Income Tax Appellate Tribunal - Delhi
Dy. Cit vs M/S. Escorts Tractors Ltd. on 23 January, 2004
Equivalent citations: (2004)91TTJ(DELHI)905
ORDER
P.N. Parashar, J.M. These cross appeals arise out of order of the Commissioner (Appeals) - XI, New Delhi dated 27.8.1992 for assessment, year 1989-90.
2. Shri Pradeep Dinodia, C.A. attended on behalf of the assessee whereas Shri Salil Gupta, Sr. Departmental Representative attended on behalf of the department.
I.T.A. No. 7678/Del/92 :
Ground No. 1 :
3. At the time of hearing of this appeal, the learned Counsel for the assessee did not press this ground. Hence this ground is rejected as not Pressed.
Ground No. 2 :
4. This ground is directed against sustenance of disallowance of Rs. 1,20,649 being the payment of bonus under section 43B of the Act. The learned Commissioner (Appeals) has considered this issue in Para 10, 11 and 15 of his order. The assessment year had made following disallowances under section 43B 'of the Act :
Sales-tax payable 29,525 Bonus Payable 2,51,607 2,81,132 Payments under E. S.I Employees' Contribution 3,06,337 Employers' Contribution 6,80,291 9,86,628 12,67,760"
5. It was submitted before the learned Commissioner (Appeals) that amount of Rs. 1,20,649 out of Rs. 2,81,132 relating to Bonus payable was paid by the assessee before the due date for filing of the return under section 139(1) of the Act and therefore no disallowance should be made to this extent. The assessee also submitted that evidence regarding payment of Rs. 1,20,649 was filed during the course of assessment proceedings and therefore there was no justification even to disallow this amount.
6. So far as disallowance of Rs. 9,86,628 was concerned, the assessee submitted following details:
S.No Month Employees contribution Employers contribution Total Amount deposited Date of deposit 1 Feb. 88 55258.80 122732.35 177991.15 177962 21.3.88 2 Apr. 88 46137.05 101334.60 147471.65 146935 21.5.88 3 May 88 45838.80 103010.35 148849.15 149365 21.6.88 4 Dec. 88 37205.30 82600,20 119805.50 119770 21.1.89 5 Jan. 89 40488.85 89815.20 130304.05 130304 21.2.89 6 Feb. 89 41067.50 91261.50 132329.00 132329 21.3.89
7. Mar. 89 40341.15 89536.85 129878.00 129878 21.4.89 306337.45 680291.05 986628.50
7. In this regard, reference was also made to rule 31 of ESI General Regulations, 1950, according to which, the contribution in respect of employees was payable within 21 days of the last day of the calendar month in which the contribution fall due. It was argued that since the amounts had been paid on the 21st of the subsequent month, there is no justification for disallowance under section 36 of the Act. In support of the argument, reliance was also placed on the decision of the Delhi Bench 'E' of ITAT in the case of Inspecting Asstt. Commissioner v. Indian Aluminium Cables Ltd., 95 CTR 179. The learned Commissioner (Appeals) accepted the plea of the assessee in relation to disallowance of Rs. 9,86,628 and deleted this disallowance. However, so far as disallowance of Rs. 2,81,132 is concerned, he confirmed the disallowance by observing as under:
"15. So far as the disallowance of Rs. 2,81,132 is concerned, its allowability has to be examined in view of the provisions of first proviso to section 43B of the Income Tax Act. The first proviso to section 43B provides that if payment of the amounts referred to under clauses (a), (c) and (d) of section 43B is made before the date prescribed for filing of the return under section 139(l) of the Income Tax Act, 1961 evidence of such payment has to be finished by the assessee alongwith such return. The emphasis is on furnishing of the evidence of payment along with such return. Since legislative intentions are very clear on this point in view of the appellant's failure in furnishing the evidence of payment along with the return, I upheld the disallowance of the whole amount of Rs. 2,81,132."
