1989 (7) TMI 150 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of additional depreciation on computers and air-conditioners.
2. Partial disallowance of excise duty paid during the year.
3. Addition of unpaid sales-tax liability under Section 43B.
4. Disallowance of actual payment of gratuity on an ad hoc basis.
5. Disallowance of the amount appropriated to the reserve for annuity.
6. 20% disallowance under Section 37(3A) in respect of repairs to motor cars and reimbursement of car expenses to employees.
7. Claim for investment allowance under Section 32A.
8. Levy of interest under Section 215.

Detailed Analysis:

1. Disallowance of Additional Depreciation on Computers and Air-Conditioners:

The assessee claimed additional depreciation under Section 32(1)(ii)(a) for computers and air-conditioners installed in the office premises. The IAC and CIT(A) disallowed this claim on the ground that the items were installed in the office premises. The Tribunal noted that the intention of the legislature was to stimulate investment, and thus, the provision should be interpreted liberally. It was determined that the exclusive floor where the computers and air-conditioners were installed should not be considered as office premises. Consequently, the additional depreciation was allowed, and the order of the CIT(A) was set aside.

2. Partial Disallowance of Excise Duty Paid During the Year:

The assessee argued that the total excise duty paid, including the amount included in the closing inventory, should be allowed as a deduction under Section 43B. The Tribunal noted that allowing the excise duty paid on closing stock would result in a double deduction and would distort the profit calculation. Therefore, the valuation of the closing stock should include the excise duty paid. The Tribunal upheld the CIT(A)'s decision, disallowing the deduction of excise duty included in the closing inventory.

3. Addition of Unpaid Sales-Tax Liability Under Section 43B:

The IAC added the unpaid sales-tax liability to the income, arguing that it was not paid during the assessment year. The assessee contended that the liability was not payable in the assessment year but in the subsequent year. The Tribunal agreed with the assessee, stating that Section 43B applies only to sums payable in the relevant previous year. The Tribunal remanded the case back to the ITO for verification of whether the sales-tax collected was paid in the subsequent quarter before filing the return. If confirmed, the deduction should be allowed.

4. Disallowance of Actual Payment of Gratuity on an Ad Hoc Basis:

The IAC disallowed Rs. 8,00,000 out of the actual gratuity payments on an ad hoc basis, suspecting that provisions for gratuity might have been allowed in earlier years. The Tribunal found no evidence supporting this suspicion and noted that the ESSO Group of Companies, merged with the assessee, had no gratuity scheme. The Tribunal set aside the CIT(A)'s order and allowed the entire actual payment of gratuity.

5. Disallowance of the Amount Appropriated to the Reserve for Annuity:

The CIT(A) disallowed the amount appropriated to the reserve for annuity based on the Tribunal's earlier decision in the assessee's case for previous years. The Tribunal upheld the CIT(A)'s decision, as the issue was already covered by the earlier decision.

6. 20% Disallowance Under Section 37(3A) for Repairs to Motor Cars and Reimbursement of Car Expenses:

The assessee argued that expenses on repairs to motor cars should not be disallowed under Section 37(3A) as they were covered under Section 43(3). The Tribunal agreed, citing the Bombay High Court's decision that Section 37(3A) applies only to expenses covered under Section 37(1). Therefore, the Tribunal allowed the expenses on car repairs. However, regarding reimbursement of car expenses to employees, the Tribunal upheld the CIT(A)'s decision, stating that these reimbursements were in the nature of conveyance allowance and subject to disallowance under Section 37(3A).

7. Claim for Investment Allowance Under Section 32A:

The assessee claimed investment allowance for plant and machinery installed in the marketing division. The IAC and CIT(A) disallowed the claim, arguing that the marketing division was not engaged in manufacturing. The Tribunal found that the marketing activities were integral to the overall business of manufacturing and marketing petroleum products. It held that the entire business was a single, indivisible unit, and thus, the investment allowance was allowable. The Tribunal set aside the CIT(A)'s order.

8. Levy of Interest Under Section 215:

The assessee challenged the levy of interest under Section 215, arguing that the assessing authority did not consider the waiver or remission of interest and did not provide an opportunity for a personal hearing. The Tribunal noted that the issue of waiver or remission of interest is not appealable. However, the assessee could apply to the ITO for waiver or remission. The Tribunal upheld the CIT(A)'s decision but allowed the assessee to approach the Revenue Authorities for waiver or remission of interest.

Conclusion:

The appeal was partly allowed, with the Tribunal setting aside the CIT(A)'s orders on several issues and remanding one issue back to the ITO for verification.