Rajasthan High Court - Jaipur
Metallizing Equipment Co. (P) Ltd. vs Assistant Commissioner Of Income Tax on 18 December, 2000
Equivalent citations: (2001)70TTJ(NULL)365
ORDER
P.M. Jagtap, A.M. This appeal is preferred by the assessee against the order of Commissioner (Appeals), Jodhpur, dated 20-10-1993.
2. Ground No. 2 relates to the addition of Rs. 10,000 as a result of reduction in cost of R & D testing equipment by subsidy amount for the purpose of calculating depreciation.
2.1. The learned counsel for the assessee submitted that although the subsidy received by the assessee was initially credited to the profit and loss account as miscellaneous income, the same has been subsequently deducted from the net profit while computing the total income. In this regard, he referred to page No. 42 of his paper-book and drew our attention towards the 4 relevant entry. He further submitted that the subsidy was received by the assessee as incentive against the purchase of R & D equipment in the past year and, therefore, contended that the same clearly constitutes a capital subsidy. He, therefore, contended that the same being capital receipt of the earlier year cannot be included in the income of the assessee for the current year. He further contended, relying on the decision of the Supreme Court in CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) that the same also cannot be deducted from the cost of R&D testing equipment for the purpose of calculating depreciation.
3. The learned Departmental Representative submitted that the assessee has shown this amount of subsidy in the profit and loss account as miscellaneous income and, therefore, the same has been included in the total income as per section 41(1)(a). He further submitted that although the subsidy received by the assessee is a capital receipt, the basis of such subsidy is not known.
4. We have considered the rival submissions and perused the material on record. It is observed that the assessing officer has made the addition on this account considering that no depreciation is allowable on the amount of subsidy received which, in fact, should have been deducted by the assessee while claiming the depreciation at 100 per cent on the R & D equipment It is also observed from the depreciation chart provided by the assessee on page No. 45 of his paper-book that the assessee has claimed depreciation @ 20 per cent only on the R & D equipment. Moreover, this issue stands squarely covered in favour of the assessee and against the revenue by the decision of the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (supra) wherein it has been held that the subsidy is an incentive which is not intended either directly or indirectly to meet the actual cost of the assets and hence the same is not deductible from the cost of asset in terms of section 43(1) for allowing depreciation. As such considering the facts of the case and following the aforesaid decision of the Hon'ble Supreme Court, we delete the addition of Rs. 10,000 made on this count.
5. Ground No. 3 relates to the disallowance of Rs. 5,823 on account of expenses relating to earlier years. The learned counsel for the assessee submitted that the auditor in his audit report had reported two items pertaining to earlier year, one on account of debit for freight amounting to Rs. 868 and the other on account of credit of freight amounting to Rs. 4,955. He further submitted that the net effect of these two entries, in fact, has resulted in crediting the income of Rs. 4,087 pertaining to the earlier year and contended that this fact was not properly appreciated either by the assessing officer or by the Commissioner (Appeals). In this regard he drew our attention towards the journal voucher placed on page No. 47 of his paper-book to show the corresponding accounting effects. He, therefore, contended that no addition on this account is really warranted. The learned Departmental Representative on the other hand, relied on the orders of the authorities below on this issue.
6. After considering the rival submissions and perusing the relevant material on record, we find merit in the contention of the learned counsel for the assessee on this issue. A perusal of the journal voucher placed in the paper book of the assessee clearly indicates that an item of Rs. 4,955 pertaining to the earlier year has, in fact, resulted in crediting freight and cartage outward account and thus has reduced the expenditure of the current year to that extent. It is also relevant to note here that the prior period adjustments in this case are having net credit results in the current year and this being so, no addition is really warranted on this issue. It is pertinent to note here that the assessing officer made the addition on this issue on the basis of auditor's remark without going deep in the issue and also without giving opportunity to the assessee to offer any explanation. In such circumstances, we are of the opinion that the Commissioner (Appeals) should have considered this apparent mistake instead of taking support from rule 46A.