8. Before us, the learned Counsel for the assessee submitted that the details of Rs. 1,20,649 was duly filed before the departmental authorities. In this regard, reference was made to pages 1 to 6 of the paper book which is reply of the assessee dated 11-2-1992. It was submitted in this reply that sales tax to the tune of Rs. 20,68,659 was paid on the close of the business hours of 31-3-1989 And this amount has been paid to the Government Treasury within the said date. It was explained that this amount was payable by 15-11-1989, but the same was paid before 31-12-1989. The learned Counsel also placed reliance on the following decisions in support of his arguments raised before us:
(1) CIT v. Jayant Patel, 248 ITR 199 (Mad.) (2) CIT v. Trehan enterprises, 248 ITR 333 (J&K)
9. The learned Departmental Representative, on the other hand, supported the order of the learned Commissioner (Appeals).
10. We have carefully considered the entire material on record. In the Board's Circular No. 669 dated 25-10-1993 after making reference to the earlier Circular No. 581 dated 28-9-1990, it has been clarified that if the sums referred in the first proviso to section 43B had in fact been paid on or before due dates mentioned therein, but evidence therefor had been omitted to be furnished along with return, then the assessing officer can entertain applications under section 154 of the Act for rectification of Intimations under section 143(1)(a) or order under section 143(3) of the Act, as the case may be, and decide the case on merits.
11. In view of the above circular, if the evidence was filed subsequently i.e. during the assessment proceedings but if the payments were made before due date, then the assessee is entitled for deduction because furnishing of evidence is only a procedural aspect.
12. In view of the above, the assessing officer is directed to verify the facts and allow the claim of the assessee in the light of our observations made above and in compliance to the C. B. D. T. Circular referred to above.
Ground No. 3:
13. This ground is directed against the restriction of entertainment expenses to employees' participation @ 25% as against 40% claimed by the assessee.
14. The assessee had claimed deduction of Rs. 1,62,762 on account of employees' participation in entertainment, expenses of which were claimed at Rs. 4,06,903. The claim of the assessee was that the amount of Rs. 1,62,762 should be treated in the nature of staff welfare and should be allowed as deduction. The learned Commissioner (Appeals), however, allowed 25% of Rs. 4,06,903 which was worked out at Rs. 1,01,726 against the claim made by the assessee at Rs. 1,62,762.
15. In appeal, the learned counsel for the assessee submitted that the issue stands covered by the order of ITAT dated 27-2-2003 rendered in I.T.A. No. 2898/DEL/92 wherein following the decision of the Jurisdictional High Court in the case of CIT v. M/s. Expo Machinery Ltd. 190 ITR 576, it was held that 35% of the entertainment expenses be contributed to employees' participation.
17. We have gone through the order of ITAT, Delhi 'C' Bench dated 27-2-2003 (supra). In Para 4 of the said order, the Tribunal has allowed deduction @ 35% for employees' participation by observing as under :
"4. Ground No. 4 relates to the alleged error of the Commissioner (Appeals) in law and on facts in not allowing any sum out of total entertainment expenses of Rs. 1,63,239 beyond Rs. 50,000 otherwise admissible on slab basis on estimated basis relating to the employees participation in business meetings not hit by section 37(2A). Concerned order is at page 20 to 21 of assessment year and Para 12 and of Commissioner (Appeals) page 27-28 Para 36-37. It has been argued by the learned Authorised Representative of the assessee appellant that no amount has been allowed by the assessing officer not by Commissioner (Appeals) for the employees participation in the business meetings not hit by section 37 (2)(A) against which assessee appellant is again in appeal before the Tribunal. The learned Departmental Representative has relied on the order of the Commissioner (Appeals). Following the Expo Machinery case, we allowed 35% deduction for employees participation. It is not denied by the revenue that the employees have not at all participated."
18. In our view, therefore, the issue stands covered by the above decision of the Tribunal in favour of the assessee. Hence, ground No. 3 is allowed partly in favour of the assessee.
