1988 (3) TMI 94 - AT - Income Tax

Summary

Issues Involved:
1. Deduction for accrued leave and contractual obligations.
2. Depreciation on roads, drains, and culverts.
3. Depreciation rate on water supply installations.
4. Additional depreciation and extra shift allowance on bins, racks, and shelves.
5. Extra shift allowance on communication equipment.
6. Reduction in the value of closing stock and work-in-progress.
7. Provision for doubtful debts.

Detailed Analysis:

1. Deduction for Accrued Leave and Contractual Obligations:
The appeal includes grounds Nos. 2 & 3, which contest the deduction allowed by the Commissioner (A) for provisions made in the accounts for accrued leave and contractual obligations. Both parties agreed that this issue had been previously considered by the Tribunal for the assessment year 1980-81, where it was ruled in favor of the assessee. Consequently, the Tribunal upheld the Commissioner (A)'s order.

2. Depreciation on Roads, Drains, and Culverts:
Grounds Nos. 4 & 5 address the Department's objection to the Commissioner (A)'s direction to allow depreciation on roads, drains, and culverts. This issue was resolved in favor of the assessee by the Karnataka High Court in CIT vs. Bangalore Turf Club Ltd. (1984). Therefore, the Tribunal upheld the Commissioner (A)'s order on this point.

3. Depreciation Rate on Water Supply Installations:
Grounds Nos. 6 & 7 involve whether the assessee is entitled to depreciation at the rate of 10% on water supply installations. The Commissioner (A)'s finding aligns with the Tribunal's decision in the assessee's case for earlier assessment years. Hence, these grounds were dismissed.

4. Additional Depreciation and Extra Shift Allowance on Bins, Racks, and Shelves:
Ground No. 8 questions the assessee's entitlement to additional depreciation and extra shift allowance on bins, racks, and shelves. The ITO classified these items as furniture, allowing only 10% depreciation and denying extra shift allowance. The Commissioner (A) accepted the assessee's argument that these items were part of the industrial complex and used round the clock, directing the ITO to grant the extra shift allowance. However, the Tribunal disagreed, stating that bins and shelves are passive storage items and should be treated as furniture, thus not qualifying for extra shift allowance. The assessee is entitled to depreciation only at the rates applicable to furniture.

5. Extra Shift Allowance on Communication Equipment:
Ground No. 9 involves the assessee's claim for extra shift allowance on communication equipment, including radar and internal telecommunication systems. The ITO did not accept these items as plant, but the Commissioner (A) ruled in favor of the assessee. The Tribunal determined that radar is a wireless apparatus and not entitled to extra shift allowance, whereas internal communication systems like PABX and PBX are entitled to extra shift allowance. The Tribunal also rejected the argument that these items are not directly connected to manufacturing, recognizing their essential role in testing aircrafts.

6. Reduction in the Value of Closing Stock and Work-in-Progress:
Grounds Nos. 10 & 11 address the claim for reduction in the value of closing stock and work-in-progress. The Commissioner (A) accepted the assessee's explanation for revaluation due to factors affecting marketability. The Tribunal upheld this, referencing the Bombay High Court decision in CIT vs. Tata Iron and Steel Co. Ltd. However, the Tribunal did not accept the claim for redundancy in work-in-progress, as it is difficult to justify redundancy before the completion of manufacturing.

7. Provision for Doubtful Debts:
The final ground involves a claim for Rs. 27,19,705 considered a provision for doubtful debts. This amount was due from the Indian Air Force and was written off after the IAF repudiated payment. The Tribunal agreed with the Commissioner (A) that this write-off is a proper business loss allowable under s. 28, not a bad debt.

Conclusion:
The appeal is partly allowed, with the Tribunal upholding the Commissioner (A)'s orders on most points but denying the extra shift allowance for bins, racks, and shelves, and rejecting the claim for redundancy in work-in-progress.