Bombay High Court
Deputy Commissioner Of Income Tax vs Ion Exchange (I) Ltd. on 23 August, 1993
Equivalent citations: (1994)48TTJ(MUMBAI)538
ORDER
V. K. SINHA, A. M. :
These are appeals by the Department and the assessee as well as a cross objection by the assessee. All of them relate to the same assessment year, they are, therefore, being disposed of by this common order.
2. The Departments appeal in ITA No. 5447/Bom/88 will be taken up first.
3. Ground No. 1 is reproduced below :
"1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in restricting the disallowance under r. 6D of the IT Rules to Rs. 43,792 as against Rs. 49,450 disallowed in the assessment order."
4. We find that the matter is covered in favour of the assessee by the decision of the Tribunal in the case of S. V. Ghatalia vs. Second ITO (1983) 4 ITD 583 (Bom). This ground is accordingly allowed.
5. Ground No. 2 is reproduced below :
"On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer to allow a sum of Rs. 13,041 being expenditure incurred on consultation and feasibility study by the assessee as revenue expenditure."
6. The Assessing Officer noticed that a sum of Rs. 13,041 was paid for consultation and feasibility study which ultimately did not materialise. He treated the same as capital expenditure relying on the decision of the Gujarat High Court in the case of CIT vs. Digvijai Cement Co. (1986) 53 CTR (Guj) 273 and accordingly disallowed the assessees claim for deduction. Thereafter, the CIT(A) observed that the assessee had got a computerised feasibility study which recommended that the assessee had no need for immediate in house installation of computer and certain alternatives were suggested. Thereafter, he accepted that it was for the purpose of improving the normal running of the assessees business and would be allowable as revenue expenditure. He made no reference to the case relied upon by the Assessing Officer. The Revenue is now in appeal before us.
7. We have heard the rival submissions. Our attention has been invited to the report of computerisation feasibility study a copy of which is available in the paper book. It is seen that the principal recommendations were that there was no need for immediate in house installation of computer and it may be deferred for two years. There was immediate need for thorough systems study and setting up of a cell for this purpose. Further there was a need to advance long term strategy before going into the detailed designing work. These recommendations were made after carrying out study of the various functional areas of the assessee-company and the attributes of the information which have a bearing on the equipment configuration. Thus, we find that the study was carried out in relation to the assessees existing business and only to manage the affairs better. The facts are, therefore, distinguishable from the facts in the case of Digvijai Cement Co. Ltd. (supra), where they were considering a study report for expansion of the business into a new line. In the facts of the present case, we accept the assessees claim that the expenditure was of a revenue nature. This ground is also rejected.
8. Ground No. 3, in reproduced below :
"On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer to allow assessees claim of write off of bad debt of sum of Rs. 1,31,607."
9. We find that the matter is covered in favour of the assessee by the decision of the Tribunal in the assessees own case for asst. yr. 1985-86 in ITA No. 9132/Bom/88 dt. 20th June, 1993 in para 7. The facts in the present case are similar. Concurring with the above decision, this ground is rejected.
10. Ground No. 4 is reproduced below :
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow assessees claim of extra shift allowance in proportion of actual number of days during which the factory worked in the relevant previous year."
11. The assessee made a claim that extra shift allowance should be given at the rate of 100% of normal depreciation. Altogether the actual number of days on which manufacturing operations were carried on in three shifts was only 99 days, which is less than 240 days. It was provided in the IT Rules that for the purpose of granting extra shift allowance, the normal number of working days during the previous year shall be deemed to the number of days on which the concern actually worked during the previous year or 240 days, whichever is greater. 99 days is less than 240 days. However, the assessee claimed that the minimum number of days of 240 days stipulated in the IT Rules, should be reduced to 80 days only, since, the previous year of the assessee for this assessment year comprised of only 4 months, This claim was rejected by the Assessing Officer. The CIT(A) discussed the matter in the appellate order and thereafter, at the end gave a decision that "extra shift allowance in this case will be allowed to the appellant in proportion to the actual number of days during which the factory worked". The CIT(A) has not clarified whether the assessees appeal was being allowed or rejected on this ground, and the Revenue has apparently filed this appeal before us as a measure of precaution.
