1992 (4) TMI 76 - AT - Income Tax

1995 (1) TMI 105 - AT

Issues Involved:
1. Disallowance under Section 43B of the IT Act, 1961.
2. Disallowance of Rs. 1,95,000 as capital expenditure.
3. Deduction under Section 80-I.
4. Disallowance of Rs. 1,19,166 for maintenance of lawns and flower-beds.
5. Disallowance of Rs. 11,560 and Rs. 11,330 towards superannuation and gratuity funds.

Issue-wise Detailed Analysis:

1. Disallowance under Section 43B of the IT Act, 1961:

The assessee challenged the disallowance of Rs. 12,98,167 under Section 43B, which included various liabilities such as Provident Fund, Family Pension, E.S.I., Purchase Tax, Additional Tax, Local Sales Tax, Terminal Tax, Sales Tax, and Central Sales Tax. The ITO disallowed these amounts as they were not paid before the end of the previous year relevant to the assessment year under consideration. The CIT(A) confirmed the disallowance, and the assessee conceded that the issue was covered against them by the decisions of the Delhi High Court in Sangi Motors vs. Union of India & Ors. and Escorts Ltd. vs. Union of India & Ors. Consequently, Ground No. 1 was rejected.

2. Disallowance of Rs. 1,95,000 as Capital Expenditure:

The assessee incurred Rs. 1,95,000 on black topping roads in the factory complex, initially laid out in earlier years at a cost of about Rs. 1 lakh. The ITO and CIT(A) held this expenditure as capital in nature. The assessee contended that the expenditure should be treated as revenue expenditure, citing the Bombay High Court decision in CIT vs. Oxford University Press. However, the Tribunal found that the expenditure resulted in the construction of metalled roads, providing an enduring advantage, and thus was capital in nature, supported by the Supreme Court decision in Travancore Cochin Chemicals Ltd. vs. CIT. The disallowance was confirmed.

3. Deduction under Section 80-I:

The assessee disputed the deduction allowed under Section 80-I, arguing that it should be calculated on commercial profits rather than gross total income. The ITO allowed Rs. 13,31,400 as 25% of Rs. 53,25,601, reducing profits by unabsorbed investment allowance, deduction under Section 80-G, depreciation, and current year investment allowance. The CIT(A) upheld this approach. The assessee cited the Jaipur Tribunal decision in Digchem Industries vs. ITO and the Orissa High Court decision in CIT vs. Tarun Udyog, which supported calculating relief on commercial profits. The Tribunal preferred the Orissa High Court's view, allowing relief under Section 80-I without deductions of unabsorbed investment allowance, depreciation, and investment allowance.

4. Disallowance of Rs. 1,19,166 for Maintenance of Lawns and Flower-beds:

The assessee contended that the expenditure on making and maintaining lawns should be treated as revenue expenditure under Section 37(1), citing the Supreme Court decision in Empire Jute Co. Ltd. vs. CIT. The CIT(A) had treated it as capital expenditure, enhancing the potential value of fixed assets. The Tribunal disagreed, noting that the expenditure did not result in acquiring a new asset or enduring benefit, and was incidental to the business. Thus, the expenditure was allowable as revenue expenditure.

5. Disallowance of Rs. 11,560 and Rs. 11,330 towards Superannuation and Gratuity Funds:

The ITO disallowed Rs. 22,890 as the superannuation and gratuity funds were not recognized. The CIT(A) upheld this disallowance. The assessee provided evidence that the gratuity fund was approved retrospectively from 30th Nov. 1982, making the Rs. 11,330 deductible. Additionally, Rs. 11,560 paid as premium to LIC under the Officers' Superannuation Scheme was argued to be allowable under Section 37(1), supported by a prior Tribunal decision. The Tribunal allowed both amounts as deductions.

Conclusion:

The appeal was partly allowed, with the Tribunal confirming some disallowances while allowing others based on the detailed analysis of the legal provisions and precedents.

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