Income Tax Appellate Tribunal - Chandigarh
Avon Cycles Pvt. Ltd. vs Inspecting Assistant Commissioner Of ... on 2 September, 1993
Equivalent citations: [1993]47ITD23(CHD)
ORDER
S.S. Mehra, Judicial Member
1. The appellant-assessee, by its appeal, challenges the first appellate order dated February 12, 1988, of the learned Commissioner of Income-tax (Appeals), for the assessment year 1984-85.
2. In the present case, the assessee is a private limited company by status, engaged in the business of manufacture and sale of cycles, cycle parts and accessories, as is clear from its very name, and the accounts are maintained on mercantile basis. Accounting period was the year ending June 30, 1983. Return was filed on November 30, 1984, reflecting income of Rs. 51,00,772. Assessment was framed, on August 28, 1987, under Section 143(3), on a total assessable income of Rs. 1,09,13,078. The first appellate order made mention of hereinabove is in respect of this assessment order. The assessee before us is now in second appeal.
3. Ground No. 1 raised by the assessee is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in not exempting profit earned on the sale of import entitlements amounting to Rs. 23,30,465."
4. The assessee is an exporter of cycles and its parts. During the relevant accounting period, it made exports worth Rs. 5,13,17,334. In connection with exports made, the assessee earned an income of Rs. 23,30,465, which the assessee excluded from its taxable income on the ground that it was a capital receipt not liable to tax. It was noted by the learned Inspecting Assistant Commissioner (Assessment) that in the past also, the assessee had taken such a stand. However, such receipt was said to have been treated as revenue and subjected "to tax. It was also mentioned by the learned Assessing Officer that there were judicial pronouncements which had held that amounts realised by way of import entitlements were obtained directly in accordance with business and the value of the sale constituted profits and gains of business of the assessee within the meaning of Section 28(iv). Thus, the addition of the above amount was made in the assessable income, with the following observations :
"In view of the Income-tax Appellate Tribunal's decision dated January 28, 1987, in the case of the assessee-company for the assessment year 1983-84 and the High Court's decisions cited above, I hold that the amount realised by the assessee from the sale of import entitlements is profits and gains of the assessee's business as an exporter of cycles as the import entitlements were obtained directly in the course of business and the value of the same constituted profits and gains taxable under the Income-tax Act. Accordingly, sale of import entitlements amounting to Rs. 23,30,465 will be added to the income declared by the assessee-company."
5. The inclusion was contested by the assessee. The learned Commissioner of Income-tax (Appeals), making mention of the Income-tax Appellate Tribunal's order dated January 28, 1987, for the assessment year 1983-84 in the assessee's own case, held that the receipt from sale of import entitlements was incidental to business and thus was of revenue nature and consequently includible in the assessee's total income.
6. The assessee's present ground before us is against that finding of the learned Commissioner of Income-tax (Appeals). The learned authorised representative, Shri Subhash Aggarwal, read the ground and relevant portions of the orders of the Revenue authorities and argued that the addition should not have been made, to start with, and that at least the deletion should not have been denied. The learned senior departmental representative, Shri D. Chatterjee, supported the finding under challenge and further made mention of the finding of the Special Bench 'A' in the case of Gedore Tools (India) (P.) Ltd. v. IAC [1988] 25 ITD 193 (Delhi). The learned senior departmental representative, in view of the reasons incorporated in the order under challenge and the finding supra of the Special Bench of the Income-tax Appellate Tribunal, submitted that the ground raised by the assessee was required to be rejected. The learned senior departmental representative also made mention of some proposed amendment to be made in the Budget and the Finance Bill under consideration of Parliament at the relevant time. According to him, there was a provision in the proposed legislation with respect to the receipt from the sale of import entitlements.
7. Submissions made on behalf of the contesting parties have been heard and the record carefully perused. The facts and figures, since they are not in dispute, are not being repeated, for the sake of brevity. Anyway, the ground straightaway is required to be rejected, following earlier orders mentioned in the order under challenge and so also the finding supra of the Special Bench. We, however, do not propose to do that because of the provisions made on the issue in the Finance Bill, which is under consideration of Parliament and will have operation with retrospective effect. The law will be settled on the issue only after the passing of the Finance Bill. We thus consider, in the interests of justice and fair play, that this issue be remitted back to the file of the learned Commissioner of Income-tax (Appeals) for having a second look after the Finance Bill is passed and the provision under the Finance Bill takes the shape of a statute. The learned first appellate authority will decide the issue afresh, after taking into .consideration all the facts, circumstances, findings and the statute at the relevant time. We direct accordingly.
8. The second ground raised by the assessee is to the following effect:
"That the learned Commissioner of Income-tax (Appeals) has erred in sustaining an addition of Rs. 7,400 by applying the provisions of Section 40A(3) of the Income-tax Act, 1961, ignoring the fact that the amounts were covered by the exceptions mentioned in rule 6DD(j) of the Income-tax Rules."
9. It was noted during the assessment proceedings by the learned Inspecting Assistant Commissioner (Asstt.) that the assessee had made payments in cash on February 21, 1983, to Messrs. Ludhiana Sales Corporation of Rs. 3,650 and another payment of Rs. 3,750 on January 15, 1983, to Messrs. Bawa and Co. These two sums, put together, gave a figure of Rs. 7,400. Since both the payments were made in cash and exceed Rs. 2,500, the assessee was required to show cause as to why expenditure in question should not be disallowed in terms of Section 40A(3). The learned Inspecting Assistant Commissioner (Asstt.) finally disallowed the above sum of Rs. 7,400 under Section 40A(3).
10. This addition was contested by the assessee and the learned Commissioner of income-tax (Appeals) refused to interfere with the following observations :
" 7.3. With regard to Rs. 7,400 for which no certificates have been produced and only cash memos are available, the appellant claimed that the identity has been established and the appellant-firm was new to the sellers. The appellant-firm is an established firm ; even if it is new to the sellers, no certificate has been produced. There is, no doubt, it is proved that cash memo is issued but it is not proved to whom the cash memo was issued and under what circumstances but another more important question for disallowance is that exceptional circumstances have not been proved. Therefore, the adddition of Rs, 7,400 is confirmed."
11. The assessee's present ground before us is against that confirmation of addition. The learned authorised representative once again argued that the addition should not have been made or at least should not have been confirmed. According to him, conditions under rule 6DD(j) were satisifed. He invited our attention to pages 1 and 3 of the paper book to show details about payments. Reliance by the learned authorised representative was also placed on the ratio in the case of Hasanand Pinjomal v. CIT [1978] 112 LTR 134 (Guj). The learned senior departmental representative supported the finding under challenge. He further pointed out that there was no confirmation from the parties. According to him, the conditions under rule 6DD(j) had not been satisfied and, therefore, there was no justification to interfere.
12. Submissions have been heard and the record carefully perused. The assessee is an established party in Ludhiana. Pages 1 and 2 of the paper book also show that the two parties to whom cash payments were said to have been made were also local, i.e., of Ludhiana. It is not inferable from the record that it was not practicable in the circumstances of the assessee's case to make the payments through account payee cheques. Thus the ratio in the case supra does not come to the assessee's help. The assessee has also not filed confirmations from the parties. Pages 1 and 2 of the paper book also do not prove anything in favour of the assessee. We are thus satisfied that the assessee has not been able to make out a case where cash payments were at all justified or necessary. There is, therefore, a clear contravention of the section and the conditions under the rule are not satisfied. We thus see no justification to interfere and the finding under challenge is, therefore, confirmed.
13. In ground No. 3, the assessee challenges only the confirmation of the disallowance of sales tax. The other items mentioned in the ground are rejected, since not pressed. It was noted by the learned Inspecting Assistant Commissioner (Asstt), after perusal of the balance-sheet, that an amount of Rs. 24,53,232 collected by the assessee on account of sales tax was not deposited with the Government. The amount in fact was being shown under the head "Current liabilities". The Assessing Officer noted that according to the ratio in the case of Chowringhee Sales Bureau Pvt Ltd. v. CIT [1973] 87 ITR 542 (SC), sales tax collected was part of trading receipts and thus part of gross profit. It was submitted before the learned Inspecting Assistant Commissioner (Appeals) on behalf of the assessee that the ratio in the case supra was laid down by the Supreme Court in a different context. Mention was also made of the ratio in the case of Kedamath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). Thus, the disallowance was made in the assessment order.
14. A ground was taken before the learned Commissioner of Income-tax (Appeals) against disallowance of Rs. 24,53,232 under Section 43B on account of sales tax. It was argued that Section 43B, as inserted by the Finance Act, 1983, was not applicable to the case of the assessee, and that the issue had been decided by various Benches of the Income-tax Appellate Tribunal, including the Chandigarh Bench. The learned Commissioner of Income-tax (Appeals) confirmed the addition with the following observations :
"8.1. The Inspecting Assistant Commissioner pointed out that in the case of the appellant for the assessment year 1983-84, while allowing this deduction, the Income-tax Appellate Tribunal, Chandigarh Bench, had held that the position in the case has changed for the assessment year 1984-85. It means, in the assessment year 1984-85, it is not allowable. While going through Section 43B, which has come into effect with effect from April 1, 1984. I find that the intention of the Legislature is quite clear and the addition made by the Inspecting Assistant Commissioner is confirmed. Alternatively, the appellant's claim that Rs. 4,95,172 which was already disallowed in assessment year 1983-84 cannot be disallowed again. This has been rectified by the Assessing Officer under Section 154, therefore, this issue is not pursued."
15. The assessee's present ground before us is in respect of that finding. The learned authorised representative on behalf of the assessee repeated the submissions made before the Revenue authorities and placed reliance on the ratio in the case of Srikakollu Subba Rao and Co. v. Union of India [1988] 173 ITR 708 (AP). His submission was that, no doubt, the provisions of Section 43B were not inapplicable but the assessee's claim was allowable in view df the ratio in the case supra. On behalf of the Revenue, the learned senior departmental representative supported the finding under challenge and argued further that in view of the provision of law and the ratio in the case of Chowringhee Sales Bureau Pvt Ltd. [1973] 87 ITR 542 (SC), no interference was called for.
16. Even the ratio in the case supra does not appear to support the assessee's case. The provision of law is clear on the point and mandatory in nature. There was no escape for the Revenue authorities except from disallowing the sales tax amount collected and not paid. In the present ground of the assessee, therefore, we see no merit and find no justification to interfere.
17. Ground No. 4 raised by the appellant is as follows :
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs. 2,500 which was by way of advertisement in souvenirs and contributions to employees of Punjab National Bank."
18. The learned Inspecting Assistant Commissioner, while examining the "Advertisement Expenses Account", noted that the assessee had debited for advertisement in the souvenirs issued by some social organisations :
Rs.
(a) Yangya Smaj, New Delhi 28-2-1983 500
(b) Inner Wheel Club, Delhi 3-3-1983 500
(c) Jos Cabral (P, Lai-Goa) 3-3-1984 500
(d) PNB Employees, Miller Ganj 26-3-1983 1,000 2,500
19. Total amount was of the order of Rs. 2,500. According to the learned Assessing Officer, the assessee failed to prove that the expenditure was incurred for advertisement purposes and thus the same was treated as donation and disallowed.
20. This issue was also contested before the learned Commissioner of Income-tax (Appeals). The assessee was asked by the learned first appellate authority to prove the genuineness of the expenditure and as to whether the souvenir was at all issued/published. No doubt, it was pointed out that the payment was made through cheques but in the absence of any relation between the assessee's activity and the payment, the learned Commissioner of Income-tax (Appeals) refused to interfere. He also noted that the assessee had not proved that the advertisement had appeared in the souvenir. Thus treating the payment in the nature of donation, relief was disallowed. Thus, the assessee's ground before us.
21. After hearing the rival submissions and perusing the relevant part of the orders, we are satisfied that in view of the uncontroverted factual position, no interference is called for.
