Income Tax Appellate Tribunal - Ahmedabad
G.L. Rexroth Industries Ltd. vs Deputy Commissioner Of Income-Tax. ... on 5 September, 1997
ORDER
S.L. Banerjee Vice-President
1. These cross appeals by the assessee as well as the Revenue are directed against the order of the CIT(A), Ahmedabad dt. 7th December, 1990.
2. We first take up the appeal filed by the assessee. The first ground raised by the assessee in this appeal is against the application of S. 37(3A) in respect of insurance of vehicles and vehicle tax. In respect of insurance of vehicles the issue is covered by the decision of the Calcutta High Court in the case of CIT vs. Orient Paper & Industries Ltd. (1995) 214 ITR 473 (Cal), and the decision of the Kerala High Court in the case of CIT vs. A. V. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker) where it has been held that disallowance under S. 37(3A) does not apply in respect of insurance of vehicles. In respect of vehicle tax, however, no decision is relied on. In fact, it is seen that S. 30 grants deduction for taxes on building. Tax on plant and machinery (vehicles inclusive) has not been granted in ss. 30 to 36. This has to be considered only under S. 37. Therefore, the decisions relied on by the assessee are not applicable. Therefore, 20 per cent. disallowance on vehicle tax is upheld being in nature of maintenance of a car as for purpose of disallowance under S. 37(3A). This ground is partly allowed.
3. The next ground is in respect of sustenance of disallowance of Rs. 14,671 under r. 6-B. It was argued by the learned counsel that none of these items carried the logo of the assessee's products. Therefore, disallowance under the said rule does not apply. For that he relied on the decision in the case of CIT vs. Allana Sons (P) Ltd. (1995) 216 ITR 690 (Bom). The learned Departmental Representative on the other hand, pointed out that the assessee did not give the names to whom the articles were presented. Therefore, the disallowance was made.
4. We have considered the rival submissions, facts and materials on record. In our opinion, when it is not disputed that the articles which have been presented do not advertise the assessee's name or its products there is no justification to apply r. 6B. Even the names of the presentees are not given because it has not been disallowed as no expenditure has been incurred. It was disallowed under r. 6B. This ground is allowed.
5. The next ground raised is in respect of disallowance of commission of Rs. 1,68,075 paid to the various parties for obtaining the orders. The learned counsel for the assessee submitted that in the asst. yr. 1984-85 the Tribunal had considered the issue and opined that the matter should be restored back to the file of CIT(A) to consider the matter afresh. He submitted that as the facts and the circumstances are the same, this issue should be restored back to the file of learned CIT(A) for reconsideration. The learned Departmental Representative on the other hand, strongly supported the order of the learned CIT(A).
6. After considering the rival submissions, we are of the opinion that in conformity with the order for the asst. yr. 1984-85 the matter should be restored to the file of the learned CIT(A) for reconsideration. We do so. This ground is allowed for statistical purposes.
7. The next ground is in respect of deduction of Rs. 9,000 being consultation fees paid to Shri G. S. Vasan, the disallowance of which has been confirmed by the learned CIT(A) because no evidence of the work done has been produced. In this respect, we are of the opinion that the order of the learned CIT(A) cannot be interfered with. No evidence has been produced to establish that payment has been made for any business purpose. This ground is rejected.
8. The next ground is in respect of disallowance of Rs. 2,65,000 being written off as bad debt due from Heavy Engineering Corporation, Ranchi (HEC for short). The learned CIT(A) was of the opinion that only when the contractee decides to deduct the damages and quantify the same and the assessee becomes aware of the deduction the liability can be said to have arisen but from the evidence produced before him, he opined that it is not proved by production of any evidence from HEC that there was any intimation from them during this year for deduction of liquidated damages. He, therefore, dismissed this ground of appeal of the assessee.
