which payments were made. Not even blocks, etc., issued for purpose of advertisement have been produced. Apart from question of reliability as to fact of payment, expenditure itself is not allowable for assessee s business. According to learned counsel, products manufactured and sold by assessee are sufficiently well-known as not to require advertisement of dubious value in political party s souvenir. There is no evidence also of this type of advertisement benefiting assessee s business, sale, etc. Even remote relation to expenditure cannot, according to learned counsel, be established. 5 . On consideration of facts we have to hold that claim is allowable. That amounts have been paid to known and that too by account payee cheques has not been denied. Certainly no collusion of personal or other nature can be established between assessee and payee. If possible assessee would not have parted with its money and unless it fetched for it substantial business advantage. mere fact that souvenirs were not produced does not indicate non-payment. Except for business of assessee, we see no reason why assessee should have parted with amount of money. Apart from above fact that wheels of business can move smoothly by such payments cannot also be denied. assessee is substantial manufacturer with extensive business. policy of Government does help wherever available. It could all be advantageous to assessee s business. That payment, therefore, is one of high commercial expediency cannot also be denied. Both on fact of payment as well as its relevance to assessee s business, there can be no doubt. As held in case of CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), it is not merely expenditure of immediate nature, but other expenditure which would advance cause of assessee s business would also be allowable expenditure. Judged in this light, we see no reason to sustain addition. 6 . Depreciation on capital expenditure for scientific research incurred in earlier year : ITO disallowed depreciation of Rs. 1,19,619 on capital expenditure incurred by assessee for scientific research in earlier years. CIT(A) confirmed disallowance relying on amendment of s. 35(2)(iv) of IT Act, 1961 ( Act ) by s. 7(2) of Finance Act, 1980. It is pointed out IT Act, 1961 ( Act ) by s. 7(2) of Finance Act, 1980. It is pointed out by learned counsel for assessee that this very amendment is challenged before Supreme Court. 7. After hearing learned counsel for Department, we direct that matter be sent back to ITO for fresh decision in light of Supreme Court s interpretation of amendment. 8. Expenditure on share-holder s visit to factory : ITO disallowed sum of Rs. 88,663 comprised of six items such as hire charges of buses, furniture, expenditure on food and provisions, etc., incurred on account of share-holder of assessee-company visiting factory. disallowance was made on ground that this was in nature of entertainment expenses. addition was upheld by CIT(A). 9. learned counsel for assessee has pointed out that visits of share-holders to factory were arranged with view to acquaint and inform share-holders about business of assessee and manner of its working. It encourages alertness on part of shareholders to assessee s business and also in encouraging them to take constructive interest in assessee s business. It is also claimed that expenditure cannot in any way be treated as on entertainment account, since it was incurred only on proprietors of business in context of management of business and not on outsiders. 1 0 . For Department it is pointed out that expenditure being on shareholders which in loose sense being regarded as personal expenditure is specifically disallowable under s. 37 of Act. At any rate, according to learned counsel, whether shareholder visited factory or not, business of company and its profit would not have been affected. This was at best means of entertaining share-holders. In fact, it is return of part of what would have been profit of shareholders back to them. 11. In our view, there could be no personal expenditure involved in this disputed item. shareholders acquainting themselves with work disputed item. shareholders acquainting themselves with working of factory, accounting methods, etc., are normal incidence of professional management, check on same. Expenditure relating to shareholders annual general meetings, etc., are allowable as expenditure for business. Visit to factory and personal investigation by shareholders into business activities of company is also extension of same activity and in fact matter of personal supervision by owners of business. Certainly expenditure incurred by owner of business to supervise working of business cannot be regarded as non-allowable. expenditure has been incurred only on shareholders who are insiders. There is no finding of entertainment involved in items of expenditure. We hold that amount should be properly allowed. 