Ground No. 4:
19. Ground No. 4 is directed against the sustenance of disallowance of prior period expenses of Rs. 1,32,759 out of adjustments relating to earlier years amounting to Rs. 17,46,023.
20. The learned Commissioner (Appeals) has considered the issue in Para 23 & 24 of his order. He has rejected the plea of the assessee by observing that in the year under appeal nothing was brought on record to justify that the prior period expenses had crystallized during the accounting year relevant for the assessment year under consideration.
21. Before us, it was submitted by the learned counsel for the assessee that the issue stands covered in favour of the assessee by the order of the Tribunal in the case of the Company. In this regard, our attention was invited to the decision of ITAT 'E' Bench Delhi in the case of M/s. Escorts Limited for assessment year 1982-83. In Para 25.2 of the order of ITAT 'E' Bench, Delhi dated 16-12-1991 rendered in I.T.A. No. 4626/Del/87 and I.T.A. No. 5153/Del/87 in the case of M/s. Escorts Limited, the Tribunal has made the following observations while similar issue :
"25.2. We have heard the learned representatives of both the sides. The position of the expenses in the year under consideration is the same as in assessment year 1982-83. A similar question had come up for decision before the Appellate Tribunal for assessment year 1982-83 and the Tribunal observed that when the turnover of the assessee is very substantial, the books of account though maintained by experts and checked by auditors may not properly reflect a correct state,of affairs. It was also observed by the Tribunal that in a case like this where huge transactions are involved, it may not be possible to. take all adjustments during the accounting year. According to the, Tribunal, the real test was whether the adjustments were bona fide or not. The Tribunal did not find any infirmity in the reasoning of the Commissioner (Appeals) in allowing the adjustments as deductions while dealing with the assessee's appeal for assessment year 1982-83. Respectfully following the Tribunal's order for assessment year 1982-83, we confirm the order of the Commissioner (Appeals) on this point, in the present appeal."
22. After going through the above mentioned order and other orders of the Tribunal, we find sufficient force in the contentions raised by the learned Counsel for the assessee. Hence, we allow ground No. 4 in favour of the assessee.
Ground No. 5:
23. Ground No. 5 is directed against sustenance of following disallowances:
1.
Amount paid towards permanent seat allocation at the cricket stadium, Faridabad 21,500
2. Payments made to Hotel Delite for tickets for New Year Celebration 5,000
3. Payment to District Sports Council for the Electricity charges 7,125
4. Advertisement charges on account of construction of Public School for Policemen's children 25,000
5. Tickets for Prime Minister Relief Fund at Nehru Stadium Show 18,000
24. It was submitted on behalf of the assessee that the departmental Authorities have segregated this expenditure out of expenditure of advertisement and publicity. In this regard, our attention was invited to page 44 to 57 of the paper book which contain full particulars of these expenses. It was submitted by the learned Counsel for the assessee that these expenses were incurred in connection with publicity and advertisement of the company through banners in the cricket stadium and other sports events and therefore are in the nature of revenue expenses which were incurred for carrying out business of the assessee company and the same are to be allowed.
25. The learned Commissioner (Appeals) has considered the issue in Para 45 to 29 of his order and he has confirmed the disallowance to the extent of Rs. 76,625 by observing as under:
"29. Regarding the amount of Rs. 21,500 spent on permanent seat allocation in the stadium, amount of Rs. 5,000 spent on New Year Celebration, amount of Rs. 7,125 paid to Electricity Board, Rs. 25,000 spent on advertisement on account of construction of Public School for the children of Policemen and Rs. 18,000 spent on purchase of tickets for the show at Nehru Stadium, I held that no justification has been given in support of their allowability as advertisement expenses under section 37(3) of the Income Tax Act. Hence, addition to the extent of Rs. 76,625 is hereby confirmed."