22. Ground No. 5 raised before us is to the following effect :
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs. 64,761 wrongly treating the expenditure in the nature of entertainment expenditure."
23. Entertainment expenses amounting to Rs. 72,937 were debited to the "Sales Promotion Expenses", as noted in the audit report. The learned Inspecting Assistant Commissioner also noted some more items of this nature and thus made a total disallowance of Rs. 78,634 under Section 37(2), with the following observations :
"It is thus clear that the expression 'entertainment expenditure', according to Section 37(2) of the Income-tax Act, includes expenditure on provision of hospitality of every kind. The expression 'entertainment expenditure' engulfs in its fold the expenditure incurred in providing accommodation in hotels to dealers and representatives, as has been held by the Karnataka High Court in the case of Mysodet (Pvt) Ltd. v. CIT [1987] 163 ITR 848. The Punjab and Haryana High Court has already held in the case of CIT v. Khem Chand Bahadur Chand [1981] 131 ITR 336 [FB], that the expenditure on tea, cold drinks, meals, etc., incurred by an assessee for its customers is an expenditure of entertainment nature and is disallowable under Section 37(2). Respectfully following the decisions of the High Courts mentioned above, the total expenditure of Rs. 78,634 is held to be expenditure of entertainment nature and is disallowed under Section 37(2) of the Act, subject to statutory deduction."
24. Disallowance of Rs. 78,634 was contested by the assessee. It is seen from a perusal of paragraph 12 of the order under challenge that the assessee had agitated against disallowance of Rs. 74,254 only. The disallowance was made by the learned Inspecting Assistant Commissioner (Appeals) because the expenditure was considered in the nature of entertainment. On the other hand, according to the assessee, the expenditure partly related to holding of conferences with the dealers and part of the expenditure was said to have been paid to the Diner's Club. It was argued before the learned Commissioner of Income-tax (Appeals) that the issue at hand had been dealt with by the Tribunal in the preceding assessment year, i.e., 1983-84, and substantial relief was said to have been allowed, i.e., 50 per cent, of the Diner's Club expenses. On behalf of the Revenue, the learned Inspecting Assistant Commissioner appeared before the learned Commissioner of Income-tax (Appeals) and argued that in the earlier year the decision in the case of Kliem Chand Bahadur Chand [1981] 131 ITR 336 (P & H) [FB] and Mysodet (Pvt.) Ltd. v. CIT [1987] 163 ITR 848 (Kar), was not highlighted. It was pointed out on behalf of the Department that the Karnataka High Court had held that entertainment expenditure engulfed the expenditure incurred for providing accommodation in hotels to the dealers and representatives. The learned Commissioner of Income-tax (Appeals), after considering the facts and the case-law on the point in detail, allowed a relief of Rs. 35,578, being 25 per cent, of the total claim. The balance amount of Rs. 64,761 was confirmed. The present ground before us is against confirmation of the said sum.
25. After having heard the rival submissions, we are satisfied that keeping in view the provisions of Section 37(2) and the detailed discussion attempted by the learned Commissioner of Income-tax (Appeals), no further relief is allowable. The assessee has not been able to make out a case that any relief was either possible or permissible. Pages 8 and 9 of the paper book have been perused in connection with the expenditure. These papers give the details of various bills of clubs. Whatever relief was possible in this respect, is already allowed by the learned Commissioner of Income-tax (Appeals).
26. Ground No. 6 raised before us is in the following manner :
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs. 1,500 which amount was paid to the employees' union of New Bank of India for business considerations and the amount was allowable."
27. A ground is seen to have been taken before the learned Commissioner of Income-tax (Appeals) against disallowance of Rs. 1,500 out of miscellaneous expenses as contribution to the employees' union of the New Bank of India, in which the appellant was maintaining a bank account. It was argued on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) that there was no personal element involved and the expenditure was allowable. In the opinion of the learned Inspecting Assistant Commissioner (Asstt), no business expediency was involved. On behalf of the assessee before the learned Commissioner of Income-tax (Appeals), mention was made of the order of the Income-tax Appellate Tribunal in the case of National Rayon Corporation [1986] 17 ITD 1208 (Bom), where such expenditure was said to have been held allowable. Copy of the Tribunal's order was not made available and the learned Commissioner of Income-tax (Appeals) refused to interfere. The present ground before us is against that action.
28. After having heard the rival submissions and perusing the record, it is seen that the assessee contributed Rs. 1,500 to the employees' union of the New Bank of India where it was having accounts. There appears to be a direct nexus between the expenditure and the business activity. Commercial expediency is seen to be the consideration for making the contribution. The finding in the case of National Rayon Corporation v. ITO [1986] 17 ITD 1208 (Bom), being clear on the point, we see no justification to retain such disallowance. The same is deleted and the assessee gets a relief of Rs. 1,500.
29. Ground No. 7 raised before us is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in holding that the amount spent on insurance of cars and salary paid to the drivers is to be included while working out the disallowance under Section 37(3A) of the Income-tax Act. The Commissioner of Income-tax (Appeals) has further erred in directing that the sum of Rs. 77,243 spent on gifts given to dealers under the scheme should be included while working out the disallowance under Section 37(3A) of the Income-tax Act."
30. The present ground has got two limbs. First is against the holding by the learned Commissioner of Income-tax (Appeals) that the amount spent on insurance of cars and salary paid to drivers was not includible while working out the disallowance under Section 37(3A). While working out the disallowance under Section 37(3A), the learned Inspecting Assistant Commissioner (Appeals) included Rs. 16,202 on account of insurance of cars and another sum of Rs. 65,920 on account of salary paid to drivers. A perusal of Section 37(3A) reveals that the items of expenditure specified in the said sub-section are subject to Sub-section (3B). Under Section 37(3B), the expenditure referred to in Sub-section (3A) includes running and maintenance of cars also. The learned Inspecting Assistant Commissioner (Asstt.) while working out the disallowance included the amount by way of insurance of cars and salary paid to the drivers. The learned Commissioner of Income-tax (Appeals) confirmed such action. The assessee is in further appeal before us.
31. After having heard the rival submissions and perusing the record, it is seen that the provisions of Section 37(3A) and (3B) are clear on the point. The expenditure incurred on running and maintenance of cars definitely includes expenditure incurred on insurance and salary. Without insurance, vehicles cannot be brought on the road and without salary the drivers cannot work. The disallowance and its confirmation being strictly in accordance with the provisions of law, we find no justification to interfere with this aspect of ground No. 7 of the assessee's appeal.
32. Another facet of the assessee's ground No. 7 is that the learned first appellate authority erred in directing that the sum of Rs. 77,243 spent on gifts given to dealers under the scheme should be included while working out the disallowance under Section 37(3A). Details of items relatable to the sum of Rs. 77,243 are described at pages 2 and 3 of the assessment order. The disallowance was thus made by the learned Inspecting Assistant Commissioner, after detailed discussion, with the following observations:
"It will thus be seen that the assessee has absolutely no record to prove as to for what consideration the gifts were allegedly given to the dealers. The assessee-company has not recorded the names and addresses of the dealers, their visits to the factories, the sales made to them, etc. In the circumstances, I am afraid, the expenditure on gifts allegedly made to the dealers cannot be held to be wholly and exclusively laid out for the purposes of the assessee's business within the meaning of Section 37(1). Alternatively, the expenditure in question is covered under Section 37(2) read with Explanation 2 as the expenditure in question is in the nature of expenditure on provision of hospitality. According to Explanation 2, entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade. The expenditure in question is, therefore, disallowable under Section 37(1) or 37(2) and is accordingly, disallowed."
33. When this issue was brought before the learned Commissioner of Income-tax (Appeals), she deleted the addition but observed further that the amount should be added by computing the disallowance under Section 37(3A). The assessee's present grievance before us is against that disallowance.
34. Submissions have been heard and the record carefully perused. The disallowance by the learned Inspecting Assistant Commissioner (Asstt.) was made for want of proof and details. The relief was allowed by the learned Commissioner of Income-tax (Appeals), considering the expenditure in the nature of sales promotion expenses. The nature of expenditure in sales promotion is neither in dispute nor is it the assessee's case either, So it is established that the expenditure was of that nature. According to Sub-section (3B) of Section 37, as was in vogue at the relevant time, disallowance to be made under Sub-section (3A), items mentioned in subsection (3B) were to be considered and sales promotion specifically existed in item (i) of Sub-section (3B). So the nature of expenditure being like that and there being existence of that expenditure in item one of sub-section (3B), the learned Commfssioner of Income-tax (Appeals), in our view, was perfectly justified to direct the addition of this amount while calculating disallowance under Section 37(3A). In this ground of the assessee, we see no merit and thus reject it.
35. Ground No. 8 raised by the assessee is in the following manner :
"That the learned Commissioner of Income-tax (Appeals) has erred in not allowing extra shift allowance on pipeline fittings of Rs. 7,21,412."
36. Vide page 19 of the assessment order, the assessee's claim for extra shift allowance on pipeline fittings was disallowed by the learned Inspecting Assistant Commissioner (Appeals), in view of the provisions of item (6) at page 35 of Taxmann's Direct Taxes Ready Reckoner 1984-85, dealing with rates of depreciation. This issue was also contested by the assessee. It was argued before the learned Commissioner of Income-tax (Appeals) that item (6) related to hydraulic works and that the said prohibition related to hydraulic works, pipelines and sluices and that the assessee's business was manufacturing of cycles and cycle parts and thus the prohibition did not operate. The learned Commissioner of Income-tax (Appeals) remaining unconvinced by the submissions made before her on behalf of the assessee, confirmed the learned Inspecting Assistant Commissioner (Asstt.) action, with the following observations :
" 15.2. I do not agree with the appellant's version as looking on all the items mentioned under ESA, it is seen all items are specifically mentioned and pipeline means all pipelines not related to specific industry and under item (6), there is after hydraulic works, a comma and pipelines and sluices are independent. It will further also be clear while writing each item from (1) to (7), which mention, e.g., item No. (7) 'Locomotives, rolling stocks, tramways and railways' used by concerns, excluding railway concerns. Similarly, calculating machines in all concerns. Therefore, item No. (6) 'Hydraulic works, pipelines and sluices' means no extra shift allowance available wherever they may be used. Considering these facts, the Inspecting Assistant Commissioner's not allowing extra shift allowance is confirmed."
37. The assessee's present ground before us is against that action. The learned Departmental Representative once again repeated the submissions made before the Revenue authorities. On behalf of the Revenue, the learned senior departmental representative supported the finding under challenge.
38. The rival submissions have been heard and the record carefully perused. The issue pertains to extra shift allowance with respect to pipelines. The prohibition in the rule is clear. The situation does not appear to be without any doubt or confusion. The learned Commissioner of Income-tax (Appeals) correctly confirmed the right finding of the learned Inspecting Assistant Commissioner. On this ground of the assessee, we see no merit and thus reject the same.
39. Ground No. 9 raised before us on behalf of the assessee is as under:
"That the learned Commissioner of Income-tax (Appeals) has erred in not allowing investment allowance on total amount on electric installations."
40. On scrutiny of the assessee's claim for investment allowance, it was noticed by the learned Inspecting Assistant Commissioner (Asstt), that it had claimed investment allowance on electric installation amounting to Rs. 14,293 in unit No. 1, electric installation amounting to Rs. 1,75,489 in unit No. 2 and one AC worth Rs. 13,896 installed in the office. It was noted by the learned Inspecting Assistant Commissioner (Asstt.) that most of the items related to lamps, rods, light fittings, sodium vapour fittings, switches, wires, etc. All these electric fittings are made in the building which the asses see-company had constructed during the year under consideration. It was noted that no expenditure on electric fittings had been debited by the assessee-company in the building account. According to the learned Assessing Officer, since electric fittings were not such as will run the plant and machinery installed by the assessee-company but were meant for providing light in the building newly constructed by the assessee-company, the assessee was considered not entitled to investment allowance on these electric installations. It was further observed that these electric fittings did not contribute to the production of articles made by the assessee-company. It was further held that the assessee was also not entitled to investment allowance on the AC admittedly installed in the office in view of proviso (a) to Section 32A(1). The investment allowance was thus not allowed on the above three figures in respect of the above three items.
