1995 (11) TMI 122 - AT - Income Tax

Advertisement Expenditure, Assessing Officer, Assessment Year, Commercial Profit, Expenditure Incurred, Initial Depreciation, New Industrial Undertaking, Previous Year, Profits And Gains

Issues Involved:
1. Leave Travel Concession (LTC) encashment liability.
2. Deduction under section 80HHC.
3. Deduction under section 80-I on the basis of commercial profits.
4. Computation of profits and gains under section 80AB.
5. Initial depreciation on buildings.
6. Extra-shift allowance on water system and sanitation.
7. Deduction for work-in-progress and machinery in transit.
8. Taxability of cash compensatory support on exports.
9. Classification of technical assistance fee as revenue expenditure.
10. Addition under section 43B.
11. Deduction under section 35CCA.
12. Inclusion of capital work-in-progress for section 80J benefits.

Issue-wise Detailed Analysis:

1. Leave Travel Concession (LTC) Encashment Liability:
The assessee claimed a liability of Rs. 3,34,72,000 towards LTC encashment, arguing that the scheme to encash the LTC benefits was launched to discourage employees from taking leave, thus impacting production. The scheme allowed employees to encash 75% of the eligible fare for a distance of 1500 kms each way, covering the period from September 1983 to December 1985. The assessee contended that this liability should be considered as having fallen due within the year. However, the Department argued that this was not an ascertained liability and could not be allowed as an expense. The Tribunal upheld the Department's view, stating that the liability did not crystallize in the year as it depended on future actions of the employees.

2. Deduction Under Section 80HHC:
The assessee contended that the CIT(A) erred in setting aside the issue of deduction under section 80HHC by considering the export turnover for each category of goods separately. The Tribunal dismissed this ground, upholding the CIT(A)'s decision to set aside the matter for fresh examination by the Assessing Officer.

3. Deduction Under Section 80-I on the Basis of Commercial Profits:
The assessee argued that the profits and gains for the initial assessment year should be based on commercial profits. The Tribunal rejected this argument, stating that section 80AB requires the computation of net profits as per income-tax assessments, not commercial profits.

4. Computation of Profits and Gains Under Section 80AB:
The Tribunal upheld the lower authorities' decision that each industrial undertaking should be treated as a separate assessee for computing deductions under section 80-I, as per the Karnataka High Court's judgment in the assessee's own case for the assessment year 1981-82.

5. Initial Depreciation on Buildings:
The Department contested the CIT(A)'s decision allowing initial depreciation on buildings, including those brought forward. The Tribunal agreed with the CIT(A), stating that the amendment to section 32(1)(iv) by the Finance Act, 1983, was to have a prospective effect only, and the written down value from earlier years should not be disturbed.

6. Extra-Shift Allowance on Water System and Sanitation:
The Tribunal upheld the CIT(A)'s decision to allow extra-shift allowance on water system and sanitation, following the Karnataka High Court's judgments in the assessee's favor for earlier years.

7. Deduction for Work-in-Progress and Machinery in Transit:
The Tribunal upheld the CIT(A)'s decision allowing deduction for work-in-progress and machinery in transit in the scientific research division, as covered by the Karnataka High Court's judgments for earlier years.

8. Taxability of Cash Compensatory Support on Exports:
The Tribunal held that cash compensatory support is taxable, reversing the CIT(A)'s order, in view of the amendment to section 28 by the Finance Act, 1990, with retrospective effect from 1-4-1967.

9. Classification of Technical Assistance Fee as Revenue Expenditure:
The Tribunal upheld the CIT(A)'s decision that the technical assistance fee should be treated as revenue expenditure, following the Karnataka High Court's decision in Mysore Kirloskar Ltd. v. CIT.

10. Addition Under Section 43B:
The Tribunal upheld the CIT(A)'s direction to verify the actual dates of payments under section 43B, following the Karnataka High Court's interpretation in favor of the assessees.

11. Deduction Under Section 35CCA:
The Tribunal remanded the issue of deduction under section 35CCA back to the CIT(A) for detailed examination, as the CIT(A) did not discuss the issues raised by the Assessing Officer in detail.

12. Inclusion of Capital Work-in-Progress for Section 80J Benefits:
The Tribunal upheld the CIT(A)'s decision to include capital work-in-progress and machinery in transit within the computation of "capital employed" for section 80J benefits, following the Karnataka High Court's decision in Ravi Machine Tools (P.) Ltd. v. CIT.

Conclusion:
The assessee's appeal was dismissed, and the departmental appeal was partially allowed to the extent of taxability of cash compensatory support and remanding the issue of deduction under section 35CCA for further examination.

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