TaxTMI 
TaxTMI 
TaxTMI 
1987 (10) TMI 73
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....es and electrical installation in the factory. In response to my specific query, it was stated before me that the claim for additional depreciation on the cost of dies and electrical installation mentioned above, was not made before the ITO. The plea taken before me was that once these items are treated as plant & machinery and investment allowance is granted by the ITO, the additional depreciation should have been allowed by the ITO even if it was not claimed by the appellant. In my opinion, this plea is valid but only in part. The point is that additional depreciation under s. 32(1)(iia) is allowable on the assets installed etc., after 31st day of March, 1980, but the appellant's previous year relevant to this appeal commenced on 1st Jan., 1980. So, out of the assets mentioned above, if some have been installed etc., in the first three months of the previous year, the additional depreciation under s. 32(1)(iia) would not be available. So, availability of additional depreciation is not that automatic in the appellant's case as it is sought to be made out on behalf of the appellant. Taking totality of circumstances into account, it would be reasonable to direct that if within a rea....
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....2 in providing goods, services or facilities (like fertilizers, seeds, pesticides etc.) to the growers as prescribed in sub-cl.(b) of s. 35(C)(i) but instead, it had made payments to the following two persons who were stated to be growers of Mochi-rice: (1) Mr. Harivindar Singh Rs. 19,068 (2) Mr. Gurbux Singh Rs. 38,724 Rs. 57,792 Accordingly, the assessee's representative was informed that the provisions of s. 35C are not fulfilled in as much as only the expenditure incurred in providing certain goods, services or facilities of the type described in sub-cl.(b) will be eligible for weighted allowance, and the company has not incurred the said amount of Rs. 57,792 in providing any such goods, services or facilities. In reply, Shri Chokshi contended that the payment of Rs. 57,792 made to the said farmers was intended for provisions of facilities to them and as such the company may be allowed agricultural development allowance on this expenditure. I am afraid, this contention of the assessee's representative cannot be accepted because the section clearly prescribes that the expenditure should be incurred directly or through an association which has been approved for this purp....
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....as stated before me orally that the stamp paper was bought on 6th Feb., 1985 and the affidavit was affirmed on 7th Feb., 1985. As indicated earlier, it was filed before me on 8th Feb., 1985. So, even if the surprising irregularity of the absence of date from the affidavit is viewed leniently, it is not explained why this additional piece of evidence is ought to be produced at this late stage and why was it not produced before the ITO. Even on merits, the position that there is no evidence to prove-beyond the contents of the affidavit-that money in question was paid for purchase of fertilisers and pesticides. Actually, there is no evidence to show whether the payees at all utilised the impugned sums for the purchase of fetilizers and pesticides. All the same, it has been reasonably proved that the said sum has been paid to the cultivators of Mochi-rice from whom the appellant has actually bought Mochi--rice. So, I would not agree with the ITO that there could have been any extraneous consideration for making this payment. It may be regarded as an extra payment made to two of the sellers of Mochi-rice and would clearly be allowable as business expenditure. However, as already indicat....
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....tion of the Commissioner (Appeals) by relying on the decision reported in CIT vs. Navbharath Enterprises Pvt. Ltd. (1987)62 CTR (AP) 189 : (1987) 165 ITR 603 (AP). He also pointed out that the Revenue has come up in appeal against the decision of the Commissioner (Appeals) allowing Rs. 57,792 as revenue expenditure. In this connection, he submitted that since the expenditure of Rs. 57,792 was incurred by the assessee for which no satisfactory evidence was produced before the ITO, the Commissioner(Appeals) ought not to have accepted the assessee's claim for deduction of Rs. 57,792 as revenue expenditure. 8. On due consideration of the rival submissions of the parties as well as the material already brought on record, we find considerable force in the submissions made on behalf of the assessee that it was not only entitled to claim deduction of Rs. 57,792 as revenue expenditure but was also entitled to weighted deduction as contemplated under s. 35C of the Act. It may be mentioned that we have gone through the aforesaid affidavit of Shri Bishansingh who was an Administrative Officer of the assessee as well as the details of the expenditure incurred on cultivation of mochi-rice and ....