26. After considering the nature and details of the expenditure, we find that the learned Commissioner (Appeals) was fully justified in rejecting the claim of the assessee on the grounds mentioned in Para 29 of his order reproduced above. We, therefore, do not find any scope to interfere. Ground rejected.
Ground No. 6:
27. Ground No. 6 is directed against sustenance of disallowance to the extent of Rs. 2 lakhs on account of shortage and excess of inventories.
28. The learned Commissioner (Appeals) has considered the issue in Para 33 & 34 of his order. He has sustained the disallowance to' the tune of Rs. 2 lakhs out of Rs. 4 lakhs by observing. as under:
"34. Appellant's learned counsel submitted that expenses and shortages of inventory were duly accepted in the assessments by the assessing officer in the assessment years 1984-85 and 1985-86. It was stated that in the case of manufacturing organization with turnover of 146.56 crores with inventory valuation at Rs. 15.22 crores such approach would not be justified. Appellant's learned counsel has no where given the reasons for not furnishing the details of the shortages as required by the assessing officer Hence in my considered opinion suitable addition on this account is certainly called for. However, in the absence of any basis for estimated addition of Rs. 4,00,000, I feel it would meet the ends of justice if addition is reduced by 50%. Appellant gets relief of Rs. 2,00,000."
29. Before us, it was submitted by the learned counsel for the assessee that this issue has been decided by the Tribunal vide order dated 15-7-2002 in assessee's own case for assessment year 1987-88 in I.T.A. No. 3830/ Del/92. In this regard, our attention was invited to page 58 to 60 of the paper book. The Tribunal has considered the issue and decided the same in favour of the assessee by observing as under :
"9. The issue raised in ground No. 5 relating to disallowance shortage & expenses of inventories amounting to Rs. 2,30,174 is covered in favour, of assessee by earlier order of Tribunal in assessee's own case for immediately preceding assessment year 1986-87 in cross appeals being I.T.A. Nos. 3340 & 3286/Del/92 dated 6-7-2001. For the very same reasons the issue is decided in favour of assessee."
30. In view of the above, the issue stands covered in favour of the assessee by the above mentioned order of the Tribunal and therefore this ground stands allowed in favour of the assessee.
Ground No. 7:
31. This ground is directed against the directions of the learned Commissioner (Appeals) for restoring certain matters to the assessing officer
32. At the time of hearing, the learned counsel for the assessee withdrew this ground, otherwise also since the learned Commissioner (Appeals) had restored the matter to the assessment year, no grievance is caused to the assessee. In view of the above, ,this ground is rejected.
33. In the result, assessee's appeal is partly allowed.
I.T.A. No.7594/DEL/92:
Ground No. 1:
34. This ground is directed against deletion of disallowance of Rs. 35,917 being premium on key man on insurance policy.
35. The learned Commissioner (Appeals) had decided the issue by following the orders of the earlier years in the case of the assessee and also by following the order of the Hon'ble Jurisdictional High Court in the case of CIT v. Bharat Ram Charat Ram (P) Ltd., 157 ITR 109. Thus this ground is covered in favour of the assessee by the earlier orders and also by the order of the Hon'ble Jurisdictional High Court referred to above. We, therefore, uphold the view taken by the learned Commissioner (Appeals). Ground rejected.
Ground No. 2:
36. This ground challenges the direction of the learned Commissioner (Appeals) given to the assessing officer to recompute the disallowance under rule 6D of the Income Tax Rules by excluding the expenditure on local conveyance, telephone and telex and by considering all the journeys undertaken by an employee in a composite manner instead of journey to journey basis.
