Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee was engaged in business of manufacturing of textiles - It had four manufacturing units out of which one unit located in Delhi had to be closed down as according to master plan in Delhi, it was located in non-confirming area - It claimed deduction of expenses pertaining to closed unit on account of retrenchment compensation paid to employees and interest on monies borrowed for payment of retrenchment compensation, provident fund and legal expenses - Assessing Officer disallowed assessee's claim on ground that closure of unit would amount to closure of business - Commissioner (Appeals) upheld order of Assessing Officer - On second appeal, Tribunal found that there was interconnection, interlacing and unity of control and management and use of common funds in respect of all four units and held that there was no closure of business since closed unit was only a part of textile manufacturing operations which continued even after closure of that unit as assessee continued in business of manufacture of textile in three remaining units - Whether in view of findings of fact recorded by Tribunal, there was any error in its order - Held, no II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee had its own provident fund scheme known as 'DCM Employees Provident Fund Trust' which was recognized under Employees Provident Funds Act, 1952 - Trust was required to declare same rate of interest for its members as was declared by Central Government under EPF Scheme, 1952 - On termination of services of its employees on closure of one of its units, when provident fund dues were required to be paid, assessee approached Regional Provident Fund Commissioner to obtain approval for sale of Government securities in order to make payment to employees - Commissioner granted permission with a caveat that in event of any deficiency on sale of securities, burden would have to be borne by assessee in order to ensure that employees would get rate of interest equivalent to rate paid by Central Government - There was a loss on sale of securities and,…

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