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....e me an analysis of those accounts right from the beginning. This information is furnished before me only in past. List is furnished to show that it is pertaining to parties with amounts varying from Rs. 175 to Rs. 3,740. the copies of accounts of these persons are filed for and from the accounting periods 1975-76 to 1983. In most of these accounts, the relevant amounts are shown as opening balances. Since information for any period prior to 1975-76 is not furnished, it can be presumed that the relevant balances were coming from earlier years-may be many earlier years. Further, it is an admitted position that after the amounts being credited back to the Profit and Loss account on 31st Dec., 1980, no payments has been made certainly upto 31st Dec., 1983 and perhaps, even upto January-February, 1985. It is not shown to me that anyone of these parties has actually claimed or approached the appellant for seeking payment of the amount in question. From these basis facts, I would fasten on the appellant the responsibility of showing that the appellant company had actually admitted its liability to make the respective payments to the parties concerned. The point is that in business, it qu....
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.... the orders of the IT authorities and justified their action. In this connection, he also stated that in order to decide the point at issue, we have to keep in mind the general conduct of the assessee. According to him, the provisions of s. 41(1) of the Act, were clearly applicable in the instant case. 11. On due consideration of the rival submissions of the parties, we find considerable force in the submissions made on behalf of the assessee. It is pertinent to note that the point at issue is no longer res-integra but has been considered by the Hon'ble High Court in number of cases and the decision is in favour of the assessee. Further, the commentaries of M/s Kanga & Palkhiwala and M/s Chaturvedi & Pithisaria clearly support the stand taken on behalf of the assessee. Following the aforesaid two reported decisions, we have no hesitation in deleting Rs. 16,997 from the total income of the assessee. 12. The next point pertains to certain disallowance made by the IT authorities under s. 40 (c) of the Act. Since this point involves certain details of the disallowances made by the IT authorities, we would reproduce below the relevant portions of the orders of the ITO/Commissioner (....
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....be applied and not s. 40(c). This contention of the assessee is also not acceptable because s. 40(c) being specific provision in regard to a Director, the same will also be applicable in the case of directors who are employees of the company. This view also finds support from Gujarat High Court decision in the case of Addl. CIT vs. Tarun Commercial Mills Ltd. 1977 CTR (Guj) 141 : (1978) 113 ITR 745 (Guj). 12.3. From the annexure to the Balance Sheet, it is seen that the company has borne the tax liability of Rs. 20,505 in the case of Shri M. Ashara and Rs. 63,495 in the case of Shri T. Senuku. Since the income-tax payment was otherwise the liabilities of these directors and as the company has chosen to bear them, these directors have derived benefits to this extent and, accordingly, these amounts should be included for the purpose of disallowance under s. 40(c). Likewise, the personal group insurance premium paid by the company in respect of these directors will also be the benefit given to them and will accordingly be included for the purpose of disallowance under s. 40(c). 12.4. As regards the remuneration paid to the Managing Director Shri S.N.P. Punj, on a reference to note....
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....nection of the appellant. 6.2. Next point is whether s. 40(c) would be applicable or s. 40A(5). This is very material because in s. 40A(5), there is provision for excluding the remuneration etc., paid to the foreign technician, but the corresponding provision is not there in s. 40 (c). In the appellant's case, the persons concerned were foreign technicians as well as directors. I would agree with the ITO-refer para marked 12.2 of the assessment order that in view of the Gujarat High Court decision in Tarun Commercial Mill Ltd. the provisions of s. 40 (c) would apply and not the provisions of s. 40A(5). On this point also, appellant's contention is rejected. 6.3. Next point is about the addition for house rent. Appellant's claim is that only the excess above the limits prescribed in r. 3 of the IT Rules, 1962, should have been considered. On the other hand, the Department has considered the whole rent. In my opinion, the provisions of s. 40 (c) are very clear according to which the whole amount of rent has to be considered. Apart from the plain language of s. 40(c), it may be viewed from a logical angle also. The quantification of taxable salary income of the employee is differe....
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....of Rs. 60,000 is applicable and hence no part of the amount of Rs. 26,250 is allowable. 7.1. Without prejudice to the above contention CIT(A) ought to have held that Gratuity only in excess of amount under s. 10(10) of the IT Act, 1961, is includible as salary and not the entire amount of Gratuity paid. 7.2. The learned CIT(A) erred in confirming disallowance of remuneration of Rs. 33,778 out of total remuneration of Rs. 45,775 (including Gratuity of Rs. 26,250). Learned CIT(A) ought to have held that under proviso to s. 40A(5)(a), as ceiling is of Rs. 72,000 whole of the remuneration is allowable." 15. The learned counsel for the assessee, therefore, urged that the disallowance ought to have been worked out by the IT authorities on the basis of the provisions of s. 40A(5) of the Act. Thereafter, he touched upon certain items under this head like group insurance premium of Rs. 529, gratuity of Rs. 26,250 etc, etc. The learned representative for the Department, on the other hand, supported action of the IT authorities. Both the parties had invited our attention to the decision in the cases of Tarun Commercial Mills Ltd., CIT vs. Bharat Vijay Mills Ltd. (1981) 128 ITR 633 (Guj)....
