1998 (8) TMI 108 - AT - Income Tax

Rent, Rates And Taxes, Repairs And Insurance, Guest House, Book Profits, Method Of Depreciation, Profit And Loss Account

Issues Involved:
1. Deletion of disallowance of Rs. 40,722 under section 37(3) of the I.T. Act read with rule 6B for gift articles.
2. Deletion of disallowance of Rs. 94,203 under section 37(4) r.w.s. 37(5) for guest house expenses.
3. Treatment of subsidy amount for the purpose of depreciation and investment allowance.
4. Computation of book profit under section 115J, specifically regarding the method of depreciation.
5. Charging of interest under section 234B of the Income-tax Act.

Detailed Analysis:

1. Deletion of Disallowance of Rs. 40,722 under Section 37(3):
The assessee-company, M/s. Bell Ceramics Ltd., filed its return for the assessment year 1990-91, detailing expenses on articles presented exceeding Rs. 200 amounting to Rs. 40,722. The Assessing Officer (AO) added this amount to the total income, considering it as advertisement expenses under rule 6B. However, the first appellate authority deleted this addition, relying on judicial precedents. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in CIT v. Allana Sons (P.) Ltd., affirming that the expenses were for promoting business relations, not advertisement.

2. Deletion of Disallowance of Rs. 94,203 under Section 37(4) for Guest House Expenses:
The AO disallowed Rs. 94,203 out of Rs. 1,09,300 claimed by the assessee for guest house expenses, applying section 37(4). The assessee argued that these expenses were allowable under section 30. The CIT(A) deleted the addition, and the Tribunal upheld this decision, referencing the Gujarat High Court's rulings in CIT v. Maharana Mills Ltd. and CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd., which allowed such expenses under section 30.

3. Treatment of Subsidy Amount for Depreciation and Investment Allowance:
The CIT(A) ruled that the subsidy amount should not be deducted from the cost of assets for depreciation and investment allowance purposes. This decision was based on the Supreme Court's ruling in CIT v. P. J. Chemicals Ltd., which supports the assessee's stance. The Tribunal upheld the CIT(A)'s decision, declining to interfere.

4. Computation of Book Profit under Section 115J:
The assessee prepared its profit and loss account using the Written Down Value (WDV) method for depreciation for section 115J purposes, while the printed annual report used the straight-line method. The AO computed book profits based on the printed report, but the CIT(A) directed to recompute using the WDV method. The Tribunal upheld the CIT(A)'s decision, interpreting section 115J(1A) to allow different depreciation methods, provided the profit and loss account conforms to Parts II and III of Schedule VI to the Companies Act. The Tribunal noted the absence of a requirement in section 115J for the profit and loss account to match that presented at the annual general meeting.

5. Charging of Interest under Section 234B:
The CIT(A) directed not to charge interest under section 234B, a decision supported by the Tribunal's ruling in Samir Diamond Mfg. Co. v. Asstt. CIT. The Tribunal upheld this decision, noting that liability under section 115J could not be determined at the time of advance tax payment, thus negating the interest charge under section 234B.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds.

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