12. After hearing both sides, we are satisfied that the assessees claim cannot be upheld and the computation by the Assessing Officer must be upheld. We uphold this view since there is no satisfactory basis for reducing the stipulated 240 days to 80 days in the IT Rules, as claimed by the assessee. We hold accordingly and allow this ground.
13. Ground No. 5 reads as under :
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the assessees claim of write off of bad debt of a sum of Rs. 41,700 as allowed."
14. The Assessing Officer examined details of assessees claim of bad debt totalling to Rs. 41,700. It was an admitted fact that the assessee had not taken any steps to recover this debt. However, Assessing Officer allowed individual claims where the amounts were Rs. 1,000 or lesser on the ground that benefit should be given for smaller amounts upto the above limit as held by the Tribunal in Prakash Yarn Trading Co. vs. ITO (1985) 11 ITD 443 (Hyd). The sum allowed by him was Rs. 10,027. The balance amount where individual sums exceeded Rs. 1,000 was disallowed by him. The CIT(A), however, allowed the entire claim with an observation that he had gone through the details but without any reference to the order of the Tribunal relied upon by the Assessing Officer.
15. We have heard the rival submission and according to the learned counsel for the assessee approach should be same as for the other amounts of bad debts totalling to Rs. 1,34,607 discussed in ground No. 3. However, we do not find any merit in this contention. In the present case no efforts were made for recovery at all and allowance had already been made for smaller amounts of Rs. 1,000 or less each totalling at Rs. 10,027 by the Assessing Officer in accordance with the Tribunals decision cited by him. We concur with the same and accordingly direct that only Rs. 10,027 should be allowed and the balance should be disallowed. This ground is accordingly treated as allowed.
16. In the result, the Departments appeal is partly allowed.
17. The assessees appeal in ITA No. 5001/Bom/88 will now be taken up.
18. Ground No. 1 is reproduced below :
"1. The CIT [hereinafter referred to as CIT(A)] has erred in law and on facts in confirming the disallowance under S. 40A(5) made by the IAC by considering :
(a) House rent allowance as forming part of salary.
(b) Entire medical expenses reimbursed to the employee as forming part of salary.
(c) 25% of the expenditure on motor car as attributable for personal use and hence, perquisite to that extent.
(d) Expenditure on repairs and maintenance of leased flats allotted to its employees as perquisite.
(e) Entire expenditure incurred on provision of gas and electricity for both official and personal use as perquisite.
(f) Entire expenditure on provision of sweepers for both official and personal use as perquisite."
19. Regarding ground No. 1(a) the learned counsel for the assessee accepted that house rent allowance paid formed apart of salary, but not to the extent to which it was exempt under S. 10(13A) of the IT Act. Reliance was placed on the decision of the Bombay High Court in the case of CIT vs. Hindustan Petroleum Corpn. Ltd. (1991) 187 ITR 1 (Bom) where a decision was given that gratuity in excess of the amount exempt under S. 10(10) only should be considered for disallowance under S. 40A(5). We accept the contention. This ground is partly allowed.
20. Ground No. 1(b) is covered in favour of the Department by the decision of the Special Bench of the Tribunal in the case of Glaxo Laboratories vs. Second ITO (1986) 26 TTJ (Bom) 214 (SB) : (1986) 18 ITD 226 (Bom) (SB). This ground is accordingly rejected.
21. Ground No. 1(c), (d), (e) and (f) were considered by the Tribunal in the assessees own case for asst. yr. 1983-84 in ITA No. 6 to 9/Bom/1987 dt. 29th Sept., 1992. The learned counsel for the assessee very fairly accepted that they were decided against the assessee for that year. Concurring with the same, these grounds are rejected for this year also.
22. Ground Nos. 2.1 and 2.2. are reproduced below :
"2.1 The CIT(A) has erred in law and on facts in confirming disallowance under S. 43B made by the IAC.
2.2 CIT(A) has erred in law and on facts in stating that appellant has already been allowed benefit for sales-tax set off, hence, no further adjustment is necessary."