12. Shortage in inventories : ITO made addition of Rs. 75,722 on account of shortage on inventories, Rs. 30,814 shortage in M.S. Plates and Rs. 44,908 in stores spares. internal auditors had worked out shortage as above as result of their examination. addition was made by ITO because shortage was not, according to him, explained. CIT(A), however, found that while on one hand there is shortage in respect of some items, in respect of other items there is in fact excess. Such excess worked out to Rs. 34,714. CIT(A) sustained addition of difference between shortage and excess. He also sustained sum of Rs. 20,000 on account of shortage in textile pulps and tyre cord pulp. 13. leaned counsel for assessee pointed out that continuous inventory system is maintained which was periodically checked by internal auditors. There were as many as 30,000 items comprised in inventory. shortage has to be seen against huge turnover. Even here while there was shortage in respect of some items there was excess in respect of this which tended to show that shortage or excess was not real one but could even be result of mistakes in entries or mistakes in identity of items. overall view of business has to be taken. 14. For Department stress is laid on orders of authorities below, especially ITO s order and IAC s directions. It is specifically pointed out that fact of shortage was detected by internal audit party of company. According to learned counsel, this itself justified addition. Even though turnover is large, elaborate accounts being kept or capable of being kept by company, there should be no shortage at all. 15. CIT(A) has adjusted excess against shortage and made addition of difference. In our view this does not conform either to principle or any justifiable reason. If there is really shortage unaccounted for in one item, excess against any other item cannot go to explain that shortage. On contrary excess under any item would nevertheless if not wrong on principle would continue to be profit for assessee. Setting off one against other is, to say least in our view, erroneous. On addition itself we have no hesitation in holding that entire addition of Rs. 75, 722 should be deleted. assessee is company maintaining elaborate books of accounts, continuous and perpetual inventory system and gets inventory checked periodically by internal auditors. If there has been deliberate attempt to create shortage, certainly assessee would not have resorted to equally deliberate attempt to create excess either. This only shows deficiency in matter of maintenance of accounts. turnover of assessee-company is Rs. 44 crores. addition made by ITO and upheld by CIT(A) is of few thousands. number of items involved are more than 30,000. These are all technical items of varying sizes, quality and marks of identity. When category of items themselves come to 30,000 and more, actual number of items must run to several times above. In hands of ordinary storekeeper or other assistants who makes entries in books, it is not unlikely one item is entered instead of another either in inward register or outward register. Definition of identity of items when their number is very large also becomes difficult. fact some of items show excess would be consistent more with this explanation than deliberate creation of shortage. addition sustained by ITO, therefore, is not justified and is deleted. 16. Motor car expenses: assessee claimed sum of Rs. 2,27,221 on account of motor car expenses. internal auditors of company in their report for quarter ending 30th Sept., 1975 observed that as against presumption of motor cars given to officers of company being utilised only within city limits there could be cases of some of officers using cars outside city limits and also during leave period. On basis of cars outside city limits and also during leave period. On basis of above report, ITO made disallowance of Rs, 30,000. This was upheld by CIT(A). 17 . Before us learned counsel for assessee has pointed out that internal auditors themselves had expressed administrative doubt about nature of user of motor cars. In first place they have also not specifically pointed out to any such user outside city limit or noted that they are not for business. Even if administrative procedure did not warrant user of motor cars outside city limits, so long as they were utilised by officials and expenditure was incurred by assessee for its business that would be proper expenditure. In fact, disallowance under s. 40(a)(5) of Act has been made in respect of specific individuals, there was no justification for another disallowance on general ground. 18. For Department it is pointed out that burden is on assessee to prove that expenditure incurred is for purpose of business. observation of internal auditors that cars have been used by officials while on leave, etc., lends support to inference that these items of expenditure are not for business. 19. In our view, no disallowance under this head is justified. In first place internal auditors themselves are making case as to user of motor cars without pointing out any specific case of such user. Their remarks could also be regarded as direction to officials as to how motor cars should be utilised. fact of user itself is, therefore, not proved. That apart even if one or other official uses motor car in manner noted by ITO as far as company is concerned, it could only add to further expenditure on staff. ITO has already disallowed where necessary with regard to specific employees expenditure under s. 40A(5). Even if, therefore, expenditure by assessee-company enures to benefit of any employee to whom s. 40A(5) does not apply, no disallowance of such expenditure can be made. addition of Rs. 30,000 is deleted. 