Income Tax Appellate Tribunal - Jodhpur
Deputy Commissioner Of Income Tax vs Metallizing Equipment Co. (P) Ltd. on 18 November, 2004
Equivalent citations: (2005)92TTJ(JODH)95
ORDER
1. These three appeals have been filed by the Department against the order of CIT(A), Jodhpur, dt. 15th Jan., 1998, for the asst. yrs. 1993-94, 1991-92 and 1994-95 respectively. Almost identical issues are involved in all these appeals and pertain to same assessee, so they are being disposed of by this common order for the sake of convenience and brevity.
2. We shall first take up ITA No. 115/Ju/1998 for asst. yr. 1993-94.
3. The first ground pertains to the deletion of disallowance of assessee's claim of Rs. 7,92,763 under Section 35(1)(iv) of the IT Act, 1961 (hereinafter referred to as the Act').
4. This issue has been decided by the AO at pp. 2 to 8 para (4) of assessment order. The learned CIT(A) has discussed this issue at pp. 2 to 4 paras 3 to 5 of the appellate order.
5. The brief facts of the case are that the return of income was filed on 30th Dec., 1993, declaring total income of Rs. 31,49,000. The return was accompanied with tax audit report, audited balance sheet and P&L a/c. Subsequently it was processed under Section 143(i)(a) of the IT Act, 1961 (hereinafter referred to as 'the Act') on 20th Jan., 1994. The assessee claimed capital expenditure of Rs. 7,92,763,84 on research and development under Section 35(1)(iv) of the Act. The AO did not find the claim of the assessee under Section 35(1)(iv) as genuine. The AO mentioned in his order that the assessee had not fulfilled the requirements of terms and conditions of the Department of Scientific and Industrial Research and, therefore, held the claim of the assessee as not genuine.
6. In appeal, the CIT(A) held that the AO was not justified in holding that the claim of the assessee for deduction under Section 35(1)(iv) was not genuine for the reason that the assessee had incurred expenditure of capital nature by purchasing certain items intended to be used for Research and Development Unit. The R&D Unit of the appellant has been recognized by the prescribed authority. Therefore, the CIT(A) allowed a relief of Rs. 7,92,763. Now the Department is in appeal against the same.
7. We have heard the rival submissions and have perused the evidence on record.
8. After careful consideration of the evidence and material on record we give our finding as below. We find force in the arguments of the learned Authorized Representative that the assessee has fulfilled all the conditions required for allowance of such a deduction. The assessee has submitted three yearly reports to the prescribed authority and had been getting recognition certificate of in-house R&D unit upto 31st March, 2000. As per the provisions of Section 35(i)(iv), it is not mandatory that the plant and machinery purchased must be put to use. It is enough if the expenditure is incurred on purchase of plant and machinery to be used in the R&D unit. The decisions of the Hon'ble Orissa High Court in the case of Belpahar Refractories Ltd. v. CIT (1994) 207 ITR 144 (Ori) and the decision of the Hon'ble Karnataka High Court in the case of CIT v. H.M.T. Ltd. (1993) 199 ITR 235 (Kar) relied by the learned Authorized Representative support his arguments. In the light of the above we hold that the findings of the learned CIT(A) are perfectly alright and we decline to interfere with the same. Consequently, the ground of appeal taken by the Department is dismissed.
9. The second ground pertains to the deletion of disallowance of assessee's claim of Rs. 2,18,447 for bank guarantee commission.
10. This issue has been decided by the AO at pp. 8 to 10 para 5 of assessment order. The learned CIT(A) has discussed this issue at pp. 4 to 5 paras 6 to 8 of the appellate order.
11. Briefly stated the facts of the case are that the assessee claimed payment of guarantee commission expenses of Rs. 2,18,447.34 on account of personal guarantee given by its directors and their relatives for loans obtained from the bank. The AO observed that the payment of guarantee commission is nothing but a colourable device to reduce the genuine tax liability of the assessee company and disallowed the expenditure because the same was not found incurred wholly and exclusively for the business purpose. In appeal, the learned CIT(A) allowed the claim of the assessee following the decisions of various High Courts. Now the Department is in appeal against the same. '
12. We have heard the rival submissions and have perused the evidence on record.
13. The learned Authorized Representative submitted that the payment of guarantee commission is an admissible deduction because this expenditure was wholly and exclusively incurred for the purpose of business and since the parties to whom the payment of guarantee commission was made stood guarantee for raising loan as per the conditions of the Bank from whom loans have been raised. The learned Authorized Representative further submitted that the AO was not justified in disallowing such deduction this year whereas the assessee has been allowed such deductions in earlier years upto asst. yr. 1991-92.
14. On the other hand, the learned Departmental Representative relied on the orders of the AO.
15. We have heard the rival submissions and have perused the evidence on record.
16. After careful perusal of the evidence and material available on record, we are of the considered opinion that the payment of guarantee commission is an allowable deduction. The learned CIT(A)'s order is perfectly alright and we uphold his order and sustain the relief granted by the learned CIT(A). Consequently, this ground of the Department is dismissed.
