1994 (1) TMI 245 - AT - Income Tax

Issues Involved:

1. Valuation of closing stock and deduction u/s 43B.
2. Disallowance/addition of Rs. 1,51,154 u/s 43B.
3. Disallowance of Rs. 16,75,845 for capital expenditure on scientific research u/s 35.
4. Disallowance under section 37(3A).
5. Claim for deduction u/s 80-I.
6. Charge of interest u/s 139(8), 215, and 217.

Summary:

1. Valuation of closing stock and deduction u/s 43B:
The assessee claimed a deduction of Rs. 27,04,579 for customs and excise duty included in the closing stock, revised to Rs. 26,98,713. The Assessing Officer rejected this claim, stating that customs duty included in the closing stock should carry over to the next year. The Commissioner of Income-tax (Appeals) upheld this decision, referencing the Tribunal's decision in Hindustan Computers Ltd. v. ITO [1987] 21 ITD 524. The Tribunal, however, noted that section 43B overrides other sections and mandates deduction on an actual payment basis, disturbing the regular method of accounting. The Tribunal emphasized the need for full and effective deduction under section 43B in the year of payment, aligning with the Gujarat High Court's decision in Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240. The Tribunal directed a deduction of Rs. 26,98,713 for the assessee, with a corresponding reduction in the opening stock for the next year.

2. Disallowance/addition of Rs. 1,51,154 u/s 43B:
The Assessing Officer disallowed Rs. 4,51,154 for unpaid sales tax, etc., which the Commissioner of Income-tax (Appeals) reduced by Rs. 3,00,000. The assessee conceded that the issue was covered against them by the Delhi High Court's decision in Sanghi Motors v. Union of India [1991] 187 ITR 703 but argued that Rs. 34,500 pertained to the previous year and should not be disallowed. The Tribunal restored this matter to the Assessing Officer for verification and necessary relief.

3. Disallowance of Rs. 16,75,845 for capital expenditure on scientific research u/s 35:
The Assessing Officer rejected the claim due to lack of details and proof, which the Commissioner of Income-tax (Appeals) upheld. The Tribunal, noting the acceptance of similar claims in preceding and succeeding years, remitted the matter back to the Assessing Officer for a de novo decision, also addressing the alternative claim for depreciation and investment allowance.

4. Disallowance under section 37(3A):
The Assessing Officer disallowed Rs. 3,19,415 for various expenses, which the Commissioner of Income-tax (Appeals) partly upheld. The Tribunal rejected the assessee's claims regarding payments to hotels and entertainment expenses but reduced the estimated inclusion for conveyance and touring expenses, deeming the original estimates excessive.

5. Claim for deduction u/s 80-I:
The assessee's claim for deduction u/s 80-I was acknowledged as already allowed by the Assessing Officer in subsequent proceedings, and the ground was not pressed.

6. Charge of interest u/s 139(8), 215, and 217:
The Commissioner of Income-tax (Appeals) refused to admit this ground, referencing the Supreme Court's decision in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. The Tribunal, agreeing that the ground was appealable, restored the matter back to the Commissioner of Income-tax (Appeals) for a decision on merits.

Conclusion:
The appeal was partly allowed, with specific directions and remissions for various issues.

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