2 0 . Guest house expenses: assessee-company has three guest houses, one at factory at Kalyan and other two at Surat and Salem. factory guest house showed expenditure of Rs. 46,593 and other guest houses Rs. 7,250 latter being only rent of premises at these places. These two latter are sales offices. ITO disallowed half of guest house expenses amounting to Rs. 26,822 and half of depreciation amounting to Rs. 1,254. This was upheld by CIT(A). 21. learned counsel for assessee has pointed out that even in case of assessee in past, 50 per cent of expenditure was disallowed but Tribunal in case of Synthetic & Chemical Ltd. has held that disallowance was not proper. assessee s factory is located in remote place. Both factory guest houses and other guest houses are used only for stay of employees going to these places and only for company s business. register is maintained and full details are available. 2 2 . After hearing learned counsel for Department, who has stressed point made out in orders of authorities below and also pointed out that any guest house maintained could not be out of bounds for outsiders such as guests of company, we uphold disallowance to extent of Rs. 10,000 on this latter score and direct deletion of balance. assessee has large turnover. It is required to meet expenses of its own staff on work at these places. It is certainly more advantageous to company to house staff in its own guest houses rather than then spend heavily on hotels, etc. On principle, therefore, expenses claimed have to be allowed. disallowance of Rs. 10,000 is sustained on estimate because under law expenditure incurred on account of outsiders has to be disallowed. 23. Stock exchange listing fees : ITO disallowed sum of Rs. 6,000, Rs. 3,000 each listing fees for Bombay Stock Exchange and Ahmedabad Stock Exchange. According to ITO, this was not incurred for assessee s business. disallowance made by ITO was upheld by CIT(A) who treated it as in nature of capital expenditure and even otherwise not allowable under s. 37(1). 24. After hearing learned counsels for both sides, we see no reason to sustain this disallowance. Apart from fact that listing in stock exchange may give certain incidental advantages to company as entity and also to shareholders, listing in stock exchange is matter of good advertisement to company and its goods. company with reputation in market as well as in stock exchange could certainly do better business that one without such reputation. advantages which flow from list, therefore, is not in respect of share dealings or company as entity but directly relatable to business of company. Expenditure has to be allowed. 25. Two other grounds relating to Diwali and X Mass expenses and interest obtaining in grounds of appeal are not pressed. 26. Department s appeal relates to following disputes : Development rebate on nylon plant : During year of account assessee claimed development rebate under s. 33(1)(b)(B)(i) in respect of plant and machinery in nylon tyre cord project where additions of Rs. 2,83,10,550 were made. claim was made on basis that business was one of manufacture of nylon tyre cord, one of things specified in Fifth Schedule to Act. Reference was also made to item No. 20 of this Schedule in alternative. ITO rejected claim. CIT(A) allowed assessee s claim. This is challenged by Department. 27. After hearing parties, we find that matter is covered by decision of Supreme Court in case of CIT vs Nirlon Synthetic Fibres & Chemicals Ltd. (1981) 22 CTR (SC) 130 : (1981) 130 ITR 14. decision in J.K. Cotton Spg. & Wvg. Mills vs. STO (1965) 16 STC 563 (SC) has been correctly held inapplicable to case by CIT(A), whose order is upheld on this point. 28. Coal handling contract : ITO added sum of Rs. 6,49,670 on ground that company had not invoked various penalty clauses stipulated in execution of Coal Handling Contract and it thereby incurred losses which could have been avoided or recouped by company. sum of Rs. 6,49,670 was worked out as under : Rs. (a) Insufficient coal feeding losses 32,600 (b) Difference in cost incurred as result of 5,93,683 purchase of furnace oil not recovered from contractor (c) Demurrage charges remaining to be recovered 21,700 from contractor. (d) Difference of demurrage charges not recovered 1,690 from contractor 6,49,673 Rounded to Total 6,49,670 assessee for purpose of its manufacture was to have regular supply of coal which in turn required obtaining actual handling services for procurement of coal, procurement of railway wagons for regular and steady supply including transportation from coal depot to feeding point in factory. assessee entered into contract with Associated Labour Corpn., Ahmedabad for period 1st June, 1974 to 31st May, 1975. After expiry of above contract another contract was entered into with Bharat Agencies, Bombay, for period of two years beginning from 23rd July 1975. ITO found that contracts provided for charging of penalty, recovery of demurrage charges and recoupment of losses on account of default of contractors. report of internal auditors of company have criticised performance of first contract and also referred to company s failure to take penal action for default of contractors, waiver of demurrage charges and also conduct of company in allowing contractor to continue work till new contractor was entrusted with work. ITO proposed disallowance of Rs. 11,56,000 which after discussion by IAC was reduced to Rs. 6,49,670 as above. 