41. This action of the learned Assessing Officer was contested. The learned Commissioner of Income-tax (Appeals), after detailed discussion, partly enhanced the depreciation allowed on the balance items in place of investment allowance. The assessee's grievance before us is against that finding.
42. The submissions made on behalf of the contesting parties have been heard and the record carefully perused. The relevant portion of the Commissioner of Income-tax (Appeals') order is as under :
" 16.1. It was further pointed out to the appellant that the depreciation has been wrongly given on this account on the basis of plant and machinery while it should have been allowed as part of the building account. The appellant has given in writing that he has no objection to allowing depreciation as part of the building account. The Inspecting Assistant Commissioner is directed to withdraw the depreciation given at 15 per cent, and allow it at the rate of building account and to that extent the income will stand enhanced. No investment allowance is allowed on electric installation shown in unit No. 2. As far as unit No. 1 is concerned, the electric installation is shown at Rs. 14,293. It is further seen that as far as the electric installation in unit No. 1 is concerned, the value of each item is less than Rs. 5,000 and 100 per cent, depreciation is allowable and thus no investment allowance will be allowable as per Section 32A(1)(d). The Inspecting Assistant Commissioner is directed to allow 100 per cent, depreciation on these items, while the addition on account of investment allowance is confirmed. Opportunity was given to both the parties on this ground and they have no objection to such a position of law. This claim is rejected for investment allowance, with direction given on depreciation partly enhancement in depreciation and partly for allowance of depreciation."
43. The assessee's present ground for investment allowance on the total amount of electric installations appears to be untenable at this stage when depreciation has already been allowed and enjoyed by them. For the reasons given by the learned Commissioner of Income-tax (Appeals), we see no justification to interfere and, therefore, see no merit in the ground raised.
44. Ground No. 10 raised before us is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs. 3 lakhs on account of sale of scrap wrongly holding that the same has taken place outside the books in spite of clarification having been filed in respect of this addition."
45. The assessee effected total sales of scrap during the year under consideration at Rs. 38,13,979 as against sales of Rs. 43,80,405 in the immediately preceding year. The learned Inspecting Assistant Commissioner required the assessee to file quantitative details of scrap as and when generated. It was stated on behalf of the assessee, vide letter dated October 7, 1986, that no quantitative record of the scrap was maintained except that the quantities at the time of sale were recorded in the bills issued. The assessee was also required to intimate whether the closing stock of scrap was physically identified/verified at the close of the accounting year and valued. Vide another letter dated April 30, 1987, it was informed that the value of the closing stock of scrap as on the close of the accounting period was not taken into account. It was further pointed out that even in the past, no such stock had been taken into account and it was credited to the sale of scrap account when the scrap was sold. The learned Inspecting Assistant Commissioner took note of the assessee's mercantile system of accounting and thus, according to him, the quantity of stock of scrap and value left at the closing period should have been detailed. The assessee's profit declared was thus not considered to be correct. It was also noted that the sales of iron scrap for the year under consideration were substantially lower. Some further details were brought on record, vide letter dated August 20, 1987. It was pointed out that there was no fall in the sale value of scrap during the year under consideration. The learned Assessing Officer, however, remaining unconvinced, made an addition of Rs. 3 lakhs on account of sale of scrap with the following observations :
"I have carefully considered the assessee's explanation but am not inclined to accept the same. The fact remains and admittedly so that the assessee-company has not physically identified the stock of iron scrap as on June 30, 1983, and its value taken into account in the financial accounts. It is further found that the cash sales of scrap as recorded in the cash sales day book from cash memo Nos. 6901 to 7000 and cash memos Nos. 7376 to 7600 have not been found accounted for. The assessee-company has no satisfactory explanation for these missing cash memos except saying that these cash memos were not used at all. The assessee-company has, however, failed to substantiate its contention. In the circumstances, I hold that some sale of scrap has not been accounted for by the assessee-company in its books of account. I estimate the value of such sale of scrap at Rs. 3 lakhs."
46. This addition was also contested by the assessee. The learned Commissioner of Income-tax (Appeals) noted that there were no quantiative details of raw material consumed or scrap left with the assessee. It was submitted on behalf of the assessee that a comparative chart of sale of scrap was filed before the learned Inspecting Assistant Commissioner. The sale of scrap was to be in terms of value and not in terms of quantity. The learned Commissioner of Income-tax (Appeals) considered that if the assessee was not in a position to give the closing stock, surely sold the scrap on the basis of weight when it was quoting rate of scrap per tonne this year as compared to the last year. Thus, by and large, agreeing with the reasons for the addition, the learned Inspecting Assistant Commissioner's action on the point was confirmed by the learned Commissioner of Income-tax (Appeals).
47. Hence the present ground before us. The learned authorised representative, repeated the submissions made before the Revenue authorites and argued further that no such addition was made in the past. He also invited our attention to pages 25 and 26 of the paper book, where some figures of month-wise sale of scrap are filed. He also made mention of the ratio in the case of CIT v. Smt Indermani Jatia [1970] 77 ITR 133 (All) but, on perusal, the relevance was not understood by us. On behalf of the Revenue, the confirmation of the addition was supported.
48. The submissions have been heard and the record carefully perused. It is an admitted position that the sale of scrap for the year under consideration is at a lower figure as compared to the last year. There is no dispute about the absence of details about quantity of material, the sale, opening and closing stocks. It is nobody's case that the scrap was not sold either. Thus, it was for the assessee to prove its case before the Revenue authorities, with reference to evidence. However, it is seen that the addition was made and confirmed on estimate basis. We, thus, consider it proper to confirm the confirmation of addition but reduce the same to Rs. 2 lakhs. In this regard, the assessee will get a relief of Rs. 1 lakh,
49. Ground No. 11 raised on behalf of the assessee is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in not allowing weighted deduction under Section 35B on foreign commission of Rs. 1,18,372 and also on the Indian commission."
50. Originally, the assesses claimed weighted deduction under Section 35B at Rs. 1,42,378, which was subsequently revised to Rs. 72,473, vide letter dated July 31, 1987. The learned Inspecting Assistant Commissioner, however, is seen to have allowed weighted deduction under Section 35B, with the following observations :
"The assessee's claim for deduction under Section 35B in respect of foreign tour expenses amounting to Rs. 99,047 is found to be in order but in respect of foreign commission amounting to Rs. 1,18,372, the assessee's claim is not acceptable. The assessee-company has claimed deduction in respect of foreign commission under Clause (iv) of Section 35B(1)(b) which permits deduction in respect of expenditure incurred wholly and exclusively on maintenance outside India of such goods, services or facilities. The expenditure on foreign commission incurred by the assessee-company can neither be said to be expenditure on maintenance outside India of a branch, office or agency. While holding this, I get support from the Madras High Court decision in the case of CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855. The facts of the aforesaid case, in brief, are that the assessee-company had engaged the services of another company 'M' for the purpose of procuring orders from foreign buyers in respect of export of prawns and shrimps to the foreign countries and paid Rs. 14,737 by way of commission. Sub-clause (iv) dealt with expenditure wholly and exclusively incurred on maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods or services or facilities and in the instant case, there was no question of the assessee maintaining any branch or office or even an agency for sales promotion of prawns and shrimps outside India. For these reasons, I allow deduction under Section 35B on foreign tour expenditure amounting to Rs. 99,047 at one-third which would amount to Rs. 33,016."
51. This action of the learned Inspecting Assistant Commissioner (Asstt.) was also contested and it is seen to have been pointed out before the learned Commissioner of Income-tax (Appeals) that the learned Assessing Officer erred in not allowing deduction on foreign commission of Rs. 1,18,372, ignoring the Central Board of Direct Taxes circular on the point. It was pointed out that the claim was made under Clause (iv) of Section 35(1)(B). It was also argued that the circular of the Central Board of Direct Taxes perhaps had not been brought to the notice of the Madras High Court while deciding the case Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855. The assessee also placed reliance on some orders of the Income-tax Appellate Tribunal. It is seen to have been pointed out before the learned Commissioner of Income-tax (Appeals), on behalf of the assessee, that the circular made mention of by the assessee had been withdrawn and in fact a revised one had been issued on June 5, 1985. The learned Commissioner of Income-tax (Appeals), without any discussion and comments and in fact making mention of the case supra decided by the Madras High Court, confirmed the addition. The assessee's present ground before us is against that action of the learned Commissioner of Income-tax (Appeals).
52. The rival submissions have been heard and the record carefully perused. To start with, there appears to be some confusion about the figures. The learned Commissioner of Income-tax (Appeals) in paragraph 20 mentioned the amount of Rs. 1,18,372 in respect of foreign commission; whereas the assessee's claim on account of foreign commission and foreign tour expenditure was of the order of Rs. 2,17,419. Paragraph 10 of the assessment order shows as if relief of Rs. 33,016 was allowed ; whereas at page 26 of the assessment order, the same figure is repeated. Perhaps the figure requires checking. Before the learned Commissioner of Income-tax (Appeals), mention on behalf of the assessee is seen to have been made of a Board's circular. No doubt, on behalf of the Revenue, it was pointed out that the same had been withdrawn or substituted but there is no mention of the contents of the substituted one. There is no positive finding either that the circular mentioned on behalf of the assessee had in fact been withdrawn. It is not seen to have been discussed that the facts in the assessee's case were not different from the circumstances in the case supra before the Madras High Court. The finding under challenge is seen to have been recorded without caring for the facts and the Board's circular supra. Besides that, the issue was also required to be gone into in accordance with the finding of the Special Bench in the case of J. Hemchand and Co. Since this issue is not seen to have been decided by the learned first appellate authority in the manner it should have been, we are also not in a position to take up the issue at hand. It is considered proper and in the fitness of things that the issue should travel back to the file of the learned Commissioner of Income-tax (Appeals) for decision afresh, after collecting the material and keeping in view the relevant circulars and finding of the Special Bench of the Income-tax Appellate Tribunal. The learned Commissioner of Income-tax (Appeals) will as well keep in view the ratio in the case of CIT v. Pooppally Foods [1986] 161 ITR 729 (Ker), We direct accordingly.
53. Ground No. 12 raised before us is to the following effect :
"That the learned Commissioner of Income-tax (Appeals) has erred in not allowing proper deduction under Section 80J."
54. This ground is rejected as not pressed.
55. Ground No. 13 taken on behalf of the assessee is as under :
"That the learned Commissioner of Income-tax (Appeals) has erred in withdrawing the investment allowance on weighing bridge and weighing machine already allowed by the Inspecting Assistant Commissioner."
56. During the first appellate proceedings, the learned Commissioner of Income-tax (Appeals) issued a notice for enhancement, i.e., for withdrawing the investment allowance on weighing bridge and weighing machine, which had earlier been allowed by the learned Inspecting Assistant Commissioner keeping in view the finding of the Chandigarh Bench of the Tribunal in the case of Oswal Woollen Mills. On behalf of the assessee, the written reply dated February 9, 1988, was brought on record pointing out the finding of the Amritsar Bench of the Income-tax Appellate Tribunal in the cases of Tilah Raj Madan Mohan and Punjab Bone Mills [1985] 18 TLR 499 and [1985] 18 TLR 271, respectively. The learned Commissioner of Income-tax (Appeals), making mention of the decision of the Income-tax Appellate Tribunal Chandigarh held that weighing bridge and weighing machine were not entitled for investment allowance. Thereafter, the learned Inspecting Assistant Commissioner (Asst.) was directed to withdraw the investment allowance allowed by him while framing the assessment.
