1992 (5) TMI 197 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of accrued interest on deferred payment basis.
2. Disallowance of interest for non-business purposes.
3. Addition under section 40A(7) related to LIC payments.
4. Withdrawal of deductions for travelling expenses under Rule 6D.
5. Disallowance of bonus payments.
6. Verification and deduction of unpaid sales tax and provident fund under section 43B.
7. Applicability of section 43B to family pension fund and ESI.
8. Interest paid for late payment of sales tax.
9. Deduction under section 80-I without separate books of accounts.
10. Disallowance of travelling expenses under Rule 6D.

Comprehensive Issue-wise Detailed Analysis:

1. Deduction of Accrued Interest on Deferred Payment Basis:
The assessee company claimed deduction of Rs. 1,00,900 as accrued interest under the mercantile system of accounting. The ITO allowed only Rs. 26,600 based on actual payment. The Commissioner (Appeals) dismissed the claim on the grounds that accrued interest was not due/payable in the relevant year and was not debited to the P&L account. The Tribunal held that since the interest was excluded from the actual cost due to retrospective amendment, it should be allowed as revenue expenditure. The ITO was directed to allow the deduction of Rs. 1,00,900 subject to verification.

2. Disallowance of Interest for Non-Business Purposes:
The ITO disallowed Rs. 35,351 out of interest, claiming the assessee diverted borrowings for non-business purposes. The Commissioner (Appeals) deleted this disallowance, which was upheld by the Tribunal, citing that the debit balances in the accounts of the two concerns were due to business transactions and no interest was charged on such balances. The Tribunal also noted consistent treatment in earlier and subsequent years.

3. Addition under Section 40A(7) Related to LIC Payments:
The Commissioner (Appeals) deleted an addition of Rs. 30,389 under section 40A(7), supported by the Tribunal's decision in associated cases. The Tribunal upheld this, confirming that the payment to LIC was actual and not merely a provision, thus not hit by section 40A(7).

4. Withdrawal of Deductions for Travelling Expenses under Rule 6D:
The ITO's action under section 154 to disallow travelling expenses was challenged. The Commissioner (Appeals) and the Tribunal both held that the ITO's method was contrary to the Tribunal's decision in S.V. Ghatalia v. ITO, which required considering all tours made by a person during the year, not individual tours.

5. Disallowance of Bonus Payments:
The Commissioner (Appeals) deleted an addition of Rs. 1,12,753 out of bonus payments, supported by the Tribunal's decision in the assessee's own case for earlier years. The Tribunal confirmed this, noting the consistent application of the 20% bonus rate and rejection of the Department's reference application.

6. Verification and Deduction of Unpaid Sales Tax and Provident Fund under Section 43B:
The Commissioner (Appeals) directed verification of challans for unpaid sales tax and provident fund and allowed deductions if payments were made within due dates. The Tribunal upheld this, citing the Tribunal's decision in Chandulal Venichand v. ITO.

7. Applicability of Section 43B to Family Pension Fund and ESI:
The ITO added Rs. 4,718 and Rs. 1,035 for ESI and family pension under section 43B. The Commissioner (Appeals) held these were not covered by section 43B. The Tribunal confirmed this, noting the amounts were deductions from employees' salaries, deposited within prescribed times, and not applicable under section 43B for the year in question.

8. Interest Paid for Late Payment of Sales Tax:
The Commissioner (Appeals) allowed the deduction of Rs. 23,326 for interest on late payment of sales tax. The Tribunal upheld this, agreeing that the interest was compensatory and not penal, supported by various judicial decisions.

9. Deduction under Section 80-I without Separate Books of Accounts:
The Commissioner (Appeals) directed the ITO to work out the deduction under section 80-I despite the absence of separate books for the new unit. The Tribunal upheld this, noting the bifurcation of income was verified and consistent with commercial accounting principles. The loss in the old unit did not disqualify the deduction for the new unit, supported by the Supreme Court's decision in Canara Workshops Pvt. Ltd.

10. Disallowance of Travelling Expenses under Rule 6D:
The ITO disallowed Rs. 15,714 under Rule 6D. The Commissioner (Appeals) directed recalculating the disallowance by considering total expenditure for the year. The Tribunal confirmed this, aligning with the decision in S.V. Ghatalia v. ITO.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, confirming the detailed and consistent application of relevant legal principles and precedents.