2003 (8) TMI 159 - AT - Income Tax

Issues Involved:
1. Disallowance under Rule 6B for cost of silver articles and sweet boxes.
2. Disallowance under Rule 6D for luxury tax, expenditure tax, etc.
3. Bonus paid during the calendar year 1985 debited to the P&L account for the assessment year 1991-92.
4. Depreciation for rented premises.
5. Depreciation on electrical installations in the technical building.
6. Prior year expenses debited in the financial year 1989-90.
7. Premium for forward contract for foreign exchange.
8. Addition to closing stock on account of Modvat.
9. Deduction under Section 80HHC.

Detailed Analysis:

1. Disallowance under Rule 6B for cost of silver articles and sweet boxes:
The first effective ground pertains to the disallowance of Rs. 37,306 under Rule 6B for the cost of silver articles and sweet boxes distributed to business associates and customers, which did not contain the logo of the company. The Tribunal found that the issue is covered in favor of the assessee by its own order for the assessment year 1990-91, where it was held that such expenses are not disallowable. Therefore, the addition made by the AO on this count is deleted.

2. Disallowance under Rule 6D for luxury tax, expenditure tax, etc.:
The second ground involves the disallowance of Rs. 1,78,610 under Rule 6D, which includes luxury tax, expenditure tax, and sales tax in hotel bills. The Tribunal confirmed the view that these taxes are part of the payment made to hotels and are required to be considered while computing the disallowable amount under Rule 6D. The Tribunal upheld the orders of the Revenue authorities on this issue.

3. Bonus paid during the calendar year 1985 debited to the P&L account for the assessment year 1991-92:
The third ground relates to the bonus of Rs. 11,38,680 paid during the calendar year 1985 but debited to the P&L account for the assessment year 1991-92. The Tribunal found no merit in this ground, as the expenditure pertains to an earlier year (1985) and norms of commercial expediency were not satisfied. The expenditure had accrued and was paid in 1985, and there was no material to show that it crystallized during the year under consideration. Hence, the addition was confirmed.

4. Depreciation for rented premises:
The next ground raised by the assessee pertains to depreciation of Rs. 10,375 for rented premises. The Tribunal noted that this issue is covered against the assessee by its earlier decision for the assessment year 1987-88, where it was held that electrical installations are part of the building and not separate assets. Therefore, the Tribunal upheld the order of the CIT(A).

5. Depreciation on electrical installations in the technical building:
The fifth ground involves depreciation of Rs. 4,03,950 on electrical installations in the technical building. The Tribunal found that the electrical installations should not be treated as part of the building but as separate assets eligible for higher depreciation. The Tribunal referred to various decisions supporting this view and sent the issue back to the AO to decide the allowability of depreciation in accordance with the judgment of the Gujarat High Court in CIT vs. Tarun Commercial Mills Ltd.

6. Prior year expenses debited in the financial year 1989-90:
The next ground raised by the assessee pertains to Rs. 1,03,901, prior year expenses debited in the financial year 1989-90. This ground was not pressed by the learned authorized representative and was rejected as not pressed.

7. Premium for forward contract for foreign exchange:
The first ground in the Revenue's appeal pertains to Rs. 63,86,710 being the premium for forward contracts for foreign exchange. The Tribunal found that this issue is covered against the assessee by its earlier order for the assessment years 1986-87 and 1987-88, where such payments were treated as capital expenditure. The Tribunal sent the matter back to the AO to verify the relevant facts and allow depreciation on the increased cost of the capital asset.

8. Addition to closing stock on account of Modvat:
The second ground raised by the Revenue pertains to Rs. 17,30,459, addition to closing stock on account of Modvat. The Tribunal found that this issue is covered in favor of the assessee by its earlier order for the assessment year 1987-88, where it was held that no addition can be made to the closing stock on account of Modvat credit. The Tribunal confirmed the order of the CIT(A) with the modification that the closing stock of this year will be the opening stock of the next year.

9. Deduction under Section 80HHC:
The last ground raised in the Revenue's appeal pertains to the deduction under Section 80HHC amounting to Rs. 62,42,033. The Tribunal found that there were two separate contracts, one for the supply of material and equipment and the other for the erection of equipment in Thailand. The assessee claimed deduction under Section 80HHC only for the supply of material and equipment. The Tribunal upheld the order of the CIT(A), directing the AO to allow the claim of the assessee, subject to verification of facts and figures.

Conclusion:
In conclusion, the appeals of both the assessee and the Revenue are partly allowed. The Tribunal has provided detailed reasoning for each issue, upholding or rejecting the claims based on previous judgments and relevant legal provisions. Some issues were sent back to the AO for verification and re-evaluation in accordance with the Tribunal's observations.

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