Tribunal Grants Partial Relief to Assessee: Loss Carry Forward Allowed, Some Disallowances Deleted, Depreciation Adjusted.

NUCHEM LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX.

NUCHEM LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX. - TTJ 087, 166, Issues Involved:
1. Delay in finalizing assessment and carry forward of loss.
2. Deduction on account of net refund of excise duty.
3. Depreciation on pro rata basis for a period of 15 months.
4. Depreciation rate on moulds.
5. Disallowance out of entertainment expenses.
6. Disallowance on account of advertisement expenses.
7. Disallowance under section 43B of the Act.
8. Disallowance out of motor car expenses.
9. Disallowance out of miscellaneous expenses.
10. Disallowance of earlier years' expenses.
11. Allowability of interest under section 35(1)(iv) of the Act.
12. Disallowance out of conference expenses.
13. Deletion of addition on account of excise duty refund credited to P&L account on accrual basis.
14. Relief allowed under the head 'entertainment expenses.'
15. Decision of addition made under section 40(c) of the Act.
16. Decision of addition made under section 36(1)(iii) for not charging interest on advance.
17. Deletion of addition on account of unexplained cash credits.
18. Deletion of addition out of foreign traveling expenses.
19. Deletion of addition out of staff welfare expenses.

Detailed Analysis:

1. Delay in Finalizing Assessment and Carry Forward of Loss:
The assessee challenged the CIT(A)'s decision that the AO was justified in refusing to allow the carry forward of the loss to subsequent years due to the late filing of the return of income. The Tribunal found that the delay in filing the return was due to the audit not being completed in time, which was a reasonable cause. The AO's rejection of the extension request was deemed unjustified. Consequently, the AO was directed to carry forward the determined loss to subsequent years.

2. Deduction on Account of Net Refund of Excise Duty:
The assessee argued that the refund of excise duty was not taxable as income because the order of the Collector (Appeals), Central Excise, was not accepted by the Central Excise Department, and the appeal was pending before CEGAT. The Tribunal held that there was no cessation of liability, and the provisions of section 41(1) of the Act were not applicable. The addition sustained by the CIT(A) was deleted.

3. Depreciation on Pro Rata Basis for a Period of 15 Months:
The assessee's accounting period was changed from the calendar year to the financial year, resulting in a 15-month period. The AO allowed depreciation only for 12 months, citing the omission of the proviso to rule 5(1) of the IT Rules, 1962. The Tribunal upheld the CIT(A)'s decision that depreciation for 12 months was allowable, dismissing the assessee's appeal.

4. Depreciation Rate on Moulds:
The assessee claimed depreciation at 50% on moulds used in the manufacture of items, which was previously allowed at 40%. The Tribunal directed the AO to allow depreciation at 50% as provided in the IT Rules, allowing the assessee's appeal.

5. Disallowance Out of Entertainment Expenses:
The AO disallowed a portion of entertainment expenses, including sales promotion expenses. The CIT(A) allowed a 25% deduction for employees' participation. The Tribunal directed a 35% deduction based on the Delhi High Court's decision in CIT vs. Expo Machinery Ltd., partly allowing the assessee's appeal.

6. Disallowance on Account of Advertisement Expenses:
The AO disallowed expenses related to crockery as entertainment expenditure. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered in favor of the Revenue by the Tribunal's decision in the assessee's earlier years.

7. Disallowance Under Section 43B of the Act:
The assessee argued that payments of CST/ST and gratuity were made within the prescribed time. The Tribunal directed the AO to verify the payments and allow deductions if made within the due date of filing the return of income, following the Supreme Court's decision in Allied Motors (P) Ltd. vs. CIT.

8. Disallowance Out of Motor Car Expenses:
The Tribunal held that there could be no disallowance for personal use of the car in the case of a company, deleting the disallowance sustained by the CIT(A).

9. Disallowance Out of Miscellaneous Expenses:
The AO's ad hoc disallowance of Rs. 50,000 was deleted by the Tribunal, concurring with its decisions in the assessee's earlier years.

10. Disallowance of Earlier Years' Expenses:
The Tribunal allowed the deduction of Rs. 3,376 for bills received in the current year, holding that the addition sustained by the CIT(A) was not justified.

11. Allowability of Interest Under Section 35(1)(iv) of the Act:
The Tribunal restored the issue of interest allowability on debentures to the AO for reconsideration in light of its order for the assessment year 1988-89.

12. Disallowance Out of Conference Expenses:
The Tribunal found the AO's disallowance of Rs. 1,50,000 out of Rs. 1,69,470 as unreasonable and restricted the disallowance to Rs. 50,000, giving partial relief to the assessee.

13. Deletion of Addition on Account of Excise Duty Refund Credited to P&L Account on Accrual Basis:
The Tribunal upheld the CIT(A)'s decision that the entry of hypothetical income in the books of account does not result in taxable income, dismissing the Revenue's appeal.

14. Relief Allowed Under the Head 'Entertainment Expenses':
The Tribunal dismissed the Revenue's appeal, following its findings in the assessee's appeal.

15. Decision of Addition Made Under Section 40(c) of the Act:
The Tribunal dismissed the Revenue's appeal, noting that the issue was covered by the Tribunal's order in the assessee's earlier years.

16. Decision of Addition Made Under Section 36(1)(iii) for Not Charging Interest on Advance:
The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to prove the nexus between borrowing funds on interest and advancing the same without interest.

17. Deletion of Addition on Account of Unexplained Cash Credits:
The Tribunal upheld the CIT(A)'s decision, noting that the credits related to earlier years and not the year under consideration.

18. Deletion of Addition Out of Foreign Traveling Expenses:
The Tribunal upheld the CIT(A)'s decision, noting that the expenditure for modernization or upgradation of existing products was revenue in nature.

19. Deletion of Addition Out of Staff Welfare Expenses:
The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide evidence that the CIT(A)'s findings for the earlier year were reversed by the Tribunal.

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed.