1994 (5) TMI 61 - AT - Income Tax

Tribunal partially allows Revenue's appeal: Depreciation disallowed, customs duty deduction upheld, driver's salary excluded.

The Tribunal partially allowed the Revenue's appeal in this case. It reversed the CIT(A)'s decision on the first issue, disallowing depreciation on ... 1961 Act, Actual Cost, Plant And Machinery Issues Involved:1. Disallowance of interest capitalized as part of the actual cost of plant and machinery.2. Deductibility of customs duty paid while valuing the closing stock.3. Exclusion of driver's salary from the computation of disallowance under section 37(3A).Issue-wise Detailed Analysis:1. Disallowance of Interest Capitalized as Part of the Actual Cost of Plant and Machinery:The first issue concerns the disallowance of interest capitalized as part of the actual cost of plant and machinery, invoking Explanation (8) to section 43(1) of the I.T. Act 1961. The assessee, a company not substantially interested by the public, capitalized the interest payable under the Deferred Payment Guarantee Scheme of the Industrial Development Bank of India (IDBI) and claimed depreciation on this amount. The Assessing Officer disallowed this claim, citing that the interest should not be included in the cost of the asset. The CIT(A) allowed the claim, following the Tribunal's decision in India Pistons Repco Ltd. v. IAC, which held that the interest paid under the Deferred Payment Scheme should be included in the actual cost of the asset under section 43(1), and depreciation should be allowed on the entire cost, including interest. However, the Tribunal preferred the Bombay High Court's decision in CIT v. Rajaram Bandekar, which held that Explanation 8 to section 43(1) clarifies that interest payable after the asset is first put to use should not be included in the actual cost. Consequently, the Tribunal reversed the CIT(A)'s decision and restored the Assessing Officer's order, disallowing depreciation on the interest amount accrued after the plant and machinery were put to use.2. Deductibility of Customs Duty Paid While Valuing the Closing Stock:The second issue pertains to whether customs duty paid should be deducted while valuing the closing stock. The assessee paid customs duty on goods held as closing stock, amounting to Rs. 68,484. The Assessing Officer disallowed this under section 43B, considering it a provision rather than an actual payment. The CIT(A) allowed the assessee's claim, following the Gujarat High Court's decision in Lakhanpal National Ltd. v. ITO, which held that customs duty paid on imported raw materials and goods manufactured in the same year is deductible under section 43B. The Tribunal agreed with the CIT(A), stating that it is inconceivable to import goods without paying customs duty, and thus, the duty paid is deductible under section 43B. The Tribunal upheld the CIT(A)'s decision, confirming that the customs duty paid is allowable as a deduction.3. Exclusion of Driver's Salary from the Computation of Disallowance under Section 37(3A):The third issue involves whether the driver's salary should be excluded from the computation of disallowance under section 37(3A). The assessee claimed that lease charges, conveyance allowance, repairs, car insurance, and driver's salary should be excluded while computing disallowance under section 37(3A). The Assessing Officer denied this claim. On appeal, the CIT(A) held that the driver's salary should be excluded, as it is not incurred for the running and maintenance of the car. The Tribunal upheld the CIT(A)'s decision, referencing its earlier decision in R.K. Swamy Advertising Associates (P.) Ltd. v. IAC, which classified the driver's salary under 'wages' and not as an expenditure for running and maintenance of a car. The Tribunal confirmed that the driver's salary is a fixed expenditure and not subject to disallowance under section 37(3A).Conclusion:The Tribunal's decision resulted in a partial allowance of the Revenue's appeal. The Tribunal reversed the CIT(A)'s decision on the first issue, upholding the disallowance of depreciation on interest capitalized after the machinery was put to use. On the second issue, the Tribunal confirmed the CIT(A)'s decision allowing the deduction of customs duty paid. On the third issue, the Tribunal upheld the CIT(A)'s decision to exclude the driver's salary from the computation of disallowance under section 37(3A).