1989 (3) TMI 167 - AT - Income Tax

Accounting Year, Assessment Year, Entertainment Expenditure, Expenditure Incurred, Sales Tax

Issues Involved:
1. Reduction of actual cost by insurance amount for depreciation and investment allowance.
2. Percentage of entertainment expenditure attributable to employees' participation.
3. Disallowance of sales tax liability under Section 43B.
4. Applicability of Section 37(3A) to repairs of motor cars.
5. Inclusion of ESI and Provident Fund contributions in salary for weighted deduction under Section 36(1)(iia).

Issue-wise Detailed Analysis:

1. Reduction of Actual Cost by Insurance Amount for Depreciation and Investment Allowance:
The appellant contested the reduction of actual cost by the insurance amount received for calculating depreciation and investment allowance, resulting in a shortfall of Rs. 3,67,361 and Rs. 96,993 respectively. The Tribunal referenced its prior decision in the assessee's case for the assessment year 1982-83, where a similar issue was decided against the assessee. Following the precedent, the Tribunal upheld the Commissioner (A)'s decision to reduce the actual cost by the insurance amount received.

2. Percentage of Entertainment Expenditure Attributable to Employees' Participation:
The assessee argued that 50% of the entertainment expenditure of Rs. 2,22,006 was for employees' participation in business meetings, which should not be disallowed under Section 37(2A). The Inspecting Asstt. Commissioner allowed only 10% for employees, disallowing Rs. 1,49,806. The Tribunal found the 10% estimate unreasonably low and increased it to 25%. It directed the Inspecting Asstt. Commissioner to recompute the allowance based on this revised percentage.

3. Disallowance of Sales Tax Liability under Section 43B:
The assessee contended that the sales tax liability of Rs. 1,00,17,505, although collected, was not payable by 30-6-1984 and was paid by 31-7-1984, the due date under the relevant Sales Tax Acts. The Tribunal noted the Andhra Pradesh High Court's interpretation that Section 43B applies only to sums due and payable within the accounting year. The Tribunal held that the assessee was entitled to the deduction as the liability was not payable within the accounting year, following the precedent that the Tribunal must respect the law laid down by any High Court in the absence of a contrary decision.

4. Applicability of Section 37(3A) to Repairs of Motor Cars:
The assessee claimed that Rs. 3,79,972 spent on motor car repairs should be allowed under Section 31 and not restricted by Section 37(3A). The Tribunal agreed, citing the Bombay High Court's interpretation that Section 37(3A) applies only to expenditures under Section 37(1) and not to those under Sections 30-36. It held that motor cars are included in the definition of "plant" and thus repairs are allowable under Section 31 without the restrictions of Section 37(3A).

5. Inclusion of ESI and Provident Fund Contributions in Salary for Weighted Deduction under Section 36(1)(iia):
The assessee argued that contributions to ESI and Provident Fund should be treated as part of salary for weighted deduction under Section 36(1)(iia). The Tribunal referenced its earlier decision for the assessment year 1982-83, where it was decided against the assessee. Following this precedent, the Tribunal upheld the Commissioner (A)'s decision to exclude these contributions from the salary for the purpose of weighted deduction.

Conclusion:
The appeal was allowed in part, with the Tribunal providing relief on the percentage of entertainment expenditure and the applicability of Section 37(3A) to motor car repairs, while upholding the Commissioner (A)'s decisions on the reduction of actual cost by insurance amount, disallowance of sales tax liability under Section 43B, and exclusion of ESI and Provident Fund contributions from salary for weighted deduction.

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