29. CIT(A) deleted addition of Rs. 6,49,670. According to him, when amount of expenditure was incurred, fact that it benefited third party was not consideration for not allowing expenditure. expenditure was also incurred as part of assessee s legitimate commercial undertaking in order to facilitate its carrying on business. CIT(A) emphasised fact that mere right of assessee to recover these amounts could not be spelt out from contract; it was necessary to establish right of filing suit, etc., This not having been done, even as matter of fact, right of assessee could not be established. 3 0 . In contesting order of CIT(A), learned counsel for Department has pointed out that assessee had complete right to recover these amounts. mere fact that claim was not made and amounts were not recovered would not make amounts allowable deduction. assessee has to exercise its rights under contracts entered into by it. If such rights were not exercised any expenditure incurred being reimburseable could not be treated as actually incurred. Referring in particular, to purchase of furnace oil, it is pointed out that assessee was entitled to make his recovery. fact that did not recover amount would not be sufficient to allow it. 31. For assessee it is pointed out that penalty clauses are of deterent nature to be used sparingly and in order to ensure smooth handling of coal for factory, assessee would not have enforced these clauses. In order to ensure continuity of supply day-to-day and also get services of experienced coal handling contractors, it was not possible for assessee to either enforce penalty clause or refuse to co-operate with contractor with regard to purchase of alternate fuel resources like furnace oil. invocation of penalty clauses under contract or incurring of items of expenditure like demurrage was matter of commercial expediency to be decided by assessee at its discretion. To have continuity of supply of fuel and also have such supply at optimum advantage level, assessee had to maintain best relations with supplier. Invoking of penalty clauses and cutting off of one source of supply would not have enabled assessee to get equally efficacious alternative supply which only would have enabled it to continue its business. Apart from this, this work would have led to disputes with suppliers taking matter to Court either for specific performance or for award of demurrages. loss, assessee s business would have suffered from these, would have far outweighed payment of any extra amount for fuel or non- enforcement of any penalty clause. expenditure on coal and fuel charges enforcement of any penalty clause. expenditure on coal and fuel charges incurred by company came to nearly Rs. 6 crores. Even if assessee enforced penalty clauses, recovery could have been only at best 1 per cent. This would be effective only if other side did not contest claim and no legal outside impediment arose and no legal charges were to be incurred. further question of regular supply of fuel by contractor was also there. According to learned counsel, taking all aspects of case and good business relations assessee did not claim its pound of flesh. expenditure incurred, therefore, or rather reimbursement not enforced was, according to learned counsel, purely business decision, and on facts of case, wise decision. It is pointed out that had this decision been imprudent or foolish, even then expenditure having been incurred in normal course of assessee s business was allowable expenditure and even non reimbursement of same would not have been fatal to it. 32. On consideration of facts, we see no justification for differing from view taken by CIT(A) on this point. It may be that by itself sum of Rs. 6,50,000 is substantial amount, but compared with overall fuel expenditure of assessee it words out to even less than 1 per cent. turnover of assessee is nearly Rs. 50 crores. Looking to substantial profit earned by assessee, question to be asked is whether it was necessary or advisable for it to press its claims under contract. Enforcement of claim may not result in full recovery in first place or even any recovery. It may result in incurring legal expenditure not reimburseable. consequent difference of opinion with contractors may obstruct assessee s business leading to resultant losses. Taking all these facts into account, it would not be proper to come to unambiguous conclusion that assessee has not acted as prudent businessman with regard to this matter. opinion of internal auditors like that of any auditor would be mere hind-sight and based on this it would not be proper to come to conclusion that assessee should have