23. During the hearing before us the learned counsel for the assessee submitted that to the extent sales-tax has been allowed as a deduction in the next year the claim for deduction was not being pressed. For the balance amount he submitted that deduction should be allowed in light of the decision of the Patna High Court in the case of Jamshedpur Motor Accessories Stores vs. Union of India (1991) 189 ITR 70 (Pat), wherein, it was held that proviso below S. 43B will have retrospective effect being clarificatory in nature, and similar decision of the Calcutta High Court in CIT vs. Shri Jagannath Steel Corpn. (1991) 191 ITR 676 (Cal).
24. The learned Departmental Representative on the other hand relied on the decision of the Delhi High Court in the case of Sanghi Motors vs. Union of India (1991) 187 ITR 703 (Del), wherein it was held that the first proviso below S. 43B introduced w.e.f. 1st April, 1988 could not be given retrospective effect w.e.f. 1st April, 1984, and a similar decision of the Delhi High Court in the case of Escorts Ltd. vs. Union of India (1991) 189 ITR 81 (Del). The Benches of the Tribunal at Bombay have been following the decision in the case of Jamshedpur Motor Accessories Stores (supra) and concurring with the same, we restore the matter to the Assessing Officer with the direction to consider the deduction under the first proviso to S. 43B, according to law after giving an opportunity of being heard to the assessee. However, no deduction will be allowed for the amounts of sales-tax already deducted in the next year, as conceded by the learned counsel for the assessee before us.
25. Ground No. 3.3 is reproduced below :
"3.1 - CIT(A) has erred in law and on facts in confirming disallowances made by IAC under S. 37(3A) / (3B) of the Act, thereby erred in considering :
(a) expenditure incurred on payments of restaurants as payments to hotels;
(b) expenditure incurred on payments of salaries to drivers as expenditure on running and maintenance of motor cars."
26. The only point pressed before us during the hearing by the learned counsel for the assessee was that 1/3rd of the expenses incurred on payments to restaurants were held in asst. yr. 1983-84 to be attributable to the assessees own employees and, therefore, not includible in the computation for disallowance under S. 37(3A).
27. After hearing rival submissions, we accept this contention and direct that 1/3rd of the expenditure on restaurants may be taken outside the purview of S. 37(3A) on the basis that they were incurred on the assessees own employees.
28. The assessee has filed an additional ground of appeal according to which the CIT(A) erred in holding that repairs to vehicles ought to be considered for disallowance under S. 37(3A) of the Act. Since a legal question has been raised, the additional ground has been admitted by us.
29. After hearing the rival submissions, on merits we find merit in the contention of the assessee, which is supported by the decision of the Bombay High Court in the case of CIT vs. Chase Bright Steel Ltd. (1989) 177 ITR 124 (Bom), wherein, it was held that expenditure deductible under S. 31 is outside the purview of S. 37(3A). We direct accordingly.
30. Ground No. 4 is reproduced below :
"The CIT(A) has erred in law and on facts in confirming disallowance made by IAC in respect of customs penalty of Rs. 1,20,000."
31. The Assessing Officer observed that the assessee paid customs penalty of Rs. 1,20,000 during this year, and the same was inadmissible as a deduction in the light of the decision of Madhya Pradesh High Court in the case of Sunita Laboratories Ltd. vs. CIT (1986) 53 CTR 445 (MP). The CIT(A) confirmed the disallowance in light of the decision of the Bombay High Court in the case of T. Khemchand Tejoomal vs. CIT (1986) 161 ITR 492 (Bom). He noticed that as per order of the Addl. Collector of Customs dt. 8th March, 1983, the import of goods to the extent of Rs. 2,58,484 was without proper licence and unauthorised. He, therefore, confirmed the disallowance.