9. The learned counsel for the assessee submitted that the opinion of the learned CIT(A) should not be approved in view of the correspondence between the assessee and HEC. He heavily relied on the letter dt. 21st July, 1983 (placed in paper-book 1 p. No. 111) in this respect. He pointed out that assessee has discussed the matter with one of the officers of HEC in this respect. He then referred to another final letter of the assessee dt. 29th December, 1984, in this respect. He also relied on entry in the account claiming this deduction. Finally, referring to p. 117 of the paper-book he pointed out that Rs. 2,65,000 has been credited in the name of HEC as the amount is not available from them. He asserted that these accounts have been confirmed by HEC. The learned Departmental Representative on the other hand, strongly supported the order of the learned CIT(A).
10. In our opinion, the matter should be restored back to the file of the learned CIT(A). It appears that he was of the view that there was no acceptance on the part of HEC in this respect that Rs. 2,65,000 are not going to be paid by them to the assessee. The opinion of the learned CIT(A), it appears, is mainly on the basis that there was no acknowledgment on the part of HEC in this respect. In our view, if the accounts had been confirmed by HEC, then it is a constructive acknowledgment. This matter has therefore, to be looked from all these angles but after proper ascertainment of the facts. This ground is allowed for statistical purposes.
11. The next ground is in respect of disallowance under S. 43B. It is claimed by the assessee's counsel that the payment had been made before the due date of filing of return of income for the assessment year under consideration. In our view, the assessee's contention has to be accepted. However, payment should be verified and for that purpose the matter is restored to the file of the AO.
12. The next ground is in respect of disallowance of depreciation of Rs. 67,470 holding that on change of previous year from 12 months to 18 months depreciation was not to be allowed for 18 months. It is claimed by the assessee that under S. 3(4) of the IT Act, r/w r. 5 of the IT Rules, 1962, the assessee is eligible for such depreciation. The learned counsel relied on the decision in the case of VXL India Ltd. vs. ITO (1987) 168 ITR 805 (Guj) and ITO vs. D. P. F. Textiles Ltd. (1985) 21 TTJ (Mad) 112. In the opinion of the learned CIT(A) the reading of r. 5 clearly indicates that it has been intended that where income had been included for 13 months or more, the depreciation should be allowed for corresponding increased number of months. He pointed out that the AO in this case has already allowed depreciation for 18 months on the entire block brought forward on 1st July, 1983, and also on the block installed upto 30th June, 1984. In his opinion the change of previous year cannot be viewed as a tool for reducing the tax liability by claiming higher depreciation even for the assets which were installed during the extended period of time. According to him, the plain reading of the rule does not indicate that the depreciation should be irrespective of period of user. He, therefore, confirmed the order of the AO.
13. The learned counsel for the assessee submitted that once the AO had allowed the extension of the previous year he cannot disallow the depreciation in respect of the machinery installed during the previous year. He submitted that claim of depreciation in this case did not go against the spirit of the Act allowing the depreciation on machinery installed during the previous year. In this respect, he relied on the decision in the case of VXL India Ltd. vs. ITO (supra) and ITO vs. D. P. F. Textiles Ltd. (supra). The learned Departmental Representative on the other hand, strongly supported the order of the learned CIT(A).
14. We find that the learned CIT(A) had disallowed the claim of the assessee in view of the fact that it may be incorrect to claim deduction of the tax liability by claiming higher depreciation even for the assets which had been installed during the extended period of time. We feel, if assessee is entitled for higher deduction, lawfully, the same cannot be denied to it. Sec. 32 grants deduction of depreciation on building, machinery, plant or furniture owned by the assessee and used for the purpose of business. In this case, there is no dispute that the assessee had owned the plant and used it for the purpose of business during the previous year under consideration. We, therefore, are unable to uphold the order of the learned CIT(A) that the assessee is not entitled for deduction of machinery installed within the extended period allowed by the AO. In fact, the decision not entitled for deduction of machinery installed within the extended period allowed by the AO. In fact, the decision cited by the learned counsel a fortiorari is of this interpretation. In that case, it has been held that the AO cannot put any condition in this respect for claim of depreciation which is lawful. This ground is allowed.