37. The learned Commissioner (Appeals) has decided the issue by observing as under :
"5. Appellant's learned counsel drew my attention to the appellate orders in appellant's own case in the assessment years 1980-81 and 1981-82 passed by the Commissioner (Appeals)-VIII, New Delhi wherein similar disallowance had come in appeal and the learned Commissioner (Appeals) vide his Appellate Order No. 212/83-84 dated 25-2-1987 had deleted the addition on this ground following the decision of the ITAT in the case of Bharat Commerce and Industries reported in (1981) 7 Taxman 194. In Appellate Order No. 670/91-92 dated 21-2-1992 it was held that expenditure on local conveyance, telephone and telex are to be excluded from the calculation of disallowance in terms of rule 6D of the Income Tax Rules. It was also held that total of visits of an employee outside the head quarters had to be considered in a composite manner for computing the disallowance. It was also held that expenditure Incurred by the directors on their tours to attend Boards' meeting would have to be treated covered under rule 6D of the Income Tax Rules. In view of the findings and observations in the assessment year 1988-89 the assessing officer is directed to allow consequential relief to the appellant on re-computation of disallowance under rule 6D of the Income Tax Rules."
38. The learned Departmental Representative submitted that the issue is covered against the assessee by the earlier orders of the Tribunal. In this regard, our attention was also invited to the order of ITAT dated 4-4-2003 'rendered in I.T.A. No. 3287/Del/1992 for assessment year 1988-89 in the case of Dy. CIT v. Ms. Escorts Tractors Ltd. The Tribunal has decided the issue in that case against the assessee by upholding the order of the learned Commissioner (Appeals) and by observing as under:
"6. Ground No. 4 relates to the alleged error of the Commissioner (Appeals) in holding that the total visits of an employee outside headquarters during the year should be considered in a composite manner in working out the disallowance under rule 6D of the Income Tax Rules, 1962, concerned order of the assessing officer is at page 17 to 19 (para 10) and that of the Commissioner (Appeals) is at pages 7 & 8 (paras 12 and 13). Very fairly the learned AR for the assessee has pointed out that this ground is covered against the assessee by the order of the above ITAT for assessment. year 1987-88 in I.T.A. No. 4722/Del/92. Concerned order is at page 1-2 (Para 3). Nothing contrary has been pointed out by the learned Departmental Representative Hence, we decide this ground accordingly."
39. The learned counsel for the assessee submitted that the issue has been recently considered by the Hon'ble Calcutta High Court in the case of CIT v. General Electric Co. India Ltd., 255 ITR 22 and therefore in view of the latest decision, the issue should be decided in favour of the assessee and the direction of the learned Commissioner (Appeals) should be 'upheld learned
40. We have carefully considered the issue. On perusal of the relevant paragraph at page 4 of the assessment order, it is found that he has taken disallowable amount at Rs. 2,48,605. The assessing officer has not given the details of expenses per employee or details of travelling allowances or hotel expenses and other allowances. The learned Commissioner (Appeals) has simply followed the order of his predecessor for assessment year 1988-89 and has also placed reliance on the order of ITAT in the case of Bharat Commerce and Industries, 7 Taxman 194. The appellate order dated 21-2-1992 reference to which has been made in Para 5 of his order has not been filed before us.
41. The learned Departmental Representative has placed reliance on the decisions reported in 190 ITR 152, 253 ITR 272 and 250 ITR 624 and submitted that the learned Commissioner (Appeals) was not justified in making reference to the orders of the earlier orders. According to him, ground No. 2 is covered in favour of the revenue by the order of the Tribunal also.
42. The learned Counsel for the assessee fa1rly conceded that vide order of the Tribunal in assessment year 1988-89, the issue is covered in favour of the revenue. However, regarding clubbing of all the journeys for working out disallowances under rule 6D, he placed reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT v. General Electric Co. India Ltd., 255 ITR 22 (Cal.) wherein the Hon'ble High Court has held that journeys undertaken during the year should be aggregate for working out the disallowance. The learned Counsel fairly conceded that with regard to other issues relating to aggregation of total visits of an employee for computation of disallowance, the issue was decided against the assessee.