57. The present ground before us is against that action. On behalf of the assessee, the learned authorised representative repeated the submissions earlier made before the Revenue authorities. He also placed reliance on the ratio in the case of CIT v. S. Warriam Singh Cold Stores [1989] 178 ITR 585 (P & H). Reliance by the learned authorised representative was also placed on the finding of the Amritsar Bench of the Income-tax Appellate Tribunal in the case of Tilak Raj Madan Mohan v. ITO [1985] 18 TLR 499. On behalf of the Revenue, the learned senior departmental representative placed reliance on the finding of the learned first appellate authority.
58. The rival submissions have been heard and the record carefully perused. The learned Commissioner of Income-tax (Appeals) is not seen to have discussed either the facts or the law on the point in detail. He made mention of the "decision of the Income-tax Appellate Tribunal, Chandigarh" and directed that the investment allowance be withdrawn. It is a very summary sort of things. This is also not correct because when two orders of the Income-tax Appellate Tribunal of two different Benches are at variance, normally the order favouring the citizen should be followed. This approach is seen to have been ignored by the learned Commissioner of Income-tax (Appeals). In our view, the finding of the Amritsar Bench of the Tribunal in the case of Tilah Raj Madan Mohan [1985] 18 TLR 499, is clear on the point and thereafter no manner of doubt is left for clarification. Investment allowance allowed in the present case was thus not required to be withdrawn in the manner done by the learned Commissioner of Income-tax (Appeals). We found further support for this conclusion from the ratio in the case of S. Warriam Singh Cold Stores [1989] 178 ITR 585 (P & H), wherein some of the relevant observations were as under (headnote) :
"A plain reading of the provisions of Section 32A(2)(b)(ii) of the Act shows that the words 'production' and 'manufacture' occurring therein are not in any manner qualified by the 'article' or 'thing' being marketable or being a commercial commodity. The concept of marketability is a wholly unwarranted intrusion into this provision.
A cold storage plant fulfils the condition of producing an article or thing first and the thing produced is later on used for carrying on the business of preservation of articles and goods.
The language of the relevant section will be fully satisfied, if in the production of an end-product, several intermediate articles are produced. It will be obviously not possible to say that the Legislature intended to grant investment allowance only in respect of machinery and plant used in the last process and no investment allowance will be available in respect of the intermediate processes of manufacture, which may be producing any article or thing."
59. In the light of the above discussion, we vacate the finding under challenge and hold that the withdrawal of investment allowance already allowed on weighing machine and bridge was not required to be withdrawn.
60. Ground No. 14 is to the following effect :
"That the learned Commissioner of Income-tax (Appeals) has erred in not giving a finding on merits for levy of interest under Sections 139(8) and 215. The appellant denies levy of interest under both the Sections."
61. After having heard the rival submissions on the issue raised in the above ground, it is seen that the learned Commissioner of Income-tax (Appeals) directed the learned Inspecting Assistant Commissioner (Asst.) to levy interest after recomputation of income as per the first appellate order. We confirm the said direction but modify it further that it should be done as per the present order.
62. The assessee also raised an additional ground to the following effect:
"That the authorities below have erred in not exempting the cash subsidy (CCS) received by the appellant."
63. The details and figures of this ground are discussed in the detailed letter filed by the assessee and so also in the order dated February 9, 1990, of this Bench by which the assessee was permitted to raise the additional ground to be considered on merits. This ground came before the Bench in this manner.
64. After having heard the rival submissions and perusing the record, we restore this ground to the file of the learned first appellate authority to be decided in accordance with our observations on the assessee's ground No. 1 in respect of sale of import entitlement. We direct accordingly.
65. No other ground was either raised or pressed before us. The pages of the paper book made mention of before us have been perused.
66. In the result, the appeal is allowed in part as above.
67. S.K. cHANDER (Accountant Member).-I have, with greatest respect, very carefully gone through the order proposed by my learned brother. However, I am constrained to say that I do not subscribe to the manner and method in which the various grounds have been disposed of. At the same time, I do not consider it worthwhile to strike a note of dissent on grounds which involve petty amounts and no principle. Therefore, all that I would say in the beginning is that on the grounds which do not find a place in my dissenting order, I agree only with the conclusions drawn by my learned brother and not with any of the observations made therein because each assessment is in itself a proceeding which should not ordinarily get affected by the assessment before and after. Therefore, these conclusions should not be taken as precedent for any other assessment year.
68. Ground No. 1 taken up in the original grounds of appeal and the additional ground of appeal admitted by the Bench vide order bearing I. T. A. No. 257 of 1988 for this assessment year dated February 9, 1990, require consideration together. This is so because both the grounds are covered by the judgment of the Special Bench of the Tribunal in the case of Gedore Tools (India) (P.) Ltd. [1988] 25 ITD 193 (Delhi). Ground No. 1 regarding exemption of profits earned on sale of import entitlement amounting to Rs. 23,30,465, therefore, in accordance with the judgment of the Special Bench is to be decided against the assessee. On that very principle, the additional ground of appeal admitted by the Bench involving an amount of Rs. 47,36,771 as cash compensatory support has to be allowed and the amount deleted from the total income in terms of the ratio of the Special Bench in the case of Gedore Tools (India) (P.) Ltd. [1988] 25 ITD 193 (Delhi). I do not see any reason why these grounds should not be determined in accordance with the law as on the' date of hearing available to both the sides. I am of the firm conviction that a judge should not and cannot wait on events that may take place in future and affect the rights of the parties in the proceedings before him.
69. The other issue on which I find myself unable to go along with my learned brother is regarding the applicability of Section 43B of the Act to an amount of Rs. 24,53,232 collected by the assessee on account of sales tax. I find that during the course of assessment proceedings, the assessing authority examined this issue from various angles as projected to him by the assessee. One of the points made out by the assessing authority was that sales tax is a part of the trading receipts. This aspect of the matter was contested by the assessee before him on the ground that the observation in which this proposition was propounded by the Supreme Court in the case of Chowringhee Sales Bureau Put. Ltd. [1973] 87 ITR 542 relied on by the assessing authority, was by way of obiter dicta and the judgment of the Supreme Court applicable to the facts of the case of the assessee was that of Kedar Nath Jute Mfg. Co. Ltd. [1971] 82 ITR 363, in which this question was specifically considered and if that is considered, the amount cannot be added. Another facet projected before the assessing authority was that a sum of Rs. 17,65,203 which remained unpaid in the preceding year and as such was not claimed may be allowed as deduction because it was treated as the assessee's income in the preceding year. This aspect of the matter was considered by the assessing authority and on the basis that the amount had been treated as the assessee's income in the assessment year 1983-84 as per the order under Section 154 made by the Commissioner of Income-tax (Appeals) on February 23, 1987, the same has to be allowed as a deduction. In fact, the net addition to be made on this account thus was worked out by the assessing authority at Rs. 6,88,029. The assessing authority, however, observed that the assessee had filed an appeal before the Income-tax Appellate Tribunal for the assessment year 1983-84 and in case the addition of Rs. 17,65,203 on account of sales tax collected but not paid to the Government is deleted, this deduction will also be with drawn.
70. When the matter came up in appeal before the Commissioner of Income-tax (Appeals), he has not clarified the position regarding the sum of Rs. 17,65,203. He has referred to an amount of Rs. 4,95,172 which was disallowed in the assessment year l983-84 and which, according to him, could not be disallowed once over. According to him, this has been rectified by the assessing authority under Section 154 and, therefore, this issue is not open. All this has been disposed of by my learned brother in paragraph 14 which speaks for itself. However, if one goes through the judgment of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao and Co. [1988] 173 ITR 708 relied on by the assessee and mentioned in paragraphs 13 and 14 (see page 10) by my learned brother as not supporting the assessee, it becomes clear that no doubt the newly inserted provision in Section 43B is applicable for the assessment year 1984-85, but in order to apply the provisions not only should the liability to pay sales tax or duty be incurred in the accounting year but the amount also should be statutorily payable in the accounting year. It was held in that case that the sales tax payable for the month of March, 1984, could not be disallowed under Section 43B. These observations were made by the court after reference to various judgments including the judgment of the Supreme Court in the case of Om Parkash Agarwal v. Giri Raj Kishori [1987] 164 ITR 376.
71. It is also seen that on behalf of the Revenue, judgments of the Tribunal in I.T.A. No. 437 of 1985 dated June 30, 1988, and I.T.A. No. 894 of 1986 dated July 20, 1989, were cited. These have not been dealt with by my learned brother. However, his order shows that in principle when in the interpretation of a fiscal statute or provision, there is a conflict of judicial opinion, one that favours the subject ought to be adopted. This becomes clear from the proposed order, paragraph 44. This principle is now well-settled by the Supreme Court and no authority need be cited. Following this principle, it would be seen that in the authorities cited before us, there is a judgment by a High Court on this issue and there are two. judgments of the Tribunal. On the basis of this principle, the judgment of the High Court will be binding as it favours the assessee and, therefore, this should have been followed. However, since some of the facets of the issue need clarification, the entire matter needs reconsideration by the assessing authority keeping in view these observations about the judgment of the Andhra Pradesh High Court mentioned supra. This issue is, therefore, set aside for reconsideration and decision by the assessing authority.
72. Ground No. 7 which has been disposed of in the proposed order in fact contains two issues. The first is regarding the amount spent on insurance of cars and salary paid to drivers while working out the disallowance under Section 37(3A) of the Act. The other facet is regarding the directions issued by the Commissioner of Income-tax (Appeals) that the sum of Rs. 77,243 spent on gifts to dealers under a scheme should also be included while working out the disallowance under Section 37(3A) of the Income-tax Act, 1961. With regard to this facet of this ground, the observations made in the proposed order are that the Commissioner of Income-tax (Appeals) "was perfectly justified in directing the addition of this amount while calculating disallowance under Section 37(3A)". This observation ignores very relevant and important facts which have a bearing on the determination of this issue. In the case of the assessee, this type of schemes, in order to boost the sales, have been in operation in the earlier years under which various types of gifts are given to dealers. In the assessment year 1983-84, in the case of the assessee in an order made under Section 143(3) in March, 1986, when challenged in appeal, the Tribunal in I. T. A. No. 962 of 1986, dated January 28, 1988, appearing at pages 31 to 44 of the assessee's paper book, held that the expenditure was admissible under Section 37(1) as expense towards sales promotion. In fact the Commissioner of Income-tax (Appeals) in his impugned order while dealing with this issue has followed that judgment of the Tribunal to hold that the expenditure is covered by Section 37(1) and not by Section 37(2) of the Act. But thereafter, he has made an observation that, "this should be added while computing Section 37(3A)". This shows that the Commissioner of Income-tax (Appeals)'s observation is a contradiction in terms because, on the one hand, he is following the order of the Tribunal and, on the other, he is superseding the judgment of the Tribunal and saying that the amount should be considered under Section 37(3A). He could not do so. The order of the Tribunal holding that it is an expenditure under Section 37(1) has to be followed because there is no change in the facts of the case. Therefore, this amount should be allowed as a deduction.
73. In ground No. 8, the grievance of the assessee is that the Commissioner of Income-tax (Appeals) erred in not allowing extra shift allowance on pipeline fittings amounting to Rs. 7,21,412. In the impugned assessment order, the assessing authority considered the claim of depreciation made by the assessee at Rs. 87,47,585. This claim related to unit No. 1, unit No. 2 and export office. However, during the course of assessment proceedings, this claim was revised to Rs. 91,77,586, vide letter dated July 31, 1987. After considering everything, the assessing authority allowed depreciation to the extent of Rs. 89,28,906. Thereafter, the assessing authority considered the claim for extra shift allowance for various items. I shall not advert to the items which are not in dispute before the Bench. The item which is in dispute is the claim of extra shift allowance on pipeline fittings which are detailed in paragraph 15 of the assessment and are as under :
Rs.
"M. S. pipe, G. M. valves, M. S. flanges 2,553 Insulation on various pipelines 10,543 Insulation of E. S. P. and tank 5,652 Pipeline fitting charges 2,52,918
-do-
3,92,274 Dismantling of pipeline 7,912 Insulation on various pipes 6,664 Installation of air line in S. K. L. engine by Steam Services, Delhi 392 Installation of pipeline and support, etc., in S. K. L. engine 7,660 Installation of pipeline in effluent plant 2,449 G. M. wheel valves and flanges 32,395 7,21,412."
