Tribunal Ruling on Tax Disallowances & Deductions: Key Points & Modifications

The tribunal partly allowed ITA Nos. 42 (Coch)/90, 43 (Coch)/90, and 44 (Coch)/90, dismissing ITA No. 41 (Coch)/90. The disallowance of excess bonus provision for the assessment year 1985-86 was deleted, along with the disallowance of ex gratia payments. Deductions for ex gratia payment and customary bonus for the assessment year 1986-87 were partially allowed, subject to verification. Disallowance under section 43B of the I.T. Act for the assessment year 1986-87 was modified. Investment allowance on electrical installations and moulds was granted, and additional depreciation on plant and machinery was denied. Disallowances of presentation articles under Rule 6B were upheld for both assessment years. The deduction of commission paid to canvassing agents was dismissed.

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Issues Involved:
1. Disallowance of bonus and ex gratia payments for the assessment year 1985-86.
2. Disallowance of presentation articles under Rule 6B of the I.T. Rules for the assessment year 1985-86.
3. Deduction for ex gratia payment and customary bonus for the assessment year 1986-87.
4. Disallowance under section 43B of the I.T. Act for the assessment year 1986-87.
5. Grant of investment allowance on electrical installations and moulds for the assessment year 1986-87.
6. Additional depreciation on plant and machinery for the assessment year 1986-87.
7. Disallowance of presentation articles under Rule 6B of the I.T. Rules for the assessment year 1986-87.
8. Deduction of commission paid to canvassing agents for the assessment year 1986-87.

Detailed Analysis:

1. Disallowance of Bonus and Ex Gratia Payments for the Assessment Year 1985-86:
The assessee created a provision for bonus and ex gratia to employees amounting to Rs. 3,82,735. The Assessing Officer computed the bonus payable at 8.33%, amounting to Rs. 2,06,262, and disallowed the balance of Rs. 1,76,473 as excess provision. Additionally, Rs. 2,89,028 representing ex gratia payments was also disallowed. The CIT (Appeals) upheld the disallowance of the excess bonus provision but deleted the disallowance of ex gratia payments. Upon appeal, it was held that the assessee had a reasonable apprehension of its liability to pay bonus in excess of 8.33% based on prior agreements and practices. Therefore, the disallowance of Rs. 1,76,473 was deleted, and the deletion of Rs. 2,89,028 was upheld.

2. Disallowance of Presentation Articles under Rule 6B of the I.T. Rules for the Assessment Year 1985-86:
The assessee was disallowed Rs. 5,503 for presentation articles. The CIT (Appeals) upheld this disallowance, and the tribunal confirmed that Rule 6B was rightly invoked, maintaining the disallowance.

3. Deduction for Ex Gratia Payment and Customary Bonus for the Assessment Year 1986-87:
The revenue objected to the deduction of Rs. 1,58,416 for ex gratia payment and Rs. 71,886 for customary bonus. The CIT (Appeals) allowed these deductions, but the tribunal directed the Assessing Officer to allow only the payment in excess of 15.46% already allowed in the preceding year. The issue of customary bonus was restored to the Assessing Officer to verify if it was customary in nature and satisfied any condition under section 36(1)(ii).

4. Disallowance under Section 43B of the I.T. Act for the Assessment Year 1986-87:
The Assessing Officer disallowed Rs. 4,92,272 under section 43B, which included an amount of Rs. 2,66,555 already disallowed in the preceding year. The CIT (Appeals) deleted the disallowance, but the tribunal modified the order, allowing only Rs. 2,08,808, as Rs. 57,747 was already allowed by the Assessing Officer.

5. Grant of Investment Allowance on Electrical Installations and Moulds for the Assessment Year 1986-87:
The CIT (Appeals) granted investment allowance on electrical installations and moulds, considering them integral to the plant and machinery. The tribunal upheld this view, treating moulds as part of the plant and electrical installations as part of the machinery.

6. Additional Depreciation on Plant and Machinery for the Assessment Year 1986-87:
The assessee claimed additional depreciation on assets installed before 1-4-1985 but put to use after this date. The tribunal held that for additional depreciation, the asset must be installed before 1-4-1985. Since the machine was not fully installed before this date, the claim was rightly denied.

7. Disallowance of Presentation Articles under Rule 6B of the I.T. Rules for the Assessment Year 1986-87:
The issue was similar to the one for the assessment year 1985-86. The tribunal upheld the disallowance of Rs. 11,963 under Rule 6B.

8. Deduction of Commission Paid to Canvassing Agents for the Assessment Year 1986-87:
The assessee did not press this ground, and accordingly, it was dismissed.

Conclusion:
The tribunal dismissed ITA No. 41 (Coch)/90, while ITA Nos. 42 (Coch)/90, 43 (Coch)/90, and 44 (Coch)/90 were partly allowed.

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