17. In ground No. 3 the Department has disputed the deletion of disallowance of assessee's claim of Rs. 39,514 on account of shortage and delays.
18. This issue has been decided by the AO at pp. 13 to 14 para (9) of assessment order. The learned CIT(A) has discussed this issue at pp. 9 to 10 paras 15 to 17 of the appellate order.
19. Briefly stated, the facts of the case are that the assessee claimed a sum of Rs. 90,014 on account of shortage and delays. Out of the total claim, a sum of Rs. 16,628 relates to shortage of Appollo Tyres and Rs. 50,500 for late delivery charges made by M/s Birla Tyres. The AO found that a sum of Rs. 16,628 did not relate to the relevant accounting year and in respect of Rs. 22,886 the AO observed that the assessee had not produced any authentic evidence in respect of such shortage and, therefore, made an addition of Rs. 39,514.
20. In appeal, the learned CIT(A) held that the assessee maintained mixed system of accounting and because the assessee had to suffer on account of late delivery of goods to the purchaser, the claim was incurred wholly and exclusively for the purpose of business and allowed the expenditure.
21. We have heard the rival submissions and have perused the evidence on record.
22. In our considered opinion, the finding of the learned CIT(A) is perfectly alright and we agree with the submissions of the learned Authorized Representative that the assessee had to suffer on account of late delivery of goods to purchaser and the expenditure incurred was wholly and exclusively for the purpose of business. Consequently, the ground of appeal taken by the Department is dismissed.
23. The fourth ground taken by the Department pertains to deletion of disallowance of assessee's claim of Rs. 26,514 on account of 100 per cent depreciation on wooden structure.
24. This issue has been decided by the AO at p. 15 of assessment order. The learned CIT(A) has discussed this issue at pp. 10 & 11 paras 19 to 21 of the appellate order.
25. At the very outset of arguments, it has been submitted by the learned Authorized Representative that the issue stands fully covered in assessee's favour in assessee's own case of asst. yr. 1994-95 decided by this Bench in ITA No. 570/Jdpr/1998.
26. In the result, the appeal by the Department in ITA No. 115/Ju/1998 is dismissed.
27. Now we shall take up ITA No. 116/Ju/1998 for asst. yr. 1991-92.
27A. The first ground has already been discussed and decided by us above. So, we hold accordingly and dismiss the ground of appeal of the Department.
28. The second ground relates to the direction of the learned CIT(A) to allow depreciation @ 100 per cent on office equipment.
29. At the very outset, the learned rival representatives submitted that this issue is squarely covered in favour of the assessee in assessee's own case for asst. yrs. 1989-90 and 1990-91 in ITA No. 767/Jp/1994 decided on 27th Sept., 2000.
30. After perusal of the Tribunal orders, we agree with the learned Authorized Representative and the learned Departmental Representative that this issue is covered in favour of the assessee. So, respectfully following the Tribunal order, we dismiss this ground of appeal.
31. The third ground pertains to deletion of disallowance of Rs. 53,291 on account of travelling expenses.
32. The AO made an addition of Rs. 53,291 on the ground that the assessee had not produced evidence in respect of travelling expenses before him to the effect that the expenditure has been incurred wholly and exclusively for the purpose of business. The learned CIT(A), relying on the decisions of the Hon'ble Calcutta High Court in the case of CIT v. Vidyut Metallics Ltd. (1993) 203 ITR 779 (Cal) and the decision of the Tribunal, Ahmedabad Bench in New Bharat Engineering Works (Jam) Ltd. v. ITO (1992) 44 TTJ (Ahd) 522 and the learned Authorized Representatives submission that the expenditure incurred during the course of stay relating to telephone, local conveyance, postal expenditure, medical expenditure are not to be taken into account for the purpose of disallowance under Rule 6D because such expenditure is normal business expenditure for the purpose of working out disallowance under Rule 6D, only the expenditure relating to the journey, boarding and lodging is to be taken into account, deleted the addition made by the AO.
33. After hearing both the learned rival representatives, we are of the considered opinion that the finding of the learned CIT(A) is quite justified and we find no reason to interfere with the same.
34. In the result, the appeal of the Department in ITA No. 116/Ju/1998 is dismissed.
35. Now we shall take up ITA No. 248/Ju/1998 for asst. yr. 1994-95.
36. Ground No. 1 stands disposed of by us while deciding ground No. 2 in asst. yr. 1993-94. So, this ground is also decided accordingly.
37. Ground No. 2 has been decided by us above while deciding ground No. 2 in asst. yr. 1991-92.
38. Ground No. 3 has been decided by us above in ground No. 4 for asst. yr. 1993-94.
39. Ground No. 4 has been discussed and decided by us above while deciding ground No. 1 in asst. yrs. 1993-94 and 1991-92.
40. In the result, the appeal of the Department in ITA No. 248/Ju/1998 is dismissed.
41. In the result, all the three appeals filed by the Department are dismissed.