1996 (3) TMI 161 - AT - Income Tax

Assessing Officer, Assessment Year, Business Expenditure, Business Income, Expenditure Incurred, Export Business, Foreign Exchange, Guest House, Mercantile System, Sale Proceeds, Sales Tax, Total Income

Issues Involved:
1. Disallowance of expenditure on maintenance of guest house.
2. Disallowance of provision for sales tax.
3. Deduction under section 80HHC.

Issue-wise Detailed Analysis:

1. Disallowance of expenditure on maintenance of guest house:

The assessee challenged the disallowance of Rs. 7,32,299 incurred on the maintenance of a guest house, including repairs, depreciation, telephone charges, wages of the caretaker, canteen provisions, gas charges, newspapers, and subscriptions. The assessee did not press the disallowance of wages for the caretaker and newspapers, so these disallowances were confirmed. The assessee contended that repairs and rent are allowable under section 30, and depreciation under section 32, thus should not be disallowed under section 37(4), citing the Bombay High Court decision in CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124. The Departmental Representative opposed, citing CIT v. Ocean Carriers (P.) Ltd. [1995] 211 ITR 357 and Raja Bahadur Motilal Poona Mills Ltd. v. CIT [1995] 212 ITR 175.

The Tribunal held that expenditures on food, beverages, and gas charges do not fall within "maintenance" under section 37(4), while telephone charges do. The Tribunal relied on the Bombay High Court decisions in Chase Bright Steel Ltd. and Century Spg. & Mfg. Co. Ltd., which held that rent and repairs allowable under sections 30-36 cannot be disallowed under section 37(4). The Tribunal found the later decisions in Ocean Carriers and Raja Bahadur Motilal Poona Mills distinguishable as they dealt with different questions. Thus, the Tribunal decided in favor of the assessee, allowing rent, repairs, and depreciation on the guest house.

2. Disallowance of provision for sales tax:

The assessee made a provision of Rs. 1,64,543 for sales tax due to non-receipt of declaration forms, which was debited to the profit & loss account. The assessee argued that this provision was consistent with its accounting practice and supported by the Supreme Court decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. However, the Assessing Officer and CIT(A) rejected the claim, considering it a contingent liability.

The Tribunal upheld the disallowance, stating that under the Maharashtra Sales Tax Act, no tax is payable when sales are made against declaration forms unless these forms are not furnished during assessment. The liability arises only at the assessment stage, making the provision contingent. The Tribunal also rejected the argument that consistent accounting practice should allow the claim, citing the Supreme Court decision in CIT v. British Paints India Ltd. [1991] 188 ITR 44, which held that consistency in accounting practice does not justify an otherwise unallowable claim.

3. Deduction under section 80HHC:

The assessee claimed a deduction for exports made from Malaysia, which was denied by the Assessing Officer and CIT(A) on the grounds that the exports were not from India. The Tribunal agreed, stating that under section 80HHC, exports must be from India, as per the definition in section 2(18) of the Customs Act, 1962.

The assessee also claimed a deduction for incremental export turnover product-wise rather than total turnover. The Tribunal rejected this, stating that section 80HHC allows a deduction based on the total export turnover exceeding the previous year's total, not product-wise. The Tribunal emphasized that accepting the assessee's interpretation would lead to discrimination between companies with different export histories. Thus, the Tribunal upheld the disallowance of the deduction for incremental turnover.

The Tribunal dismissed the unpressed aspect of the deduction claim related to exports to Nepal and Bhutan.

Conclusion:

The Tribunal ruled in favor of the assessee on the issue of guest house maintenance expenses, allowing rent, repairs, and depreciation. However, it upheld the disallowance of the provision for sales tax and the denial of the deduction under section 80HHC for exports from Malaysia and incremental turnover product-wise.

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