1984 (6) TMI 89 - AT - Income Tax

Issues Involved:
1. Deduction of customs fines under the Sea Customs Act and Imports and Exports (Control) Act.
2. Deduction of excess bonus under sections 36(1)(ii) and 37(1) of the Income-tax Act, 1961.
3. Depreciation on roads within factory premises.
4. Levy of interest under sections 215/217(1A) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction of Customs Fines:
The primary issue in the appeals filed by the revenue concerns the allowance of deduction for customs fines amounting to Rs. 22,85,983, Rs. 1,84,225, and Rs. 7,000 made by the Commissioner (Appeals). The Tribunal had earlier directed the Commissioner (Appeals) to re-examine whether the goods imported by the assessee were spare parts or raw materials. After hearing expert evidence and detailed arguments, the Commissioner (Appeals) concluded that the goods were indeed spare parts necessary for the assessee's petrochemical manufacturing process. The Commissioner (Appeals) found no moral guilt or unlawful conduct on the part of the assessee, viewing the infraction as a mere technical breach. The Tribunal upheld this view, noting that the goods were vital for the assessee's manufacturing process and that the penalties paid were necessary to redeem the goods, thus qualifying for deduction under the Bombay High Court's decision in CIT v. Pannalal Narottamdas & Co.

2. Deduction of Excess Bonus:
For the assessment year 1978-79, the Commissioner (Appeals) deleted an addition of Rs. 8,81,855 made by the ITO on account of excess bonus, which the ITO had restricted based on the Payment of Bonus Act. The Commissioner (Appeals) observed that the bonus payment was a contractual obligation and not challenged by the ITO. The Tribunal found that the assessee's obligation to pay 20% bonus was enforceable under a contractual agreement and that such payments were admissible under section 36(1)(ii) and section 37(1). The Tribunal also noted that under section 11 of the Payment of Bonus Act, the employer could pay up to 20% bonus if the allocable surplus exceeded the minimum required, thus supporting the Commissioner (Appeals)'s decision.

3. Depreciation on Roads:
The issue of depreciation on roads within the factory premises was also contested. The Commissioner (Appeals) had allowed depreciation on roads at the rates applicable to plant and machinery, following the Tribunal's earlier decision in the assessee's favor. However, the Tribunal noted the Bombay High Court's decision in CIT v. Sandvik Asia Ltd., which clarified that roads within factory premises should be treated as buildings and not as plant. Consequently, the Tribunal ruled that the roads should be depreciated at rates applicable to buildings, thus siding with the revenue on this issue.

4. Levy of Interest under Sections 215/217(1A):
The final issue concerned the levy of interest under sections 215/217(1A). The Commissioner (Appeals) had set aside the ITO's order on this point, directing a re-examination of the assessee's liability, as the ITO's order lacked clarity. The revenue argued that the Commissioner (Appeals) had no power to set aside an assessment on a particular point and that no appeal was provided against such a levy. The Tribunal, referencing the Bombay High Court's decision in CIT v. Daimler Benz A.G., upheld the Commissioner (Appeals)'s decision, noting that the assessee had challenged the very jurisdiction of the ITO to levy interest. The Tribunal found no substance in the revenue's appeal on this issue, thus rejecting it.

Conclusion:
The appeals for the assessment years 1972-73 and 1973-74 were dismissed, while the appeal for the assessment year 1978-79 was partly allowed.

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