43. We have carefully considered the entire material on record and also the decisions on which reliance was placed by the representatives of the parties before us. To repeat, neither. the assessment year nor the learned Commissioner (Appeals) have given details of the expenditure. The Hon'ble Delhi High Court being the jurisdictional High Court has considered the issue in the case of Bharat Commerce and Industries v. CIT, 253 ITR 671 wherein it has been held that the period of tour outside headquarters cannot be broken into two parts i.e. one relating to travel and the other relating to actual stay at the place of destination and therefore limitation provided under rule 6D(2) of the Income Tax Rules covers the entire expenditure incurred by an employee both at actual 'travelling as well as during the period of stay at any particular place for the purpose of business.
44. In the case of South India Shipping Corporation Ltd v. CIT, 250 ITR 624, the Hon'ble Madras High Court has held that the disallowance under rule 6D of Income Tax Rules would take into account all the expenses incurred by the assessee during the entire period of absence of its employees from the headquarters. In taking this view, the Hon'ble Madras High Court has followed its earlier decision in the case of R.K. Swami Advertising Associates (P) Ltd., 220 ITR 507.
45. So far as the decision in the case of CIT v. General Electric Co. India Ltd., 255 ITR 22 is concerned, the Hon'ble Calcutta High Court has considered the issue relating to clubbing of journey and held that the words "aggregate of the amounts" mentioned in rule 6D of the Income tax Rules refers to the aggregate for the assessment year and not to a particular trip and if the expenditure was within the limit of aggregate, then it is a matter as to what a particular employee spend on one travel.
46. In view of the above decisions, the facts of the present matter have to be examined afresh by the assessing officer relating to journeys undertaken by the employees. Hence, we consider it proper to set aside the directions of the learned Commissioner (Appeals) on this point and restore the matter to the assessment year for deciding the same after examining the details of expenditure and details of journeys undertaken by the employees afresh and to work out the disallowance as per rule and in the light of our observations made above.
47. For statistical purposes, the ground is decided accordingly.
Ground No.3 :
48. The revenue has challenged the deletion of addition of Rs. 98,520 made on account of collections from the dealers. '
49. The learned Commissioner (Appeals) has considered the issue in Para 8 of his order. He has followed his order in the case of assessee for assessment year 1988-89 and for assessment year 1985-86 while deleting the addition.
50. According to the learned Counsel for the assessee, the issue Is covered in favour of the assessee vide order of the Tribunal dated 4-4-2003 for assessment year 1988-89.
51. The learned Departmental Representative simply relied on the order of the assessing officer
52. A perusal of, the order of ITAT dated 4-4-2003 rendered in I.T.A. No. 3287/Del/1992 for assessment year 1988-89 shows that similar issue was considered by the Tribunal and following earlier year order, the order of the learned Commissioner (Appeals) was upheld. The relevant portion of the order of the Tribunal is as under :
"3. Ground No. 1 relates to the alleged error of the Commissioner (Appeals) in deleting the addition of Rs. 59,480 on account of collection from dealers towards contribution to Escorts Dealers Development Association Limited. The concerned order of assessing officer is at page 4 to 6 in which the addition has been made by the assessing officer against which the assessee went in appeal before the Commissioner (Appeals) who was deleted the addition. The Commissioner (Appeals)'s order is at pages 5 to 7 (paras 8 to 10) against which the revenue is in appeal before the Tribunal. It has been argued at the very outset by the learned A.R. of the assessee appellant that the issue is covered by the order of the ITAT in I.T.A. No. 4723/Del/92 for assessment year 1987-88. Concerned order there is at page 2 to 4, Para 3 of ITAT's order. Hence we respectfully following the same, confirm the order of the Commissioner (Appeals) and reject this ground of appeal."
53. In view of the above, the issue is squarely covered in favour of the assessee by the order of the Tribunal. Hence we do not find any scope to interfere in the order of the learned Commissioner (Appeals). Consequently, the ground taken by the revenue is rejected.
