1998 (2) TMI 163 - AT - Income Tax

Issues Involved:

1. Depreciation rate for factory buildings.
2. Investment allowance and additional depreciation for certain items of plant and machinery.
3. Disallowance under Section 43B for sales-tax payable.
4. Disallowance of legal and professional expenses.
5. Disallowance of additional royalty due to exchange rate variations.
6. Disallowance of advertisement and publicity expenses.
7. Disallowance of rates and taxes.
8. Addition due to inventory shortage.
9. Disallowance of car and chauffeur expenses for executives.
10. Disallowance under Section 37(3B) for car-related expenses.
11. Credit for surcharge deposited with IDBI.
12. Treatment of interest and financing charges as capital expenditure.
13. Entertainment expenses claimed as business deduction.
14. Restoration of various deductions.
15. Levy of interest under Section 215.

Detailed Analysis:

1. Depreciation Rate for Factory Buildings:
The assessee contested the reduction of the depreciation rate from 10% to 5% for factory buildings. The Tribunal referenced a previous decision in the case of Escorts JCB Ltd., which allowed a 10% depreciation rate. The Tribunal directed the AO to verify the details and allow the 10% rate if applicable.

2. Investment Allowance and Additional Depreciation:
(a) Miscellaneous Equipment:
The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for reconsideration, following the precedent set in the assessee's case for the assessment year 1983-84.

(b) Data Processing Equipment:
The Tribunal found that data processing equipment installed in the factory for manufacturing operations is eligible for investment allowance and additional depreciation, following the precedent from the assessment year 1982-83.

(c) Air-Conditioning Equipment:
The Tribunal restored the issue to the AO for reconsideration, following the precedent set in the assessment year 1983-84.

(d) Ship and Canteen Equipment:
The Tribunal restored the issue to the AO for reconsideration, following the precedent set in the assessment year 1982-83.

3. Disallowance under Section 43B for Sales-Tax Payable:
The Tribunal directed the AO to allow the deduction for sales-tax payable if it was paid in the next year before the due date prescribed under Section 139(1) of the IT Act, 1961.

4. Disallowance of Legal and Professional Expenses:
The Tribunal allowed the deduction of Rs. 8,000 paid to Khurana Engineers & Consultants, considering it as a revenue expenditure incurred for business purposes.

5. Disallowance of Additional Royalty Due to Exchange Rate Variations:
The Tribunal directed the AO to allow the deduction of Rs. 39,017 for additional royalty paid due to exchange rate variations, following the precedent set in the previous year.

6. Disallowance of Advertisement and Publicity Expenses:
(a) Payment to G.B. Pant University:
The Tribunal allowed the deduction of Rs. 7,000, considering it as a business expenditure incurred for the company's agro-based industry.

(b) Payment to Faridabad Industries Association:
The Tribunal allowed the deduction of Rs. 50,000, considering it as a business expenditure incurred for resolving industrial disputes.

7. Disallowance of Rates and Taxes:
(a) Application Fee for Import Licence:
The Tribunal allowed the deduction of Rs. 5,100, considering it as a revenue expenditure.

(b) Payment to Haryana State Board:
The Tribunal allowed the deduction of Rs. 20,000, considering it as a necessary business expenditure for pollution control.

8. Addition Due to Inventory Shortage:
The Tribunal directed the AO to delete the addition of Rs. 12,556, considering the shortage as genuine and real.

9. Disallowance of Car and Chauffeur Expenses for Executives:
The Tribunal confirmed the CIT(A)'s order to treat the use of company cars by executives as a perquisite and directed the AO to recompute the disallowance based on actual details.

10. Disallowance under Section 37(3B) for Car-Related Expenses:
The Tribunal held that certain expenses like vehicle repair, insurance, and depreciation should be excluded from disallowance under Section 37(3B), while other expenses like car running expenses and driver's salary should be included.

11. Credit for Surcharge Deposited with IDBI:
The Tribunal rejected this ground as not pressed by the assessee since the AO had already allowed it under Section 154.

12. Treatment of Interest and Financing Charges as Capital Expenditure:
The Tribunal followed its earlier decision and held that the interest and financing charges for plant and machinery purchased under IDBI bills rediscounting scheme should be treated as capital expenditure, allowing depreciation, additional depreciation, and investment allowance.

13. Entertainment Expenses Claimed as Business Deduction:
The Tribunal directed the AO to allow 25% of the entertainment expenses as staff welfare expenses, following the precedent set in the previous years.

14. Restoration of Various Deductions:
The Tribunal rejected this ground as not pressed by the assessee.

15. Levy of Interest under Section 215:
The Tribunal directed the AO to grant consequential relief based on the relief granted in the quantum of various additions/disallowances.

Conclusion:
The appeal was partly allowed, with several issues being restored to the AO for reconsideration based on precedents and specific directions provided by the Tribunal.

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