involved himself in endless litigation for enforcing apparently every right under law he could enforce. In business matter as elsewhere discretion is always better part of valour and merely because assessee decided in favour of not fighting out questionable litigation, he could not be burdened with tax liability. CIT(A) s order is upheld on this point. decisions referred to by CIT(A) also support assessee s case. 3 3 . Brokerage Rs. 2,29,102 : assessee paid brokerage to several parties totalling to Rs. 6,04,869 which was claimed as expenditure. According to ITO, details of services rendered by brokers were not produced. goods were sold in fact directly by assessee. As against disallowance made by ITO of Rs. 6,04,869 in draft assessment orders, IAC restricted disallowance to Rs. 2,29,102. brokerage was paid partly under Rules of Bombay Yarn Merchants Association and Exchange Ltd. and partly due to trade practice which prescribed specific payment of brokerage at stipulated rates. According to rules of market and trade practice, assessee had to sell its goods through brokers and incur stipulated brokerage. IAC reduced disallowance made by ITO on ground that expenditure was incurred in course of business. CIT(A) accepted assessee s claim and deleted addition. 34. learned counsel for Department has contested decision relying mainly on order of ITO and observations of IAC with regard to draft assessment order. 35. matter is covered by order of Tribunal dt. 28th June, 1980 for asst. yr. 1973-74 to 1975-76 in assessee s own case. Following that decision, order of CIT(A) is to be upheld. 36. Inflation of purchases : ITO disallowed purchases to extent of Rs. 2,47,750 on ground that purchase price paid by assessee to suppliers for whom purchase were made in violation of guidelines laid down by assessee-company. In some cases purchases were made without inviting tenders from approved list of suppliers. In some cases purchases were made from second lowest bidder whose tenders were received late and showed excessive figures. Approved suppliers are registered with assessee. purchase Department of company had to invite tenders from these approved suppliers, and purchases were to be made according to lowest tender. Where purchases were to be made from parties other than approved suppliers, this had to be reported and approved by committee of directors of company. It would appear that assessee made certain purchases from non-registered dealers and this fact was not reported to committee of directors. Orders were also placed with second lowest bidders instead of lowest bidders. Quotations received late were also some times accepted. internal auditors of company had made reference to some of such purchases. On analysis of such purchases not strictly conforming to guidelines laid down by company, ITO disallowed purchase prices by adopting certain percentages such as 10 per cent of purchase from registered dealers and 5 per cent on purchases from second lowest bidders. disallowance of Rs. 2,47,750 was made on this basis. ITO rejected explanation of assessee that normal procedure for purchase had to be deviated from in order to meet immediate requirements of business. CIT deleted addition. 37. Before us learned counsel for Department has pointed out that it was obligatory on assessee as company to conform to guideline laid down by itself. No justification for deviating from these norms had been made out. remarks of internal auditors with regard to this deviation itself justified conclusion that there was no justification for incurring extra expenditure on purchase to extent of Rs. 2,47,750. 38. After hearing learned counsel for assessee who has repeated points made out before CIT(A), we see no reason to interfere with his order. There is no dispute about fact that assessee has incurred expenditure to this extent. In actual carrying on of business it may be necessary to depart for established norms theoretically prescribed in order to run business. It is not always possible to make purchases only from parties specified or also from only lowest bidders. exigencies of business, requirement for supplies at any particular time and other circumstances may necessitate making purchases which are not strictly in accordance with prescribed theoretical norms. There is no allegation that purchases were made not in ordinary course of assessee s business. There is also no dispute about goods having been purchased or payments having been genuinely made. mere fact that certain guidelines with regards to purchases were deviated from should not be reason for coming to purchases were deviated from should not be reason for coming to conclusion that expenditure was not incurred for purposes of business. addition made by ITO is moreover notional addition having no real relation to expenditure incurred. CIT(A) s order is upheld. 39. Legal charges Rs. 1,09,880 : assessee paid sum of Rs. 1,09,880 to Mulla and Mulla and Graigie Blunt and Caroe on account of legal advice. matter related to filing of petition against order of Company Law Board under s. 408(1) of Companies Act, 1956. While ITO disallowed payment on ground that expenditure was incurred for opposing appointment of Government Directors, IAC directed disallowance on ground that services having been rendered in 1974, expenditure could not be allowed during year. As is clear from order of ITO himself that sum was spent to protect management in discharging its functions. CIT(A) allowed claim. Hence, contest in Department appeal. 