74. The assessing authority was of the opinion that extra shift allowance on these items is covered by the prohibition contained in item (6) below the illustration for extra shift allowance in Appendix I to rule 5 of the Income-tax Rules.
75. When the matter came up in appeal before the Commissioner of Income-tax (Appeals), he simply supported the order of the assessing authority by pointing out that a reading of the list of the items on which extra shift allowance is prohibited shows that the claim of the assessee is not admissible.
76. Learned counsel for the assessee had argued before the Bench that the prohibition contained in item (6) is only with regard to hydraulic works, hydraulic pipelines and hydraulic sluices. In other words, his submission was that the word "pipelines" in this item, should be read and interpreted ejusdem generis. In the proposed order, my learned brother has not recorded the above submission of learned counsel for the assessee. He has merely observed that the "learned authorised representative once again repeated the submissions made before the Revenue authorities". Thereafter, there is no discussion and the ground of appeal is rejected with the mere observation that, "the prohibition in the rule is clear. The situation does appear to be without any doubt or confusion". To my mind, this is not the type of disposal of such a complicated ground that is expected of us. The provisions of this fiscal statute are so vexed and varied that the interpretation thereof is a rich source of vexatious litigation. Therefore, it cannot be said that the rules are clear and the section is clear. One has to give the interpretation of the relevant provisions by a speaking order irrespective of the fact that it favours either party. In doing so, however, the set principles of canons of construction must be kept in view.
77. Rule 5 of the Income-tax Rules, 1962, provides that subject to the provisions of the statute mentioned therein, depreciation in respect of buildings, machinery, plant and furniture, etc., shall be calculated at the percentage specified in the second column of the Table in Part I of Appendix I to these rules on the actual cost, etc., or, as the case may be, the written down value of such assets which are used for the purpose of the business or profession of the assessee at any time during the previous year. This rule shows that the depreciation on assets will be admissible as per rates provided in the Appendix provided such assets have been used at any time during the previous year in carrying on the business of the assessee. Now, when I come to the Appendix, I find in Part I tabulated and categorised items of buildings, furniture and fittings, plant and machinery on which different rates of depreciation are provided. After the rates are provided for depreciation on plant and machinery, there is a narrative that the calculation of the extra shift allowance for double shift work and for triple shift work shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days during the previous year. Thereafter follows the illustration. After the illustration it is provided that extra shift allowance shall not be allowed in respect of any item of machinery or plant which has been specifically excepted by inscription of the letters "N.E.S.A." (meaning "No Extra Shift Allowance"), against it, in sub-item (ii) above and also in respect of the following items of machinery and plant to which the general rate of depreciation of 15 per cent, applies. In the list of these items at serial No. (6) is the entry which reads :
"(6) Hydraulic works, pipelines and sluices."
78. A careful reading of the items of machinery and plant numbering up to 23 in this list shows the legislative intent translated into the rules. It shows that these items deal with different types of machinery. For example, at item (3) is "building contractors", machinery. At item (8) is mineral oil concerns--field operations :
(a) Boilers
(b) Prime movers
(c) Process plant
(d) Storage tanks (above ground)
(e) Pipelines (above grounds)
(f) Jetties and dry docks
79. I have abstracted the above entries to indicate that the arguments adopted by the assessing authority and by the Commissioner of Income-tax (Appeals) were apparently erroneous when they read into item (6) that deals with hydraulic pipelines and sluices a prohibition on all types of pipelines wherever installed. If what they have taken, "pipelines" to mean as all pipelines inclusive contained as a prohibition in item (6), then it is apparent that in item (8) mention of pipelines at (e) above would become a superfluous entry and redundant. Redundancy, however, cannot be attributed to the Legislature even in subsidiary legislation. It is thus clear that what is contained in item (6) is a prohibition only on hydraulic works, hydraulic pipelines and hydraulic sluices. This is necessarily an interpretation which has to be based on the principles of ejusdem generis. Therefore, I do not see any reason why the assessee should be denied the extra shift allowance because of entry No. (6) which has been relied on by the authorities below and discussed above.
80. Unfortunately, I do not have the benefit of the reasons for the conclusion drawn on this issue by my learned brother. But so far as the lower authorities are concerned their reasons were apparently misconceived and they do not also appreciate the context in which the claim was made.
81. Unfortunately, the claim has been rejected merely treating it as a claim for depreciation without recording the background on which it was made. Before the Bench, the claim of learned counsel for the assessee was that there was no contravention of this claim that there was new plant and machinery worth Rs. 36,00,000 installed and to make it functional, the pipelines were installed. It is part of plant and machinery and depreciation is admissible thereon. This claim appears to be fully justified from the very details of the items on which the extra shift allowance was claimed. A scrutiny of these items as contained in paragraph 15 of the impugned assessment order shows that pipelines fitting charges are more than Rs. 6 lakhs. When it is seen in the context of cost of machinery, things become clearer. When "plant" includes even drawings and patterns as held by the Supreme Court in the case of CIT v. Elecon Engg. Co. Ltd. [1987] 166 ITR 66, there is no reason why such pipeline fittings and the cost on such fittings should not go into the accounts under the head "Plant and machinery" and why it should not be entitled to extra shift allowance. On the entirety of the facts and circumstances of the case, extra shift allowance is admissible to the assessee. It should be allowed. However, the assessing authority is directed to verify the claim, take into consideration what is stated above and then work out the admissibility in quantum.
82. Ground No. 10 is regarding the addition of Rs. 3 lakhs on account of sale of scrap. The claim of the assessee is that it has been following a regular method of accounting with regard to sale of scrap in the mercantile system of accounting on the basis of which the books of account are maintained. To clarify it further, the claim of the assessee is that though on the whole the books of account are maintained on the mercantile system of accounting, yet with regard to scrap its sale is accounted for only when made and the stock is not taken into consideration in drawing up the final accounts. But when this issue came up for consideration before the assessing authority, he has in paragraph 17 of the impugned assessment order recorded that the assessee has not physically identified the stock of iron scrap as on the last day of the previous year relevant to the assessment year under appeal. He also found two cash memos not accounted for. According to him, the assessee-company had no satisfactory explanation for it. Therefore, irrespective of the fact that earlier the system followed by the assessee had been accepted, he proceeded to discard it. He did so and estimated the value of scrap at Rs. 3 lakhs which should have been accounted for and made the addition of an equal amount. The Commissioner of Income-tax (Appeals) has justified his action. My learned brother has upheld the addition of Rs. 2 lakhs and gave a relief of Rs. 1 lakh. The reason on which such an addition has been sustained is the absence of details about the quantity of material, the sale, opening and closing stocks. To my mind, this approach does not accord with what has been done by the assessee earlier and accepted by the Revenue for a number of years. For the year under appeal, nothing new has happened. The only thing that happened was that the assessing authority was alarmed by the fact that the sale of scrap for the year under appeal was only Rs. 38,13,979 as compared to the sale of scrap amounting to Rs. 43,80,405 in the preceding year. He, therefore, proceeded to find out the reasons for it. The assessee explained the reasons and it appears also at the appellate stage pointed out to the missing cash memos having been found and projected. However, the authorities below rejected all explanations and because the sale was less than in the earlier year, attempted to bring it at par by making an addition of Rs. 3 lakhs. This to my mind has no factual or legal justification. There is nothing that prohibits an assessee following the mercantile system of accounting to have an exception about a particular item to have it bona fide and follow it regularly. In this case, the fact that this system of accounting for the sale of scrap followed by the assessee was bona fide is borne out by the factum of its acceptance by trje Revenue in the earlier years. Therefore, there is no reason why it should be disturbed for the year under appeal unless there are circumstances justifying such a departure. However, merely because the quantum of sales for the year under appeal was less than the quantum of sales in the last year, in my considered opinion it does not stand as a reason for rejection of this matter. Even for the lower sale, the assessee has given reasons. The reasons are acceptable. Therefore, the addition was without justification. It appears that the assessee is showing as and when and whatever scrap is sold in a particular accounting year in the relevant assessment year. For example, in the assessment year 1985-86, sale of scrap is Rs. 42,68,213. This is shown at page 26 of the paper book. There is no justification for the addition which is ma'de on conjectures and surmises. Therefore, the sustaining of the addition of Rs. 2 lakhs to my mind is without justification. The entire addition should be deleted.
83. In this regard, the reliance by learned counsel for the assessee on the judgment of the Calcutta High Court in the case of CIT v. Hazaribagh Coal Syndicate Pvt. Ltd. [1989] 177 ITR 135 is fully justified. Unfortunately, it appears, my learned brother did not write the citation properly and has, therefore, referred to in paragraph 37 (see page 10) of his order to a judgment of the Allahabad High Court in the case of CIT v. Smt Indermani Jatia [1970] 77 ITR 133, and has observed that "the relevance was not understood by us". It could not be because that was never the authority cited.
ORDER OF REFERENCE TO THIRD MEMBER
84. We have differed in our opinion on the points stated below. We, therefore, refer the matter to the Hon'ble President, Income-tax Appellate Tribunal, under Section 255(4) of the Income-tax Act, 1961, for necessary action :
"(1) Whether, on the facts and in the circumstances of the case, the law available on the date of hearing should be considered as the law applicable to the issue of exigibility of import entitlements and CCS before the Tribunal in appeal as held by the Accountant Member or this issue be sent back to the first appellate authority to be decided in accordance with the provisions contained in the proposal for amendment of law lying before Parliament, if and as and when enacted, as held by the Judicial Member ?
(2) Whether, on the facts and in the circumstances of the case, the addition on account of sales tax amounting to Rs. 24,53,232 collected by the assessee should be confirmed in view of the provisions of Section 43B of the Income-tax Act, 1961, as held by the Judicial Member or this issue be sent back for fresh consideration by the assessing authority for the reasons recorded by the Accountant Member ?
(3) Whether, on the facts and in the circumstances of the case, the observations of the Commissioner of Income-tax (Appeals) that the sum of Rs. 77,243, 'should be added while computing Section 37(3A)' should be confirmed as held by the Judicial Member or these observations should be deleted as held by the Accountant Member for the reasons recorded in his order of dissent?
(4) Whether, on the facts and in the circumstances of the case, the disallowance of extra shift allowance on pipeline fittings amounting to Rs. 7,21,412 made by the assessing authority should be confirmed as held by the Judicial Member or extra shift allowance should be granted to the assessee for the reasons recorded by the Accountant Member ?
(5) Whether, on the facts and in the circumstances of the case, addition of Rs. 3,00,000 made on account of estimated sale of scrap made by the assessing authority be confirmed up to Rs. 2,00,000 as held by the Judicial Member or the entire amount should be deleted as held by the Accountant Member ?"
ORDER OF THIRD MEMBER
85. CH. G. kRISHNAMURTHY (President).--This is an appeal which has come up for hearing before the Chandigarh Bench. After hearing the parties, the learned Members constituting the Bench could not agree on the following points :
"1. Whether, oh the facts and in the circumstances of the case, the law available on the date of hearing should be considered as the law applicable to the issue of exigibility of import entitlements and CCS before the Tribunal in appeal as held by the Accountant Member or this issue be sent back to the first appellate authority to be decided in accordance with the provisions contained in the proposal for amendment of law lying before Parliament, if and as and when enacted, as held by the Judicial Member ?
2. Whether, on the facts and in the circumstances of the case, the addition on account of sales tax amounting to Rs. 24,53,232 collected by the assessee should be confirmed in view of the provisions of Section 43B of the Income-tax Act, 1961, as held by the Judicial Member or this issue be sent back for fresh consideration by the assessing authority for the reasons recorded by the Accountant Member ?