7. Ground No. 4 relates to the disallowance of Rs. 4,500 out of telephone/telex expenses.
8. After considering the rival submissions and perusing the material on record, it is observed that this disallowance is made by the assessing officer on account of personal use of telephone by the directors. On this issue this Tribunal has taken a consistent stand, following the decision of O.S. Motors v. Assistant CIT (ITA No. 623/Jp of 1994, dated 31-8-2000) that no disallowance on account of personal expenses can be made in the case of limited companies. We, therefore, direct the assessing officer to delete this addition of Rs. 4,500 out of telephone expenses.
9. Ground No. 5 relates to the addition of Rs. 69,554 under section 43B. The learned counsel for the assessee submitted that this liability on account of CST and RST amounting to Rs. 69,554 was paid before the due date of filing of return under section 139(1) and, therefore, contended that no disallowance under section 43B can be made as per the proviso to the said section inserted by the Finance Act, 1987. He further submitted that although this proviso is inserted in the Act, with effect from 1-4-1988, the same being clarificatory in nature, has to be treated as retrospective as held by the Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC). The learned Departmental Representative, on the other hand, submitted that the evidence supporting the payment of the sales-tax liability was not tendered by the assessee with the return of income, which according to him, resulted into disallowance under section 43B. He also submitted that the proviso to section 43B is inserted in the Act with effect from 1-4-1988 and as such cannot be applied in the present case involving assessment year 1987-88.
10. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessing officer seems to have made this addition under section 43B considering that the same was outstanding at the end of the relevant previous year and benefit of the proviso to section 43B inserted with effect from 1-4-1988 was not available to the assessee in the present case involving assessment year 1987-88. He in the circumstances also made to efforts to ascertain the date of payment of such liability. However, now this controversy has been settled by the decision of the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. v. CIT, (supra) wherein their Lordships have held that the proviso to section 43B being clarificatory in nature should be treated as retrospective. Explaining further the Hon'ble Apex Court has reiterated that if a statute is curative or mere declaratory of the previous law, retrospective operation is generally intended to serve its objects. In the present case it is observed that the assessee has paid the entire outstanding sales-tax liability well before the due date of filing of return of income which is verifiable from the copies of relevant challans available in the assessee's paper-book at page Nos. 34 to 36, and there is no dispute about the same. As such considering all the facts of the case and following the decision of Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. (supra), we are of the view that the benefit of proviso to section 43B inserted with effect from 1-4-1988, is available to the assessee and accordingly the sales-tax liability paid by the assessee before the due date for furnishing the return of income under section 139(1) cannot be disallowed under section 43B.
11. Ground No. 6 relates to the addition of Rs. 79,674 being the amount of bonus paid in excess of bonus payable as per the Bonus Act.
12. The facts in this case are that the assessee paid bonus of Rs. 1,11,225 as per the provisions of Payment of Bonus Act and in addition also paid production bonus of Rs. 72,472 and incentive bonus of Rs. 23,098. The assessing officer however considered that provisions of Bonus Act applied to all payments made on this account, by whatever name called. He accordingly worked out the maximum amount of bonus permissible under the Payment of Bonus Act @ 20 per cent on total salary and wages paid by the assessee and disallowed the excess amount of Rs. 79,674. The matter was carried before the learned Commissioner (Appeals) who upheld the said additions made by the assessing officer on the basis of observations made by the auditors in their report. He also observed that the explanation offered by the assessee before him as regards incentive and production bonus separately had not been offered before the assessing officer during the assessment proceedings and as such the same could not be considered in view of rule 46A. Aggrieved by the same the assessee is in appeal before us.