Ground No, 4: ',
54. This ground relates to the allowability of entertainment expenditure.
55. We have considered this issue while deciding ground No. 3 in I.T.A. 7678/Del/92 in the appeal of the assessee and have allowed the ground in favour of the assessee. The relevant discussions on this issue are in paras 13 to 18 of the order. Thus, we uphold the order of the learned Commissioner (Appeals) on this issue and reject this ground of the revenue.
Ground No. 5:
56. This ground is directed against allowing of deduction of Rs. 6,56,671 being cost of construction of score board installed at Nahar Singh Stadium and sum of Rs. 39,400 being professional fee incurred in this 'regard'.
57. The learned Commissioner (Appeals) had restored this issue to the file of the assessment year for deciding the issue afresh. The relevant observations of the learned Commissioner (Appeals) in this regard are contained in Para 27 of his order which is as under:
"27. I have carefully considered the facts of.the case, the assessment order and contentions of the appellant's learned counsel. In view of the judgments relied upon by the appellant's learned Counsel the expenditure on cost of construction of score board could not be considered allowable under section 37(3) of the Income Tax Act provided it was proved that the same was used for advertisement purposes by the appellant itself. Appellant has a number of sister concerns under the Escorts Group of companies. The fact of advertisement facility, if any, available on the scored board is being used by the appellant (Escorts Tractors Ltd.) only and not by other sister concerns have to be ascertained. If it is being used by other sister concerns also suitable disallowance after examining the actual position will have to be made. The assessment order is directed to examine the allowability of the claim in the light of the above observations after giving opportunity to the appellant to be heard.
58. The learned counsel for the assessee pointed out that in compliance to the directions of the learned Commissioner (Appeals), the assessing officer has allowed both the amounts vide an appeal effect order dated 29-3-1993. A copy of the assessment order has also been placed by, the learned Counsel for the assessee, which is available at pages 9 to 12 of the paper book. In view of this position, the ground taken by the revenue has become infructuous and therefore the same is rejected.
Ground No. 6:
59. This ground is directed against deletion of disallowance of Rs. 92,474.
60. The assessee had spent a sum of Rs. 59,054 and Rs. 33,420 on repairs of buildings and Plant and Machinery. The details of expenditure are as under :
"Building Repairs :
(a) Cost of Venation Blinds 13, 679
(b) Cost of providing and installation of Wooden Cabin 45,375 59,054 Plant & Machinery:
(c) Cost of BS Submersible Pump Model J-156 10,595
(b) Fabrication & erection of Bridge Crane Structure 12,533
(c) C t of 30 KVA Manual Voltage Stabiliser 10,292' 33,420"
61. The assessing officer treated this expenditure of capital nature and disallowed the same. However, he allowed depreciation on these items. The learned Commissioner (Appeals) has considered the nature of expenses and have held that the expenses Incurred on these items cannot be treated to be of capital nature as these expenses were incurred for smooth functioning of appellant's business activities with a view to improve the efficiency. In taking this view, he has sought support from various decisions also. The learned Commissioner (Appeals) has also directed to withdraw depreciation allowed to the assessee on these items.
62. The learned counsel for the assessee invited our attention to the summarized statement which is available at page 13 of the paper book. He also made reference to relevant vouchers and enclosures.
63. After considering the entire material to which our attention was invited by the learned Counsel for the assessee, we find that the learned Commissioner (Appeals) was fully justified in treating the expenditure for business purposes. We, therefore, uphold the view taken by him. Hence, this ground of the revenue stands rejected.
Ground No.7:
64. This ground is directed against deleting the disallowance of Rs. 1,05,654 made by the assessing officer on account of unverifiable nature of the claim. The learned Commissioner (Appeals) has considered the issue in Para 36 of his order. He had deleted the disallowance by reversing the findings of the assessing officer who treated the expenditure as capital in nature.