3. Whether, on the facts and in the circumstances of the case, the observations of the Commissioner of Income-tax (Appeals) that the sum of Rs. 77,243, 'should be added while computing Section 37(3A)' should be confirmed as held by the Judicial Member or these observations should be deleted as held by the Accountant Member for the reasons recorded in his order of dissent ?
4. Whether, on the facts and in the circumstances of the case, the disallowance of extra shift allowance on pipeline fittings amounting to Rs. 7,21,412 made by the assessing authority should be confirmed as held by the Judicial Member or extra shift allowance should be granted to the assessee for the reasons recorded by the Accountant Member ?
5. Whether, on the facts and in the circumstances of the case, addition of Rs. 3,00,000 made on account of estimated sale of scrap made by the assessing authority be confirmed up to Rs. 2,00,000 as held by the Judicial Member or the entire amount should be deleted as held by the Accountant Member ?"
86. The matter has now been referred to me under Section 255(4) of the Income-tax Act, 1961, for my opinion on those points.
87. In so far as the first point of difference of opinion is concerned, the relevant facts are that the assessee who is engaged in the manufacture of cycles, cycle parts and accessories had exported its products worth about Rs. 5.13 crores and received under the schemes formulated by the Government to encourage exports, import entitlements which when turned to account yielded a sum of Rs. 23,30,465. The assessee claimed that this sum was ill the nature of a capital receipt and not liable to income-tax. When its plea for exemption was not accepted, the matter was carried in appeal to the Tribunal. Before the Tribunal, the assessee repeated its contentions. In support of this, reliance was placed upon a decision of the Special Bench 'A' of the Income-tax Appellate Tribunal in the case of Gedore Tools (India) (P.) Ltd. v. IAC [1985] 25 ITD 193 (Delhi). In this case, there were three categories of amounts involved for adjudication as to whether they are taxable under the Indian Income-tax Act as revenue receipts. One is cash compensatory support, the other is the sale proceeds of import entitlements, the third and last is duty draw back. The Special Bench held that while the C. C. S. was in the nature of a capital receipt, the other two items were in the nature of revenue receipts and are liable to tax. By referring to the Special Bench decision, it appears, the senior departmental representative argued before the Tribunal that this amount was liable to be rejected. The senior departmental representative also brought to the notice of the Bench that the Finance Bill which was introduced in Parliament by then contained a proposed amendment to bring to tax with retrospective effect not only the sale proceeds of import entitlements and the amounts received on duty draw back, but also the C.C.S. Reliance was placed upon this proposed amendment also in support of the view that this import entitlement was liable to tax and the claim of the assessee deserves to be rejected. The Judicial Member, while holding that the particular ground required straightaway to be rejected following the earlier orders, particularly, the order of the Special Bench of the Income-tax Appellate Tribunal, did not do so. However, in view of the impending legislation proposing to bring to tax these amounts, he preferred to set aside, in the interests of justice and fair play, the order of the Commissioner of Income-tax and direct him to have a second look at the matter after the Finance Bill was passed and the provisions under the Finance Bill took a proper shape. He, however, dealt with the question of taxability of C.C.S. which came before the Bench by way of an additional ground and held that this matter also should be looked into by the Commissioner of Income-tax in the same way as the sales of import entitlements. In other words, on this point also, he set aside the assessment.
88. But the learned Accountant Member while agreeing with the view that sale of import entitlements should be taxed, following the Special Bench decision iri the case of Gedore Tools [1988] 25 ITD 193 (Delhi) referred to above, by the same token applying the very same judgment, the C.C.S. should not be brought to tax, notwithstanding the fact that in the Finance Bill introduced in Parliament, an amendment was proposed to bring to tax the C.C.S. with retrospective effect. His view was that since the proposed amendment had not become law, by the time the appeal came to be decided, the law obtaining on that date must be the view expressed by the Special Bench referred to above a-nd not the law that was going to come into effect in future provided this amendment was carried by Parliament and received the assent of the President.
89. That was how the point of difference of opinion arose which was referred to me. It will be seen from the point of difference of opinion that on the issue of exigibility of import entitlements, there was no difference of opinion between the Members but yet this was referred to me as a Third Member as if there was a difference of opinion on this issue. Since there was no difference of opinion on this point, I cannot but say that I will not as a Third Member be able to express my opinion except reiterate that both the Members agreed that the import entitlements are liable to tax and accordingly, that should be implemented.
90. As regards the taxability of the C.C.S., as I mentioned earlier, the view of the Accountant Member was that he should follow the view expressed by the Special Bench and not be concerned about the proposed legislation pending in Parliament. But as it transpires, the learned Judicial Member wrote his order on May 22, 1990, while the learned Accountant Member recorded his dissent of opinion on June 28, 1990, by when the proposed amendment had become law having received the assent of the President on May 31, 1990, i.e., by the time learned Accountant Member recorded his dissenting opinion, the law was that the C.C.S became taxable as a revenue receipt with retrospective effect from April 1, 1967. Therefore, according to his opinion, had he to apply the law on the date of hearing, he should have applied the law as amended with retrospective effect and held that the C.C.S. also was liable to tax as a revenue receipt. Viewed in this light, I am of the opinion that the proper order in this case ought to have been to set aside the assessment on this point and direct the first appellate authority to look into this matter and decide it in the light of the amended law.
91. Learned counsel for the assessee before me urged that in an identical issue in the case of Kelvinator of India Ltd. v. IAC [1989] 29 ITD 469 (Delhi), the Bench held that notwithstanding a proposal in the Finance Bill pending consideration before Parliament, the law as available on the date of hearing should have been applied. Though this observation was made in that case and that case was decided on the basis of that observation, still that observation is in my opinion inapplicable to the facts of this case because as in this case, there was no difference of opinion in that case and the Bench came to decide the issue long before the proposed amendment became law having been passed by Parliament and received the assent of the President. There the question was also like in this case giving retrospective effect to certain amendments proposed in Section 43B of the Income-tax Act. Reliance was placed upon the provisions contained in the Finance Bill as introduced in Parliament by the Revenue for the view that their view should be accepted. The Bench there observed : "though the Finance Bill proposed to give retrospective effect to Explanation, on the date the appeal came to be decided by the Tribunal, it was the decision of the Andhra Pradesh High Court in the case of Srihakollu Subba Rao and Co. v. Union of India [1988] 173 ITR 708, which held the field and governed the interpretation of the statute, and it was only after discovering the ambiguity in the language of Section 43B that the Legislature had proposed the amendment to clarify the position with retrospective effect and, therefore, the proposed amendment suggested in the Finance Bill pending in Parliament for passage could not be relied upon to decide the issue, ignoring the decision of the Andhra Pradesh High Court referred to above when that was the law ruling on the date when the appeal before the Tribunal came to be decided. There was no other decision of any other High Court available taking the contrary view also. Therefore, the Tribunal held that the effect of the decision of the Andhra Pradesh High Court must be given. The opinion expressed by the Bench in that case, as I said earlier, is totally inapplicable to the facts of this case because by the time the learned Accountant Member recorded his differing opinion the legislation had already come into force with retrospective effect. That was the law that ought to have been applied even according to the decision in Kelvinator of India Ltd. v. IAC [1989] 29 ITD 469 (Delhi), to decide this case. Applying this ruling, the learned Accountant Member should have said that the law having been amended with retrospective effect and that law being applicable the proper course should have been to remit the case to the first appellate authority for a fresh disposal. I am, therefore, of the opinion that the view expressed by the learned Judicial Member appears to me more logical, legal and justified and I agree with it.
92. Now there is no scope for the first appellate authority also to decide the issue in any manner other than in accordance with law as amended by the Finance Act of 1990, with retrospective effect from April 1, 1967.
93. The facts relating to the second point of difference of opinion are a little confused but from what I gathered from reading the orders of my learned brothers and after considering the arguments addressed to me, the facts may be stated thus :
The Inspecting Assistant Commissioner (Assessment) noticed from the balance-sheet of the assessee that an amount of Rs. 24,53,232 was collected by the assessee as sales tax but not deposited with the Government and this amount was shown under the head "Current liability". The Supreme Court in the case of Chowringhee Sales Bureau Pvt. Ltd. [1973] 87 ITR 542, held that the sales tax collected by an assessee is a part of the trading receipts. Applying the ratio of the above Supreme Court decision, the Inspecting Assistant Commissioner (Assessment) treated the sum of Rs. 24,53,232 as part of the trading receipts although it was shown in the balance-sheet as a current liability. Simultaneously, applying the provisions of Section 43B of the Income-tax Act which were then in force, he did not allow any deduction on account of the liability for payment of sales tax to the Government because under the provisions of Section 43B notwithstanding the method of accounting employed by the assessee, the payment towards sales tax would be allowed as a deduction only in the year in which it was paid and not on the ground of accrual of liability, although it could be said that the liability to pay the tax accrued within the accounting year. The Inspecting Assistant Commissioner (Assessment) found no substance in the argument of the assessee that it was not the ratio of Chowringhee Sales Bureau case that would apply to the facts of the case but the ratio laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd, [1971] 82 ITR 363 that would apply. Since in the case of Chowringhee Sales Bureau [1973] 87 ITR 542, the Supreme Court did not consider as to when the trading liability for sales tax should be allowed as a deduction and since in the case of Kedarnath Jute Mfg. Co. Ltd. [1971] 82 ITR 363, the Supreme Court decided this issue specifically that it should be allowed in the year in which the liability accrued, the decision in the latter case should have been applied and the entire amount though added as part of the trading receipts should simultaneously be allowed as a deduction so that mere would be no effect on the income. There were observations made by the Supreme Court in the case of Chowringhee Sales Bureau [1973] 87 ITR 542, that an assessee would claim deduction only when paid to the Government. This observation was relied upon by the Department in support of their view as amounting to holding the same thing as was held in the case of Kedarnath Jute Mfg. Co. [1971] 82 ITR 363 (SC). But the assessee contended that these observations were by way of obiter dicta and, therefore, should not be relied upon. According to the Inspecting Assistant Commissioner (Assessment), the Punjab and Haryana High Court in the case of Sirsa Industries v. CIT [1984] 147 ITR 238, had clearly laid down the principle that though the amount of sales tax should be included as trading receipt, it would be allowed only when paid as a deduction. The assessee then alternatively contended that of the amounts added as income in the earlier years on account of sales tax collections, a sum of Rs. 17,65,203 was paid during the year and that sum should be allowed as a deduction on the ground of payment as the same was already included in the income in the earlier years. Though the Inspecting Assistant Commissioner (Assessment) accepted this position as allowable, still he did not consider this amount for deduction on the ground that the assessee had filed an appeal before the Income-tax Appellate Tribunal against the treatment given to it in the earlier years and, therefore, the matter was undecided, nebulous and sub judice.
94. Aggrieved by this treatment, the assessee preferred an appeal before the Commissioner of Income-tax. The Commissioner of Income-tax, on appeal, without much discussion, on the relevant point confirmed the disallowance. When the matter came in appeal before the Tribunal, the contention urged on behalf of the assessee before it was that on the strength of the decision of the Andhra Pradesh High Court in the case of Srikahollu Subba-Rao and Co. v. Union of India [1988] 173 ITR 708, Section 43B was inapplicable and, therefore, the entire amount added as part of the trading receipts of the assessee should be allowed as a deduction, following the ruling of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. [1971] 82 ITR 363. In other words, his submissions were more or less the same as before the authorities below, the only thing being that the support for that was taken from the decision of the Andhra Pradesh High Court. The learned Judicial Member held that the provision of law, meaning thereby Section 43B being mandatory in nature, there was no escape for the Revenue authorities from disallowing the sales tax amount collected but not paid. He, therefore, confirmed the disallowance. The learned Accountant Member, however, saw it differently. He expressed his agreement in the view that the Andhra Pradesh High Court decision in the case of Srikahollu Subba Rao and Co. [1988] 173 ITR 708, would go to help the assessee's contention, notwithstanding the provision made in Section 43B of the Income-tax Act He then referred to certain decisions of the Income-tax Appellate Tribunal rendered by different Benches of the Tribunal relied on by the Revenue in support of their view. Those were the decisions in I. T. A. No. 437 of 1985, dated June 30, 1988, and I.T.A. No. 894 of 1986, dated July 20, 1989. These decisions were not referred to at all by the learned Judicial Member in his order. As against this, there was a decision of the High Court of Andhra Pradesh taking a view in favour of the assessee. Thus, the learned Accountant Member saw a conflict According to the learned Accountant Member, whenever there is a conflict in the interpretation of the provision of a fiscal statute, the view in favour of the assessee should be preferred and applied. As against the two judgments of the Tribunal against the assessee, there was one judgment of the High Court in favour of the assessee. The High Court judgment should have been followed, but having thus analysed and discussed the issue instead of straightaway applying the High Court decision and holding in favour of the assessee to allow the deduction, he felt that "since some of the facets of the issue needed clarification the entire matter needs reconsideration by the assessing authority, keeping in view his observations about the judgment of the Andhra Pradesh High Court, mentioned supra". Thus he set aside the order for reconsideration and decision by the assessing authority. Thus, the difference of opinion arose which is referred to me.