13. The learned counsel for the assessee submitted before us that the incentive bonus and production bonus are not covered by the statutory payment of bonus payable under the payment of Bonus Act. He also referred to the CBDT Circular No. 551, dated 23-1-1990 and submitted that the Central Board of Direct of Taxes has also clarified this issue. He further submitted that the assessee has also paid such bonus in the past and no disallowance has been made in the assessee's case. Alternatively, he also submitted that even if the payment of bonus exceeds the amount payable as per the payment of Bonus Act, such excess payment has to be allowed under section 37(1), if reasonability and business expediency of such expenditure are established. He further submitted that the payment of Bonus Act only covers the bonus which is linked to annual profit or is based on actual production and, therefore, contended that any amount paid to the employees as incentive or under any scheme for higher productivity do not come within the ambit of payment of Bonus Act. For this contention he relied on the decision of Calcutta High Court in the case of CIT v. IISCO Ujjain Pipe & Foundry Co. Ltd. (1992) 196 ITR 707 (Cal) and the decision of Madras High Court in the case of CIT v. Sivanandha Mills Ltd. (1987) 156 ITR 629 (Mad). He also submitted that such expenditure incurred by the assessee on incentive and production bonus has been allowed by the department in the assessment years 1984-85 to 1986-87 and contended that the facts and circumstances of the current year being the same to that of assessment years 1984-85 to 1986-87 res judicata should apply to this issue, as held by the Hon'ble Rajasthan High Court in the case of Pukhraj Rikhabdas v. CIT (1993) 203 ITR 770 (Raj). The learned Departmental Representative on the other hand, submitted that expenditure in respect of bonus is specifically allowed under section 36(1)(ii) and contended that any excess payment under this head by whatever name called, deserves to be disallowed. He further submitted that Circular No. 551 cited by the learned counsel for the assessee is issued by the Central Board of Direct Taxes only on 3-1-1990, and, therefore, contended that the same is not relevant in the present case involving assessment year 1987-88. He further submitted that the assessing officer has disallowed the excess payment of bonus specifically under section 36(1)(ii) and contended that the reasonability of such expenditure as well as the business expediency in respect of the same have not been considered by the assessing officer so as to ascertain the allowability of such expenditure under section 37(1).
14. We have considered the rival submissions and also perused the relevant material on record including the decisions cited by the learned counsel for the assessee. It is observed that the assessing officer in this case has disallowed the excess payment of bonus specifically under section 36(1)(ii) without considering the other relevant aspects. He has particularly referred to the observations made by the auditors in the report wherein it has been specifically pointed out by the auditors that the additional amount of Rs. 72,472 and Rs. 23,098 were paid to employees on account of production bonus and incentive bonus, respectively. It is also observed that the assessee during the assessment proceedings before the assessing officer claimed this production bonus and incentive bonus as allowable under section 37(1). However, the assessing officer has not examined this claim of the assessee from the angle of reasonability and business expediency. It is also observed that such expenditure incurred by the assessee on incentive and production bonus was allowed in the immediately preceding years and the assessing officer has not given any specific basis for disallowing the same in the current year except referring to the provisions of section 36(1)(ii). In the case of CIT v. IISCO Ujjain Pipe & Foundry Co. Ltd. (supra) cited by the learned counsel for the assessee, the Calcutta High Court has held that incentive bonus paid to employees in pursuance of agreement and scheme for higher productivity, should be considered as additional emoluments and hence the same does not come within the ambit of payment of Bonus Act. In another case of CIT v. Sivanandha Mills Ltd. (supra) relied on by the learned counsel for the assessee, the Madras High Court has held that incentive bonus, attendance bonus or customary bonus are not bonus paid under the Bonus Act and hence section 36(1)(ii) has no application in respect of such bonus. It is also observed that the assessee has paid such bonus over the years to its employees which shows that the practice of paying such incentive and production bonus prevailed in the assessee's own case. It is also observed that there is nothing on record to suggest that the payment of incentive bonus and the production bonus is either linked with the overall profit of the assessee or to the production of the relevant previous year. Although there is nothing to indicate the basis on which the amount of incentive and production bonus has been paid by the assessee, the fact beyond dispute is that such payments have been claimed and allowed in the assessee's own case during the three immediately preceding years and there being no material change in the facts of the current year, in our view, such expenses should not be disallowed. For this view, we derive support from the decision of the Hon'ble Supreme Court in the case of Radhasomy Satsang v. CIT (1992) 193 ITR 321 (SC), wherein their Lordships have held that in the absence of any material change justifying the department to take a different view from that taken in the earlier proceedings, the question of exemption of the assessee should not be reopened. Explaining further the Hon'ble Supreme Court has observed that though each assessment year being a unit, what was decided in one year might not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other, and parties have allowed that position to be sustained, it would not at all be appropriate to allow the position to be changed in a subsequent year. The decision of Hon'ble High Court in the case of Pukhraj Rikhabdas (supra) cited by the learned counsel for the assessee also supports this view.