40. That amount has been spent is not in dispute. expenditure was incurred to protest management and make running of business proper. As this would have substantially affected assessee s business, assessee had to take necessary legal steps and incurred expenditure. amount cannot be disallowed on this score. Even though service was rendered in earlier year, bills in respect of professional services were received by company in previous year relevant to assessment year under appeal. This has been verified by CIT(A). After hearing parties, we therefore, decide to confirm order of CIT(A) on this point. 4 1 . Shortage in inventory : In assessee s appeal disallowance on account of shortage was contested and we have held that no addition on this score is justified. As facts stated in that connection would indicate, CIT(A) adjusted excess in some of items against shortage. Department has challenged this adjustment. Our decision in assessee s appeal on this point would cover present dispute also. Hence, this ground is rejected. 42. Excess brokerage : This point is also covered by our decision in para 35 ante against Department. 43. Sales promotion expenditure of Rs. 29,448 : ITO disallowed sum of Rs. 29,448 as nature of entertainment expenditure. CIT(A) found that expenses were incurred by company on hotel bills for holding conferences, etc., and for other purposes of promotion of sales. Following decision of CIT(A) in earlier year in assessee s own case and decision of Bombay High Court in case of CIT(A) vs. Shah Nanji Nagsi (1978) CTR (Bom) 305 : (1979) 116 ITR 292, CIT(A) deleted addition. 44. In contesting this deletion learned counsel for Department has referred to law in this regard. amended Act directly justified disallowance made by ITO. 45. Having heard assessee s learned counsel, we remit matter to ITO for considering nature of expenditure for purpose of allowance in light of amended provisions. 46. Loss on purchase of shares : assessee-company advanced sum of Rs. 23,100 to association of Manmade fibre Industry by way of subscription. assessee was unit member of association. As per arrangement of members with association each member was to advance l o n s to association without interest for proper conduct of association s activities. Subsequently, it would appear that on account of supervening circumstances amount was written off by association and circular on this point was issued to members. CIT(A) deleted addition made by ITO on this point. 47. Before us it is pointed out for Department that this was not expenditure connected with business of assessee. At any rate, it has to be treated as capital expenditure. payment was not made during year. 48. Having heard learned counsel for assessee, we see no reason to interfere with order of CIT(A) on this point. association of Manmade Fibre Industry was one in which assessee was professionally involved, commercial expediency required assessee s pursuing activities of this association. Merely because on account of adverse circumstances and failure of association, amount had to be written off, it would not cease to be expenditure incurred for business. 4 9 . Interest on superannuation fund : For late payment of superannuation contribution to LIC, assessee had paid interest of Rs. 3,950 which was claimed as deduction. ITO rejected claim, but CIT(A) directed allowance of same. This is objected to in Departmental appeal. disallowance was made on ground that this interest had characteristics of penal interest which in light of judicial decision was not allowable. 50. After hearing parties, we agree with CIT(A) that in paying interest assessee had committed no wrong or infraction of law. interest was just normal incidence in carrying on business where assessee secured continuance of policies which would have lapsed if payment had not been made. 51. Reimbursement of medical expenses : ITO took into account reimbursement of medical expenses totalling up to Rs. 691 for purpose of applying provisions of s. 40A(5). CIT(A) deleted addition. 52. We find that this is conformity with decision of Special Bench of Tribunal in case of Blackie & Sons Ltd. CIT(A) order is upheld. 5 3 . Commission paid to Nacksons Corpn. Ltd : Rs. 219 paid as commission to this party was disallowed by ITO on ground that details were not available. Apart from fact that amount involved is Rs. 219 set against overall turnover of Rs. 44 crores of assessee, CIT(A) has also found that payment was by cheque to identifiable party. We see no reason to hold that company would have resorted to claiming bogus payment to extent of Rs. 219 at first instance. In context of CIT(A) s finding case for allowance of expenditure made out by him has to be supported. 54. In result, both appeals are partly allowed. *** NATIONAL RAYON CORPN. v. INCOME TAX OFFICER
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