1990 (1) TMI 116 - AT - Income Tax

Summary

Issues involved:
1. Taxability of security deposit excess.
2. Admissibility of full allowance for Kamla Retreat building.
3. Depreciation on plant and machinery in JK Cotton Mills.
4. 100% depreciation on plant and machinery in PPL.
5. Loss on remittance of foreign exchange.
6. Disallowance under section 40A(5).
7. Remuneration payable to Directors under section 40(C).
8. Taxability of written-off credit balances.
9. Deduction of expenses incurred in floating debentures.
10. Disallowance of expenditure on repairs to plant and machinery.
11. Deduction for provision towards gratuity liability.
12. Claim of bad debt.
13. Disallowance under section 40A(8) out of interest on public deposits.
14. Various disallowances under general charges.
15. Depreciation on electrical fittings and vehicles.
16. Extra shift allowance on air-conditioning machinery.
17. Disallowance of foreign tour expenses.
18. Disallowance of travelling expenses within India.
19. Deduction under section 35 for scientific research assets.
20. Disallowance of part of expenditure on consultancy fees.
21. Disallowance of messing expenditure in guest house.
22. Deduction of know-how fees.
23. Deduction of octroi duty, water charges, power surcharge, and sales-tax liability.
24. Disallowance of expenses in the property at River Side Road.
25. Disallowance under section 217(1A).
26. Deduction of scripting music for advertisement.
27. Claim for deduction of Rs. 15,59,617 for interest on excess collection of cement price.

Detailed Analysis:

1. Taxability of Security Deposit Excess:
The issue of whether the security deposit received against cops, which was in excess of the amounts returned, would be taxable was not necessary to adjudicate upon in this appeal as the assessee had already received relief in section 154 proceedings. The Tribunal had previously held that neither the excess receipt would be taxable nor the deficit receipt would be admissible as business loss.

2. Admissibility of Full Allowance for Kamla Retreat Building:
The issue regarding the admissibility of full allowance for Kamla Retreat was rejected, following the CIT(A)'s order in accordance with earlier years.

3. Depreciation on Plant and Machinery in JK Cotton Mills:
The Tribunal upheld the CIT(A)'s order restricting the depreciation to 50% of what is admissible according to the IT Rules, following the decision in earlier assessment years.

4. 100% Depreciation on Plant and Machinery in PPL:
This ground was not pressed at the time of hearing.

5. Loss on Remittance of Foreign Exchange:
This ground was also not pressed at the time of hearing.

6. Disallowance under Section 40A(5):
This ground was not pressed at the time of hearing.

7. Remuneration Payable to Directors under Section 40(C):
The Tribunal upheld the CIT(A)'s order disallowing the excess over Rs. 72,000 remuneration payable to the Directors, following the reasons in earlier years.

8. Taxability of Written-off Credit Balances:
The Tribunal upheld the CIT(A)'s action in taxing Rs. 1,94,965 written off credit balances, as the assessee had already received the benefit of deduction in earlier years. The amounts written back were correctly brought to tax as there was no cessation of liability.

9. Deduction of Expenses Incurred in Floating Debentures:
The Tribunal held that the expenditure on floating debentures was revenue expenditure and not capital in nature, following the Supreme Court's decision in India Cements Ltd. vs. CIT. The additions of Rs. 12,571 and Rs. 29,668 were unwarranted.

10. Disallowance of Expenditure on Repairs to Plant and Machinery:
The Tribunal allowed the disallowance of Rs. 1 lakh paid to J.K. Satoh Agricultural Machines Ltd. for repairs, as the claim was genuine. The rate of depreciation was directed to be 15% for kiln, shell, and scanner machineries. The Tribunal also allowed Rs. 1,54,895 as revenue expenditure for other repairs and modifications.

11. Deduction for Provision Towards Gratuity Liability:
The Tribunal upheld the CIT(A)'s order disallowing the actual payments of gratuity, as the liability was to be discharged by the Gratuity Fund. The provision made by the assessee was considered eligible for deduction under section 36(1)(v).

12. Claim of Bad Debt:
The Tribunal disallowed the claim of Rs. 1,25,000 as bad debt, as it was not a trade debt but an advance for acquiring machinery, which is a capital loss.

13. Disallowance under Section 40A(8) Out of Interest on Public Deposits:
The Tribunal confirmed the disallowance for the reasons stated in the Tribunal's order for the assessment year 1980-81.

14. Various Disallowances under General Charges:
The Tribunal allowed 50% of the entertainment expenditure and other disallowances, considering part of the expenditure as business expenditure. The pooja expenditure and expenses on the portrait of the company's founder were allowed as deductions.

15. Depreciation on Electrical Fittings and Vehicles:
The Tribunal upheld the disallowance of Rs. 2,000 for electrical fittings but allowed depreciation on vehicles, as they were capable of being used in other units.

16. Extra Shift Allowance on Air-conditioning Machinery:
The Tribunal held that the air-conditioning unit was an integral part of the acrylic unit and allowed the extra shift allowance.

17. Disallowance of Foreign Tour Expenses:
The Tribunal allowed the foreign tour expenses for family members, employees, and their wives but upheld the disallowance for expenses related to the purchase of machinery.

18. Disallowance of Travelling Expenses within India:
The Tribunal allowed 50% of the disallowance for travelling expenses within India, considering them as business expenses.

19. Deduction under Section 35 for Scientific Research Assets:
The Tribunal allowed the deduction for scientific research assets acquired during the accounting year relevant to the assessment year 1981-82.

20. Disallowance of Part of Expenditure on Consultancy Fees:
The Tribunal allowed the consultancy fees for business expenditure but disallowed the fees for obtaining a project report for a new unit.

21. Disallowance of Messing Expenditure in Guest House:
The Tribunal allowed the messing expenditure in the guest house, except for an estimated Rs. 1 lakh for guests.

22. Deduction of Know-how Fees:
The Tribunal held that 50% of the know-how fees paid to M/s Zimmer was capital in nature and 50% was revenue expenditure.

23. Deduction of Octroi Duty, Water Charges, Power Surcharge, and Sales-tax Liability:
The Tribunal allowed the deduction of octroi duty but disallowed the water charges, power surcharge, and sales-tax liability of the co-operative society.

24. Disallowance of Expenses in the Property at River Side Road:
The Tribunal upheld the disallowance of 50% of the expenses in the property at River Side Road but allowed the expenses incurred by employees for business purposes.

25. Disallowance under Section 217(1A):
The Tribunal held that no interest under section 217(1A) was leviable as the assessee had filed a loss estimate and return.

26. Deduction of Scripting Music for Advertisement:
The Tribunal allowed the deduction of Rs. 36,000 for scripting music for advertisement as revenue expenditure.

27. Claim for Deduction of Rs. 15,59,617 for Interest on Excess Collection of Cement Price:
The Tribunal disallowed the claim for interest on excess collection of cement price as the liability to pay interest was contingent on the High Court's decision in the writ petition.