32. The learned counsel for the assessee invited our attention to a copy of the order of the Addl. Collector of Customs dt. 8th March, 1983, according to which the CIF value of goods was Rs. 3,58,484 as against Rs. one lakh available for debit in licence produced. It was, therefore, held that importation to the extent of Rs. 2,58,484 was unauthorised. It was ordered by the Addl. Collector of Customs that the goods shall be confiscated. However, the importer was given an option in lieu of such confiscation of a fine of Rs. 1,20,000 under S. 125 of the Customs Act, 1962. The learned counsel submitted before us that the goods had been imported in good faith and it was only a matter of interpretation that they were not covered by the licence and in any case the assessee was allowed to redeem the goods in question. According to him the payment of fine of Rs. 1,20,000 was admissible deduction in view of the decision of the Bombay High Court in the case of CIT vs. Pannalal Narottamdas & Co. (1968) 67 ITR 667 (Bom), which had been followed by the Bombay Bench of the Tribunal in the case of ITO vs. National Organic Chemicals Industrial Ltd. by an order dt. 25th June, 1984 reported in (1985) 22 TTJ (Bom) 494 : (1984) 10 ITD 398 (Bom).
33. The learned Departmental Representative relied on the order of the CIT(A).
34. We have considered the rival submissions. In the case of T. Khemchand Tejoomal vs. CIT (supra), which is an order dt. 12th Sept., 1985, the Bombay High Court considered its earlier decision in CIT vs. Pannalal Narottamdas & Co. (supra) and found that the facts were altogether different. In that case in the course of its business the assessee had purchased bills of lading, etc., from certain parties in respect of import of some goods. It was found at the time of customs clearance that the imports were unauthorised and liable to be confiscated and a penalty was imposed. The assessee paid the penalty for saving the goods being confiscated. It was held by the Bombay High Court that on the facts and circumstances, the actual cost of the goods to the assessee was not only what it had paid to the importers but in addition thereto what it had to pay by way of penalty in order to save the goods from being confiscated. However, the facts in the case of T. Khemchand Tejoomal vs. CIT (supra) were that it was the assessee who had got the import licence and imported the goods and it was the fault of the assessee if the goods imported did not conform to the licence. The penalty was levied on the assessee for the default of the assessee itself, and not on the ground of any other persons default.
35. We find that the facts in the present case are similar to the facts in the case of T. Khemchand Tejoomal vs. CIT (supra), and in the circumstances, we hold that the ratio of the decision had been rightly applied by the CIT(A). This ground of appeal is, therefore, rejected.
36. Ground No. 5 is reproduced below :
"The CIT(A) has erred in law and on facts in restricting the claims of bad debts only to the extent of Rs. 41,700."
37. This ground has been considered alongwith ground No. 5 of the Departments appeal and we have found that the order of the CIT(A) was to be modified, inasmuch as, claim of bad debts individually amounting to Rs. 1,000 only should be allowed. In the light of the same, this ground is rejected.
38. Ground Nos. 6.1 and 6.2 are reproduced below :
"6.1 - CIT(A) has erred in law and on facts in stating that the payments made to customers out of excise duty refund received from Asst. Collector are not deductible.
6.2 - CIT(A) ought to have given clear direction to the IAC to allow as deduction the repayment made to customers during the accounting period of four months ended 30th April, 1983 on account of excise duty received from Asstt. Collector."
39. The CIT(A) observed that the assessee had made claim for deduction in respect of repayment made by them during the accounting period of 4 months ended to 30th April, 1983 to the customers on account of excise duty received from the Asstt. Collector. The claim had been made, as a result of an order under S. 263 passed by the CIT. The CIT(A) observed further that the question did not arise out of the assessment order for asst. yr. 1984-85 since no such claim had been made in the course of assessment. He, therefore, declined to consider this additional ground filed before him.
40. The learned counsel for the assessee very fairly admitted before us that the order under S. 263 in question had been quashed by the Tribunal in appeal and in application under S. 256(1) had also been rejected. The issue, therefore, does not survive for consideration any more. For statistical purpose this ground is rejected.
41. In the result, assessees appeal is partly allowed.
42. We now come to C. O. No. 489/Bom/88 filed by the assessee. The only ground taken is that the CIT(A) erred in confirming the interest under S. 216 levied by the Assessing Officer. The CIT(A) observed that the assessee was not able to elaborate its stand that interest under S. 216 was excessive, the ground was, therefore, rejected. No further elaboration was made before us either. We are, therefore, unable to interfere with the order of the CIT(A) in this regard. The cross objection is rejected.