95. The learned representative for the assessee, Shri Aggarwal, relied upon a decision of the Income-tax Appellate Tribunal, Ahmedabad Bench, reported in Chandulal Venichand v. ITO [1991] 38 ITD 138, and stated that since the facts in the case before the Ahmedabad Bench and the facts before me are identical or nearly identical, the opinion expressed therein must be followed here by applying which it must be held that the assessee is entitled to the deduction. On the other hand, the learned departmental representative relying upon a decision of the Supreme Court in the case of CIT v. National Taj Traders [1980] 121 ITR 535, submitted that the proviso added to Section 43B, with effect from April 1, 1988, should be considered as declaratory of the existing legal position and that the principle that a fiscal statute should be construed strictly is applicable only to the taxing provisions such as a charging provision or a provision imposing penalty and not to those parts of the statute which contain machinery provisions and, therefore, applying this principle the view taken by the learned Judicial Member must be approved as the correct legal position.
96. Let me now notice the facts in the case before the Ahmedabad Bench. The assessee there was maintaining accounts on the mercantile basis. They had separate sales tax accounts in which the sales tax collected from the parties were credited and the sales tax paid to the Government was debited and the balance amount was taken directly to the balance-sheet. The amount so carried forward in the balance-sheet pertained to the payments to be made relating to the last quarter of the accounting year and under the provisions of the Gujarat Sales Tax Act, the said amounts were payable to the Government on any date in the relevant accounting year and they were payable only on dates which fell in the subsequent accounting year. The Assessing Officer as well as the Commissioner of Income-tax treated these amounts collected as sales tax as part of the trading receipts but declined to allow them as a liability by applying the provisions of Section 43B on the ground that they were not paid. When the matter reached the Tribunal, it noticed that the consistent view taken by the Ahmedabad Bench of the Tribunal was that the proviso to Section 43B though inserted with effect from April 1, 1988, was applicable also to the assessment years 1984-85 to 1987-88, and if the assessee had paid the sales tax in question before the due date for furnishing the return of income under Section 139(1), deduction in respect of the liability should be allowed. On the other hand, there was a decision of the Special Bench of the Tribunal in the case of Rishi Roop Chemical Co. (P.) Ltd. v. ITO [1991] 36 ITD 35 (Delhi), where the view taken was, following the decision of the Delhi High Court in the case of Sanghi Motors v. Union of India [1991] 187 ITR 703, that the said proviso would be applicable only from the assessment year 1988-89, and subsequent years and would not be applicable to the earlier assessment years.
97. Then the Tribunal noticed that after the decision of the Delhi High Court in the case of Sanghi Motors [1991] 187 ITR 703, the same controversy again came up before the Patna High Court in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70, wherein it was held that the benefit of the proviso inserted by the Finance Act would be available to the back assessment years 1984-85 onwards and, therefore, it should be considered as explanatory of the existing legal position and not prospective in operation. The Bench was thus confronted with the situation where there was the consistent view of the Ahmedabad Bench and a Patna High Court decision in favour of the assessee and a Special Bench decision of the Delhi High Court against the assessee. The Bench then decided that in view of this conflicting judicial opinion, it should prefer to follow the consistent view taken by the Ahmedabad Benches, particularly because there was no decision of the Gujarat High Court which was the jurisdictional High Court expressing any view on the matter even though several hundreds of cases were pending before it on reference made under Section 256(1). It held that in the absence of a judgment of the jurisdictional High Court, when there were conflicting decisions of the High Courts, the Tribunal would be free to follow that view which to its mind appears to be more rational and in any case in favour of the assessee. Dealing with the Special Bench case, the Bench held that a Special Bench does not overrule the decision of a Division Bench and both of them have got the same persuasive value as was held in the case of Export House v. ITO [1985] 13 ITD 687 (Amritsar) (to which I was a party as Third Member). It also found that the Special Bench in the case of Rishi Roop Chemical Co. Pvt. Ltd. [1991] 36 ITD 35 (Delhi), had only followed the decision of the jurisdictional High Court, namely, the Delhi High Court, which was binding on it by expressly stating so in its order and further observing that it had no jurisdiction to take a contrary view. By then the decision of the Patna High Court was not available. It also noticed that in the Memorandum explaining the provisions in the Finance Act of 1989, by which the controversial Explanation 2 was inserted, it was expressly mentioned that the said proviso was inserted to remove the doubts in respect of the sales tax liability for the last quarter. Such being the case, it could not be said that the said hardship was only from the assessment year 1988-89 and not in the earlier assessment years 1984-85 to 1987-88. For the purpose of giving a harmonious construction to all the provisions it found it necessary to give retrospective operation to the proviso with effect from April 1, 1984, as was held by the Patna High Court. I am inclined to agree with this view. For placing reliance upon the Supreme Court decision, if at all there is any relevance, even that decision of the Supreme Court also lays down that the provision that came up for interpretation before it was only explanatory, meaning that is also declaratory. Therefore, it would apply even from the earlier assessment years. If the Explanation was inserted to remove the doubt that existed in the interpretation, operation and application of a proviso, it cannot be said that that doubt did not exist earlier and has to be removed only for a particular year and not from the time when the section was inserted. It was the doubt that existed in the section as introduced that was sought to be removed. Therefore, the interpretation placed by the Ahmedabad Bench appears to be more rational and justified. No contrary view taken by the jurisdictional 'High Court of Punjab and Haryana has been brought to my notice. I, therefore, hold following the decision of the Ahmedabad Bench that the assessee is entitled to the deduction and the disallowance in toto without further verification is not justified or proper. I, therefore, agree with the learned Accountant Member that on this matter, the authorities below should have the opportunity to examine the facts of the case to find out as to when the payments were made and if the payments were made in such a way as to conform to the provisions of the concerned Sales Tax Act as in the case of Ahmedabad Bench and also if the payments were made before furnishing of the return under Section 139(1), there should be no difficulty in allowing the assessee's claim. Thus, I am inclined to agree with the view expressed by my learned brother, the Accountant Member.
98. The facts relating to the third difference of opinion are found to be a little curious and they are as under :
The assessee with a view to give an impetus to its sales introduced some gift schemes and incurred an expenditure of Rs. 77,243 under the scheme. This sum represented, according to the assessee, various gifts given to various dealers. When this amount was claimed as a deduction, the Inspecting Assistant Commissioner (Assessment) found that: (a) there was no record to prove as to for what consideration the gifts were given and (b) secondly, there was no record of the names and addresses of the dealers, the dates of their visits to the factory and the sales made to them. He, therefore, held that the expenditure on gifts could not be held to be wholly and exclusively laid out for the purpose of the assessee's business within the meaning of Section 37(1). He also held as an alternative that the expenditure in question was in the nature of entertainment and was covered by Section 37(2) of the Income-tax Act, 1961, read with Explanation 2, By relying upon the Explanation 2, he held it to be entertainment expenditure. Thus, both under Sections 37(1) and 37(2), he disallowed the claim of the assessee.
99. The Commissioner of Income-tax on appeal noticed that this expenditure on gifts consisted of amounts spent on purchasing shirts, shirt pieces, pants, safari suits, shawls, TV sets, sweaters, mixis, tea sets, etc. These were essential for the purpose of promoting business and its turnover and that the Income-tax Appellate Tribunal on an identical issue in the assessee's own case in the earlier years had held that this expenditure was wholly and exclusively incurred for the purpose of the business in order to keep essential good contacts with dealers for about 4,000 spread all over the length and breadth of the country and the expenditure was covered by Section 37(1) of the Income-tax Act. In other words, she held following the decision of the Tribunal for the earlier years that this expenditure was allowable as a deduction. She categorically held that this expenditure was not covered by Section 37(2), i.e., it was not in the nature of entertainment expenditure. But at the end of paragraph 4.3, by which paragraph the relief was given under this head, she added one line in ink stating : "This should be added while computing Section 37(3A)." Though the sentence is not complete, the idea is that this amount should be taken for the purpose of considering the disallowance, if any, to be made under Section 37(3A) of the Income-tax Act. Aggrieved by this direction, the assessee has come up in appeal before the Tribunal.
100. The 'learned Judicial Member held that the nature of this expenditure was sales promotion and, therefore, covered by Section 37(3B) of the Income-tax Act and justified the action of the Commissioner in including this sum for the purposes of Section 37(3A). But the learned Accountant Member was of a totally different opinion. After tracing the history of this sum and the grounds that led to its allowance by the Commissioner of Income-tax, the observation at the end of the paragraph held that while the Commissioner of Income-tax (Appeals) was on the one hand following the order of the Tribunal and allowing the claim, on the other hand was superseding the very judgment of the Tribunal by saying that the amount should be considered under Section 37(3A) of the Income-tax Act, which could not be done. Having seen this contradiction, he gave this categorical direction : "The order of the Tribunal holding that it is an expenditure under Section 37(1) has to be followed because there is no change in the facts of the case. Therefore, this amount should be allowed as. a deduction." To put it differently, the learned Accountant Member said the entire amount should be allowed as a deduction and no part of it should be considered for the purposes of Section 37(3A) and reliance for this was -placed upon an earlier order of the Tribunal. But, in the difference of opinion that was framed for my opinion, it was pointed out whether the observations of the Commissioner of Income-tax quoted above should be confirmed as held by the Judicial Member or those observations should be deleted as held by the Accountant Member. It will be noticed that the Accountant Member did not suggest deletion of those observations though impliedly it might have meant that those observations should be deleted. Unless those observations are deleted, full effect to the order of the Tribunal for the earlier years on this point could not be given. Though the difference of opinion was not very amply worded as seen from the orders of my learned brothers, the point on which they differed was : "Whether according to the observation of the Commissioner of Income-tax quoted above, the amount in question should be considered for the purposes of Section 37(3A) or not," While the Judicial Member says it should be included, the Accountant Member categorically says "No" and having pointed out the contradiction in the directions, directly deleted its disallowance, following the order of the Tribunal.
101. The Commissioner of Income-tax though abruptly at the end of her order added this controversial sentence that the said expenditure should be computed for the purpose of Section 37(3A) without any discussion in the order and also without disclosing whether this point was debated or not by and with the assessee she did seem to have followed the order of the Tribunal for the earlier year on this point because it is found from her order in paragraph 4.3., the following observations :
"I follow the Income-tax Appellate Tribunal's judgment in earlier years where this has been held as expenditure wholly and exclusively for business as in the nature of sales promotion expenses."