15. The next ground is in respect of interest charged under S. 215. In our opinion, most of the additions/disallowances made in this case are unforeseen. We, therefore, following the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Guj) allow this ground.
16. The appeal is partly allowed for statistical purposes.
17. We now take up the Revenue's appeal. The following grounds are raised by the Revenue in this appeal :
(i) The learned CIT(A) has erred in law and on facts in holding that expenses of repairs of vehicles amounting to Rs. 83,045 could not be considered for the purpose of disallowance under S. 37(3A) and in allowing relief of Rs. 16,609.
(ii) The learned CIT(A) has also erred in law and on facts in directing the AO to allow deduction of liquidated damages to the extent of Rs. 3,78,548.
(iii) The learned CIT(A) has also erred in law and on facts in directing the AO to exclude the addition of Rs. 3,52,197 made under S. 43B for the purpose of computation of interest under S. 215 of the Act.
18. In regard to the first ground the learned CIT(A) had followed the decision of Hon'ble Bombay High Court in the case of CIT vs. Chase Bright Steel Ltd. (1989) 177 ITR 124 (Bom) and the decision of the Tribunal in the case of Mohan Meakin Brewaries Ltd. vs. ITO (1989) 34 TTJ (Del) (TM) 265 : (1989) 30 ITD 106 (Del) (TM) wherein it has been held that expenses covered under ss. 32 to 36 cannot be sabrogated by S. 37(3A). Repairing to a vehicle comes under S. 31. Hence order of the learned CIT(A) does not require any interference. This ground fails.
19. The next ground relates to liquidated damages to the extent of Rs. 3,78,548 (out of Rs. 4,06,890 claimed by the assessee) disallowed by the AO and allowed by the learned CIT(A). According to the learned CIT(A) liquidated damages payable in consequences of contractual liability cannot be equated with the penalty for contravention of any statutory rule and the same has to be allowed if it has been incurred during the accounting year. He pointed out that from the details filed for this by the assessee's letter dt. 22nd November, 1990, and the various annexures thereto, he found that on the basis of the letter of delivery, a sum of Rs. 8,734 can be said to have been incurred during this year. But the assessee became aware on the basis of advice received from the contractor regarding the deduction to the extent of Rs. 3,78,548. The only question to be decided is as to whether/what should constitute the point at which the liability has been incurred. If one opines that it can be argued that the liability has been incurred as per contract the moment there is the slightest departure from the schedule of delivery in such cases the deficiency in quantification of damages will arise. Even the quantum of damages are left open to negotiation of the two parties. He is of the opinion that on the basis of information liability to the extent of Rs. 3,78,548 only can be said to have incurred during this accounting year. He, therefore, deleted this addition.
20. The learned Departmental Representative submitted that the payment of liquidated damages are more or less penal in nature and hence can not be allowed as an admissible expenditure. The learned counsel for the assessee strongly supported the order of the learned CIT(A).
21. We have considered the rival submissions, facts and materials on record. We agree with the learned CIT(A) that the damage claimed which does not relate to contravention of any statutory rule has to be allowed as an admissible deduction. In the case of Sardar Prit Inder Singh vs. CIT (1996) 160 ITR 493 (Pat) the Hon'ble Patna High Court held that the damages paid for the delay in supplying goods and materials should be allowed as a deduction. No materials have been brought into record to contradict the finding of the learned CIT(A) that during the year the assessee was aware of such damages payable by it. The order of the learned CIT(A) on this issue is upheld and this ground of the Revenue is rejected.
22. The next ground is in respect of application of S. 43B. In our view, the matter has to be looked into by the AO in conformity with the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Chandulal Venichand (1994) 209 ITR 7 (Guj). This issue is restored back to the file of the AO.
23. The appeal is partly allowed for statistical purposes.