15. As such considering all the facts of the case and the legal position emanating from the aforesaid judicial pronouncements, we hold that the payment of incentive and production bonus amounting to Rs. 79,674 cannot be regarded a bonus payable under the payment of Bonus Act to attract provisions of section 36(1)(ii). The, order of the learned Commissioner (Appeals) on this issue is, therefore, reversed and the assessing officer is directed to allow this expenditure under section 37(1).
16. Ground No. 7 relates to the disallowance of Rs. 2,000 out of general expenses.
17. After considering the rival submissions and perusing the material on record, it is observed that this issue has not been fully discussed by the assessing officer in his order. He has also not given any basis or reasoning for such disallowance. The details of nature of such expenses have also not been given except mentioning that expenses of Rs. 2,000 on account of Jwar, etc. have been disallowed out of general expenses. The learned counsel for the assessee has submitted before us that the amount of Rs. 2,000 includes Rs. 354 incurred on account of Jwar for pigeon which are admissible business expenses as held in the case of Atlas Cycle Co. However, the amount of Rs. 354 is also not verifiable from record available before us. As such considering all the facts of the case including the fact that petty amount is involved in this issue, we restrict the disallowance out of general expenses to Rs. 1,500.
18. Ground No. 8 relates to the addition of Rs. 11,594 on account of bogus deposit cash credit.
19. In this case the assessee-company received a deposit of Rs. 10,000 from its employee Shri B.M. Daga and a confirmation to this effect was also filed in support. The assessing officer examined the depositor to verify the genuineness of the cash credit and during his examination, Shri R.M. Daga explained the sources of such deposit with relevant supporting documents. However, this explanation was not found satisfactory by the assessing officer and accordingly he added the deposit amount along with interest to the income of the assessee observing that the deposit is not genuine. The matter was carried before the learned Commissioner (Appeals) who upheld the action of the assessing officer observing that the creditor had no sufficient income to advance the deposit amount. Aggrieved by the same, the assessee is in appeal before us.
20. The learned counsel for the assessee submitted before us that the assessing officer treated the cash credit as unexplained in spite of the fact of establishing the identification, genuineness and capacity of the creditor before him in the form of confirmation letter, statement recorded on oath of the creditor, affidavit, copies of bank account and other corroborative evidence to establish the link wherefrom the creditor had got money. He further submitted that the learned Commissioner (Appeals) has also wrongly mentioned in the appellate order that mere filing of affidavit will not explain the source of credit, whereas the facts are other way round because the depositor furnished his confirmation and copy of bank account and his statement on oath was also recorded wherein he confirmed the deposit and also adduced the evidence in support of sources. He therefore, contended that the assessee having discharged its onus in respect of establishing the identity and capacity of the creditor, maintaining of addition on this account is bad in law as well as on facts.
21. The learned Departmental Representative on the other hand, relied on the orders of the authorities below and submitted that the creditor did not have sufficient means to advance the deposit. He also submitted that the creditor at the relevant time was in the employment of the company drawing a meagre salary and contended that entry in respect of deposit in question is just an accommodation entry. He, therefore, urged that the order of the learned Commissioner (Appeals) on this issue may be upheld.