102. When the Commissioner of Income-tax followed the order of the Tribunal for the earlier year 1983-84, one has naturally to look into that order to find out what it contained. When the order was looked into, it was found that the Tribunal in paragraph 9 of its order in I, T. A. No. 962 of 198G has observed as under :
"We are unable to appreciate the action of the Commissioner of Income-tax (Appeals) in classifying the prices or splitting the scheme, in other words once items such as fridges, quartz clocks, timepieces, etc.--so much so even a ring to one foreigner is allowed under sales promotion scheme, there was no justification for disallowing items such as TVs, cycles, cardigans, safari suits, pullovers, silk shirts and thermic jugs, etc., and directing the allowance as per rule 6B. Apparently, the items which are distributed in order to promote sales and on the basis of actual sales, cannot be termed as advertisement expenses. The same are to be treated more of expenses towards sale promotion. The contention of the assessee is, therefore, ordered to be allowed."
103. It will thus be seen that the finding of the Tribunal in the earlier year was that this expenditure was in the nature of sales promotion. When the Commissioner of Income-tax observed that following the order of the Tribunal, she would allow the expenditure under Section 37(1) and when she gave the observation that this expenditure should be computed for the purposes of Section 37(3A), she was only following the order of the Tribunal for the earlier assessment year by giving full effect to all the aspects. One aspect is that it should be allowed as expenditure under Section 37(1). The other aspect is that it being found to be sales promotion expenses, due consideration should be given to it under the relevant provision made for it under Section 37(3A). I do not, therefore, see any contradiction in the order passed by the Commissioner of Income-tax because, seen in the light of the judgment of the Tribunal for the immediate assessment year on this point, the observations by the Commissioner of Income-tax are totally in accord with those observations. It looked to me as if this part of the order of the Tribunal has not been properly appreciated by the learned Accountant Member. Though the learned Judicial Member, did not refer to this order of the Tribunal, he has independently come to the conclusion that this expenditure being in the nature of sales promotion should be considered under the provision made for its disallowance under Section 37(3A).
104. Now, neither the Commissioner of Income-tax nor the Inspecting Assistant Commissioner nor the Members have examined whether this expenditure was really in the nature of sales promotion, although there were observations to this effect in the order of the Tribunal for the earlier year. Even that section would come into operation only when the total expenditure exceeds at the relevant time Rs. 1 lakh, but the expenditure here is less than Rs. 1 lakh, unless it was clubbed with some other expenditure of the same nature against which or about which there was no dispute. In any case, this matter, I hope, would be looked into by the Bench when the matter goes before it.
105. Reliance was placed on a decision of the Jaipur Bench in the case of Mangalam Cement Ltd. v. Dy. CIT [1992] 43 ITD 292, for the view that the expenditure in question could not be termed as "advertisement expenditure". In that case as well as in the case before me, the items of articles for presentation were the same as in this case with a little variation. The question there was whether the expenditure incurred on the presentation of such articles was "advertisement" for -the purpose of disallowance under Rule 6B or entertainment or expenditure incurred wholly and exclusively under Section 37(1). There the Bench did not discuss whether such expenditure would be covered by Section 37(3A). There the Bench held that the expenditure was not in the nature of advertisement or entertainment but was allowable under Section 37(1). I do not think much assistance can be had from that decision to the facts before me. My opinion on this point is, therefore, that the observations made by the Commissioner of Income-tax are not in contradiction to the order passed by the Tribunal and, therefore, need not be considered for deletion, though there was scope for further examination.
106. Now I go to the fourth point of difference of opinion which deals with the justification of the disallowance of extra shift allowance on pipeline fittings amounting to Rs. 7,21,412. Prima facie, it appears that the pipeline fittings could be considered as part of the machinery installed for the purpose of manufacture and if there was proof to show that the machinery had worked extra shift there should be no difficulty in allowing the extra shift allowance. The claim of the assessee for the allowance of extra shift allowance was disallowed by the Commissioner of Income-tax in the following terms :
"15.2. I do not agree with the appellant's version as looking on all the items mentioned under ESA, it is seen all items are specifically mentioned and pipeline means all pipelines not related to specific industry and under item (6), there is after hydraulic works, comma and pipelines and sluices are independent. It will further also be clear while writing each item from (!) to (7) which mention, e.g., item No. (7) 'Locomotives, rolling stocks, tramways and railways' used by concerns, excluding railway concerns. Similarly, calculating machines in all concerns. Therefore, item No. (6) 'Hydraulic works, pipelines, and sluices' means no extra shift allowance available wherever they may he used. Considering these facts, the Inspecting Assistant Commissioner's not allowing extra shift allowance is confirmed."
107. The learned Judicial Member held that the prohibition for the allowance of extra shift allowance on pipelines was so clear that the situation did not warrant any doubt or confusion. But the learned Accountant Member took a different view. According to him, item at Sl. No. (6) in the entry of the depreciation schedule should be read applying the principle of ejusdem generis and so read the word pipelines used therein would mean hydraulic pipelines and not pipelines installed anywhere by any factory for any purpose. He then referred to item (8) of the depreciation schedule where also the expression pipelines was used which was part of building contractor's machinery where the restriction of no extra shift allowance was mentioned meaning thereby that the expression "pipeline" used in item (6) after the words hydraulic works cannot embrace pipelines installed anywhere or everywhere for any purpose. He then gave details of the expenditure incurred on pipelines and showed that these pipelines were forming part of the general machinery and not pipelines in the sense in which the hydraulic pipelines were used. These pipelines were used for the purpose of conveying molten metal and, therefore, for a different purpose. These pipelines would be used only when the machinery to which they are fitted would be used and not like hydraulic pipelines which are used all the 24 hours. I am inclined to agree with the view expressed by the learned Accountant Member on this issue. The details given for the installation of these pipelines show that they are a part of the general machinery installed and they cannot be taken as independent of the machinery. In the year under appeal, machinery worth Rs. 36 lakhs was installed of which pipelines formed part of the cost about Rs. 6.5 lakhs. These pipelines are different from, in my opinion, the pipelines used for hydraulic works. Once it is concluded that these pipelines formed part of the general machinery installed and these pipelines are necessary to enable the other machinery to work and to obtain the final product, then the question of treating them on a par with hydraulic works does not arise. The only ground for the Department to deny the claim of the assessee is the use of the expression "pipelines" used in item (6) meaning pipelines installed anywhere for any purpose. I do not think that that is the view of the Legislature. The word "pipelines" used in item (6) after the expression "hydraulic works" must mean only hydraulic pipelines, just like hydraulic sluices. The conjunction "and" used after the word "pipelines" and before the word "sluices" strongly suggests that both pipelines and sluices must be such as to have something to do with or related to hydraulic works. If pipelines become a part of the machinery as in this case, they cannot be said to be pipelines used in item No. (6) to disallow the extra shift allowance. I, therefore, agree with the view of the learned Accountant Member and hold that the assessee is entitled to the extra shift allowance.
108. The last point of difference of opinion is about whether any addition on account of sale of scrap was called for and if so whether it could be limited to Rs. 2 lakhs as against the addition of Rs. 3 lakhs made by the Inspecting Assistant Commissioner (Assessment).
109. The accounts of the assessee showed sales of scrap during the year at Rs. 38,13,979 as against the sales of Rs. 43,80,405 shown in the immediately preceding assessment year. As there was a shortfall in the sales of scrap, the Inspecting Assistant Commissioner (Assessment) with a view to examine the correctness of the sales disclosed, required the assessee to file quantitative details of the scrap. In response to his enquiry, the assessee stated that no quantitative record of the scrap was maintained, except that the quantities were shown in the sale bills as and when issued. In response to another enquiry, the assessee stated that the closing stock of scrap could not be taken into account, stating at the same time that the closing stock was never taken in the past also into account for the very simple reason that it was not possible to put a value upon it. Not satisfied with these replies and having regard to the fall in the sales of scrap, the Inspecting Assistant Commissioner (Assessment) made on an ad hoc basis an addition of Rs. 3 lakhs. In particular, the Inspecting Assistant Commissioner (Assessment) mentioned that cash memos Nos. 6901 to 7000 and 7376 to 7600 were not accounted for and that it showed that there was suppression or a possibility of suppression of sales of scrap.
110. On appeal, the Commissioner of Income-tax confirmed the addition failing to give, as per the assessee, due consideration to the fact that the sale of scrap was to be in terms of value and not in terms of quantity. By definition, scrap could have no value and it is not possible to weigh also for a variety of reasons including the cost involved in it.
111. When the matter came in appeal before the Tribunal, the learned Judicial Member held that the Department was justified in making the addition when the assessee was unable to give the quantitative particulars but he held that the addition made was excessive and reduced it to Rs. 2 lakhs. But the learned Accountant Member did not agree with this approach. According to him, when the assessee was following the mercantile system of accounting and when the closing stock of the scrap was not shown in the accounts and yet that method of accounting was accepted in the past, there was no reason to consider that account or method of accounting as faulty and single it out this year for addition merely because there was a fall in the sales of scrap. The fall in the sales of scrap may be due to a variety of reasons and not necessarily due to manipulation of accounts. The reasons given by the assessee for the fall in the sale of scrap are very acceptable and convincing and should not have been rejected. The cash bills said to have been not accounted for were never issued at all. They were only blank. Even though they were shown, that evidence was either not considered adequately or ignored. That circumstance could not have been considered as compelling to reject the turnover shown and make an addition. He also found that in the subsequent years, the turnover of the scrap was much more at Rs. 42 lakhs which was accepted. He, therefore, saw no justification in disturbing the results this year and he opined that the addition should be deleted in toto.
112. After perusing the orders of the learned brothers and the records and after hearing the arguments of both the sides, I am inclined to agree with the view expressed by the learned Accountant Member. Non-maintenance of stock record for scrap though a defect but it is impossible of execution. The scrap is generated almost daily and it depends upon several factors like the workmen's efficiency, the fatigue of the machines, the quality of the material used, the purpose for which it is used, the filings, cuttings, rejections, breakages and several other factors. These factors can never be uniform. They vary from circumstance to circumstance, day-today and year to year. The sales of the scrap also depend upon the utility to the buyer. In a factory of the magnitude of the assessee, though theoretically it is possible to expect a stock record for the scrap generated, on the practical side, it may not be possible to accurately maintain. This aspect should not have been missed and, therefore, should not have been insisted upon to verify the accuracy of the accounts. The previous practice should have been followed. In none of the previous years, any addition was made on account of sales of scrap even though it was varying from year to year. The mere variation in the sales cannot, therefore, be a reason to suppose that a lower amount of sales is a result of manipulation of accounts. Perhaps, realising the situation, the Inspecting Assistant Commissioner (Assessment) must have insisted upon verification of the sale bills and found according to him that certain sale bills were not accounted for. But on verification they were found to be blank. Those sale bills were produced before me in the court and I also found them to be blank. Even though those sale bills were blank and they were produced before the Inspecting Assistant Commissioner (Assessment), still he preferred to ignore that circumstance by pointing out that the assessee had failed to explain. I fail to understand what is there to explain. Sale bills containing certain numbers were blank and were never used at all. It is not as if they were used showing some sales and then cut off as cancelled. It is quite possible that while preparing the sale bills, these were left over. No inference adverse to the assessee should have been drawn from this fact which was never in my opinion against the assessee. Other than this, I do not find any other justifiable reason to reject the sales of scrap. Since it is not practicable to maintain stock particulars and since stock particulars were never maintained in the past and since the accounts of the assessee in so far as this aspect was concerned were accepted and since there was no truth in the allegation made by the Inspecting Assistant Commissioner that certain cash sales were suppressed, I find no justification at all te reject the turnover of scrap merely for the reason that it happened to be lower than the previous year, ignoring the fact that in subsequent years it was much higher.
113. Another fact to be noticed was that the selling rate of scrap had gone down from Rs. 1,800 in the previous year to Rs. 1,600 in this year which was not doubted. When the selling rate has thus gone down by Rs. 200 per ton, there is bound to be reduction in the total sale value. There is, therefore, no justification for the addition of any amount under this head, I accept the view of the learned Accountant Member in deleting the entire addition as against the view of the learned Judicial Member to sustain a part of the addition at Rs. 2 lakhs.
114. The matter will now go before the regular Bench for disposal of the appeal in accordance with the majority opinion.