1999 (8) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of the value of presentation articles u/r 6B.
2. Disallowance of guest house expenses u/s 37(4).
3. Disallowance of interest on advances u/s 36(1)(iii).
4. Addition in respect of gain on cancellation of foreign exchange contracts.
5. Disallowance of depreciation on Butachlor plant.
6. Charging of interest u/s 234B.

Summary:

1. Disallowance of the value of presentation articles u/r 6B:
The assessee objected to the disallowance of Rs. 54,594 for presentation articles. The articles did not bear the name or logo of the assessee-company, hence, they could not be considered as meant for advertisement under r. 6B. The Tribunal found that the ratio of the decisions cited by the assessee applied to the facts of the case and decided this ground of appeal in favor of the assessee.

2. Disallowance of guest house expenses u/s 37(4):
The assessee challenged the disallowance of Rs. 28,84,417 for guest house expenses. The Tribunal noted that the expenses were for transit houses used by employees and auditors. The Tribunal restored the matter to the AO for verification of the necessary details and correct application of the relevant legal provisions, emphasizing that specific items of expenditure allowable under ss. 30 to 36 should be separately allowed before applying the provisions of s. 37(4).

3. Disallowance of interest on advances u/s 36(1)(iii):
The assessee contested the disallowance of Rs. 1,61,69,397 towards interest on advances. The Tribunal found that the assessee had sufficient funds available from internal accruals to make the advances and no direct nexus was proved between interest-bearing loans and interest-free advances. The Tribunal directed the AO to delete the addition.

4. Addition in respect of gain on cancellation of foreign exchange contracts:
The assessee argued that the gain of Rs. 36,41,856 on cancellation of foreign exchange contracts was not a taxable receipt. The Tribunal held that the receipt was a capital receipt not liable to tax but allowed the AO to make necessary adjustments to the cost of acquisition/written down value of the plant and machinery and make consequential adjustments to the depreciation granted, after giving the assessee a reasonable opportunity of being heard.

5. Disallowance of depreciation on Butachlor plant:
The assessee claimed depreciation on the Butachlor plant, which was kept in ready-to-use condition despite no production due to unfavorable market conditions. The Tribunal found that the plant and machinery were presumed to be put to use for the assessee's business and directed the AO to allow the depreciation claimed.

6. Charging of interest u/s 234B:
The assessee contended that the AO mechanically charged interest without discussing its leviability. The Tribunal noted that interest u/s 234B is mandatory but directed the AO to recompute the interest afresh after giving effect to the appellate order and provide the assessee an opportunity of being heard regarding the leviability and quantification of interest.

Conclusion:
The appeal was treated as partly allowed, with specific directions given for each issue.