65. We have considered the entire material on record. The assessee has given details of expenditure on page 13 of the paper book at item No. 6, according to which, for dismantling the existing flooring of the building, etc and for re-flooring the same, an amount of Rs. 1,05,654 was paid to Harnam Singh & Co. This expenditure is verifiable and in our considered opinion, the same was only for smooth running of the business.
Thus, on this issue also, we uphold the findings of the learned Commissioner (Appeals). Ground No. 7 is rejected.
Ground No. 8:
66. This ground is directed against the deletion of disallowance of Rs. 2.50 lakhs representing advance made to sister concern for development of the product.
67. The learned Commissioner (Appeals) has considered the issue in earlier year orders and has deleted the disallowance by observing as under:
"37.xxxxxx. Appellant's learned Counsel submitted that company had been constantly giving such advances for development of product. It was stated that the payment was made for development of crank-shafts. The amount is allowable as deduction under section 35(1) read with section 37(1) of the Income Tax Act. It was stated that such payment had been allowed as deduction in the preceding assessment year. My attention was specifically drawn to the appellate orders in appellant's own case for assessment years 1987-88, 1986-87 as well as to the appellate orders of the earlier years in which total such expenses were directed to be allowed. It may be mentioned herewith a particular payment cannot be disallowed only on the ground that the same represented payment to a sister concern under the same management. According to the appellant's learned Counsel the payment was made for supply and development of crank-shafts relevant for appellant's R&D activities, The judgment of Hon'ble Madras High Court in the case of CIT v. Andhra Prabha (P) Ltd.,. 123 ITR 760 support this view. Hence assessment year is directed to allow deduction for the amount of Rs. 2,50,000."
68. The learned Departmental Representative submitted that the disallowance made by the assessing officer was fully justified.
69. The learned Counsel for the assessee, on the other hand, invited our attention to page 17 of the paper book which contains details of the amount of Rs. 54 lakhs out of which an amount of Rs. 10 lakhs was also recovered as advance paid.
70. The learned counsel also pointed out that the remaining amount was not recovered as cost related to the parts.
71. We have considered the entire material on record. There is no dispute that the expenditure was for business purposes. Further, similar expenditure was allowed in earlier year by the learned Commissioner (Appeals) and department has not filed any appeal and the fact submitted by the learned Counsel was not controverted by the learned Departmental Representative In view of these facts, the department is required to maintain consistency to adopt same approach in this assessment year also. Hence the deletion of disallowance is justified, in our view. We, therefore, uphold the order of the learned Commissioner (Appeals) on this issue.
Ground No.9:
72. This ground is directed against deletion of disallowance of Rs. 40,40,121 on account of technology transfer fee.
73. The learned Commissioner (Appeals) has considered this issue in Para 38 to 40 of his order and directed the assessing officer to allow the claim of the assessee.
74. The learned Departmental Representative has supported the order of the assessing officer On the other hand, the learned Counsel for the assessee has placed reliance on the order of the learned Commissioner (Appeals). He also made reference to the following decisions:
1.Goodyear India Ltd. v. ITO (2006) 73 ITD 189
2. CIT v. Goodyear India Ltd. (2000) 243 ITR 239
3. Wellman Incandescent India Ltd. v. DCIT (1995) 55 ITR 338
4. CIT v. Kirloskar Tractors Ltd. (1998) 231 ITR 849
5. CIT v. Jvoti Electric Motors Ltd. (2002) 255 ITR 345
75. We have considered the text of letter dated 23-6-1992 and also agreement. These documents are available at page 21 to 32 and 33 to 38 of the paper book. It may be pointed out that there is no dispute that the expenditure was for improving the technology. The assessee was engaged in the manufacturing activity of the Tractors and in view of the decision of in the case of CIT v. Goodyear India Ltd., 243 ITR 239, the issue has to be decided in favour of the assessee. Hence, we uphold the view taken by the learned Commissioner (Appeals). This ground of the revenue is rejected and decided in favour of the assessee.
76. In the result, the appeal is partly allowed for statistical purposes.