1991 (12) TMI 90 - AT - Income Tax

Summary

Issues Involved:
1. Investment allowance for machinery used for scientific research.
2. Disallowance of expenditure incurred for fees paid to the Registrar of Companies for increasing authorized share capital.
3. Allowance of weighted deduction on inspection charges.
4. Exclusion of excise duty while valuing the closing stock.
5. Computation of section 80HH deduction.

Issue-wise Detailed Analysis:

1. Investment Allowance for Machinery Used for Scientific Research:
The assessee contended that proviso (d) to section 32A(1) should apply only when both deductions occur in the same year, and not when the actual cost is allowed in different years. The Assessing Officer and CIT (Appeals) disagreed, stating that the entire cost of the machinery was allowed in the assessment year 1982-83, thus prohibiting the investment allowance as per proviso (d) to section 32A(1). The Tribunal upheld this view, emphasizing that "any one previous year" does not restrict to the same year, and the prohibition applies if the entire cost is allowed in any year.

2. Disallowance of Expenditure Incurred for Fees Paid to the Registrar of Companies for Increasing Authorized Share Capital:
The assessee's claim that the increase in authorized capital was predominantly for issuing bonus shares was partially accepted. The CIT (Appeals) allowed the proportionate expenditure related to the bonus shares but disallowed the rest. The Tribunal upheld this decision, referencing the Bombay High Court's ruling in Bombay-Burmah Trading Corpn. Ltd. v. CIT, which differentiated between fees for enhancement of capital (capital expenditure) and fees for issuing bonus shares (revenue expenditure).

3. Allowance of Weighted Deduction on Inspection Charges:
The Assessing Officer restricted weighted deduction on inspection charges proportionate to the export turnover. The CIT (Appeals) allowed the entire deduction, interpreting that the restriction applies only to maintenance of laboratory or other facilities, not inspection charges. The Tribunal supported the CIT (Appeals), stating that the restriction in the Proviso to Rule 6AA(c) applies to mixed expenditure and not exclusively export-related expenditure, thus allowing the entire amount as weighted deduction.

4. Exclusion of Excise Duty While Valuing the Closing Stock:
The Assessing Officer included excise duty in the valuation of closing stock, which the CIT (Appeals) reversed, citing consistent past practices and accepted commercial principles. The Tribunal, referencing the Third Member decision in Raymond Woollen Mills Ltd. v. ITO, held that the inclusion of excise duty is necessary for determining true and correct profits, thus reversing the CIT (Appeals) and restoring the Assessing Officer's decision.

5. Computation of Section 80HH Deduction:
The Assessing Officer reduced the weighted deduction amount from the income entitled to section 80HH relief, which the CIT (Appeals) reversed based on the Tribunal's decision in Bihar Mercantile Union (P.) Ltd. v. ITO. The Tribunal, however, upheld the Assessing Officer's approach, referencing the Supreme Court's decision in Distributors (Baroda) (P.) Ltd. v. Union of India, which mandates that deductions under section 80HH should be computed after allowing weighted deduction under section 35B.

Conclusion:
The Tribunal's judgment addressed multiple issues concerning investment allowance, capital expenditure, weighted deductions, valuation of closing stock, and computation of section 80HH deductions. The decisions were based on interpretations of specific provisions and precedents, ensuring adherence to statutory requirements and judicial principles.