22. We have heard both the parties and also considered the relevant material on record including the cited decisions. It is observed that the assessee-company filed the confirmation of Shri R.M. Daga before the assessing officer in support of the deposit availed from him. It is also observed that the said creditor was also produced before the assessing officer for examination and in the statement recorded on oath, he confirmed the fact of having advanced the money. He also explained the source of funds and also adduced the supporting evidence in the form of authority letter given to his brother Shri Pratapmal Daga for collecting his share of dues, affidavit from Shri Pratapmal Daga confirming the recovery as well as further payment to Shri R.M. Daga and also the bank account showing the deposit of said cash as also the subsequent payment to assessee-company. It is also observed that the statement of the creditor regarding the source of deposit gets full support from these documents and his explanation in this respect also stands fully established and justified leaving no doubt even about the source of source. Moreover, as far as the cash credit/deposit is concerned, the assessee has to prove the identity and capacity of the creditor and once this onus is discharged by the assessee such cash credits/deposits cannot be regarded as unexplained to attract provisions of section 68. In the instant case, the assessee has clearly established the source inasmuch as the creditor was produced before the assessing officer and he admitted on oath in no unclear terms of having advanced the money and also explained the details of source by adducing corroborative evidence. In these circumstances, we are of the view that the assessing officer was not justified in rejecting the assessee's explanation and in turn making the efforts to ascertain the source of source which was neither desired nor warranted. For this view, we also derive support from the following decisions cited by the learned counsel for the assessee :
1. M.M. Woollens v. Assistant CIT 20 Tax World 142 (Jp-Trib) "Where identity of the creditor is established where creditor has affirmed of having advanced the amount and where payment is made by a crossed cheque, addition under section 63 of Income Tax Act as unexplained cash credit cannot be made."
2. Surindra Singh v. Deputy CIT (1993) 113 Taxation 1 (Jp-Trib) "The assessee was not required to prove the source of source and that is sufficient for him to prove the identity of the creditor and his creditworthiness. Moreover if the identity and the credit worthiness of the creditor is satisfactorily proved on record then ordinarily his statement regarding his capability that a particular amount to a debtor should be accepted and his statement not be partly believed and partly disbelieved."
3. Amar Singh Kishan Chand v. ITO (2000) 17 DTC 84 (Jod-Trib) : (2000) 66 TTJ 724 (Jd-Trib) "Facts stated in the affidavit of the depositor as well in his statement adequately reveal that the assessee had discharged the burden of proving the identity as well as capacity of the depositor. Therefore, the deposits in the name of the depositor cannot be treated as unexplained deposit. The interest of such deposit treated as assessee's income by the assessing officer will also have to be cancelled."
Moreover in the case of CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) the Hon'ble Supreme Court has held that the simple fact that the explanation regarding the source of money furnished by the creditor/depositor had been found to be false, it would be a remote and farfetched conclusion to hold that the money belonged to the assessee and in such case there would be no direct nexus between the facts found and the conclusions drawn therefrom.
23. It is also pertinent to note here that the learned counsel for the assessee has also placed on record a copy of bank account of the depositor Shri R.M. Daga showing the refund of deposit amount by the assessee through account payee cheque in the next year and further application of these funds by the depositor for his own investment elsewhere. In our opinion these entries further substantiate the genuineness of the deposit. As such considering all the facts of the case and in view of the judicial pronouncements referred to above, we are of the opinion that the learned Commissioner (Appeals) has erred in confirming the findings given by the assessing officer in respect of deposit/cash credit and interest thereon. We, therefore, hold the same as genuine and accordingly direct the assessing officer to delete the entire addition on this count.
24. In Ground No. 9, the assessee has challenged the action of the learned Commissioner (Appeals) in not deciding the issue of bank guarantee commission of Rs. 18,750 and unpaid incentive bonus written off of Rs. 491.
25. After considering the rival submissions and perusing the relevant material on record, it is observed that the learned Commissioner (Appeals) has not decided these issues mainly because of the absence of any discussion in the assessing officer's order in respect of the same. He, therefore, has advised the assessee to move application under section 154 and also directed the assessing officer to consider the same. In our opinion, there is no infirmity in the order of the learned Commissioner (Appeals) on this issue mainly because these issues, prima facie, were not arising from the order of the assessing officer assailed before the learned Commissioner (Appeals). Moreover, even if the assessee's application under section 154 is rejected by the assessing officer, still the assessee will have the right to prefer an appeal against the said order.
26. Ground Nos. 10 and 11 are general in nature and call for no specific decision on our part.
27. In the result this appeal preferred by the assessee is partly allowed as indicated above.