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.... of the machineries for implementation of the expansion project which the Company desired to complete by the end of March, 1981. Besides the aforesaid objectives, discussions with the foreign collaborators in regard to business plan of the Company for the year 1981 and the export programme for the year 1980-81 were also mentioned in these two letters as residuary objectives. The assessee's representative was accordingly pointed out that the expenditure incurred on the foreign travelling during the year was mainly in the nature of capital expenditure, and therefore, the same cannot be allowed, as revenue expenditure. Shri Chokshi, however, laid stress on the clause referring to the discussions with the collaborators regarding the business plan and export plan purposes and contended that the expenditure was referable to both revenue account and as well as for the export purposes. However, on being specifically asked about the discussions made regarding the export programme and the results, if any, achieved by the visits of Shri S.N.P. Punj and Shri T. Sanuku, he could not furnish any details or evidence to substitute his claim. And, therefore, in my view, one part of this expenditure....
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....80. The ITO has held that the only material available for deciding whether the tours were undertaken for the purposes of business or in connection with the inspection and acquisition etc., of the new plant and machinery, are the two letters dt. 10th Dec., 1979 and 24th Oct., 1980 given by the appellant company to the Reserve bank of India for seeking release of foreign exchange. Copies of these letters have been put by the appellant on pages 49 to 53 of the Paper Book given to me. On my specific request, appellant has further furnished information to the effect that the expansion project commenced production on 2nd June, 1981 and out of the total outlay of Rs. 159 lacs there was expenditure on import of plant and machinery to the tune of Rs. 111 lacs. Now, the ITO's point is that a perusal of the letters given by the appellant to the Reserve Bank of India reveals that the main purpose of the foreign tours was the selection, acquisition and inspection of the plant & machinery abroad. Since the three of the foreign tours were undertaken in the months of November and December 1980 and the imported plant & machinery worth more than Rs. One crore was actually installed and commissioned ....
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.... The learned representative for the Department, on the other hand, once again supported the order of the IT authorities. 19. We have considered the rival submissions of the parties and we do not find any justification to interfere with the order of Commissioner(Appeals) on this point. It appears from the concluding para of the order of the Commissioner (Appeals) (reproduced above) that he has fairly indicated that "the assessee would be free to claim...............if so advised". However, with a view to minimise litigation, we would direct the ITO to allow investment allowance/depreciation in accordance with law after giving an opportunity of being heard to the assessee in this regard. 20. The next point pertaining to weighted deduction under s. 35B of the Act, on advertisement expenses of Rs. 1,55,838 was not pressed by the learned counsel for the assessee at the time of hearing. We would, therefore, uphold the order of the Commissioner (Appeals) on this point. 21. The last point pertains to the assessee's claim for deduction of excise duty liability of Rs. 41,77,983. In view of our decision in the assessee's own case in ITA Nos. 2616 & 2617/Ahd/85 dt. 9th Sept., 1987 to whi....
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....ether it was merely an omission. Be as it may, I should be only consistent in my approach and as already mentioned, the figures have somehow come very near to each other. In my opinion, appellant is entitled to relief under s. 35B on the total expenditure out of foreign tour expenses which is allowed on revenue account i.e. Rs. 49,700. The ITO is directed to allow such relief under s. 35B on the said sum of Rs. 49,700. 25. The learned representative for the Department strongly relied on the order of the ITO and vehemently argued that the Commissioner (Appeals) was not justified in accepting the assessee's claim in the manner he did. He, therefore, urged that the order of the Commissioner (Appeals) on this point should be reversed. The learned counsel for the assessee, on the other hand, supported the order of the Commissioner(Appeals) by referring to pages 80 to 86 of his Paper Book containing the correspondence the assessee had with the Reserve Bank of India, Exchange Control Department for obtaining foreign exchange for the visits of the directors. 26. On due consideration of the rival submissions of the parties as well as the material already brought on record here also, we ....