1985 (7) TMI 160 - AT - Income Tax

Summary

Issues:
1. Taxability of export duty realized by the assessee company.
2. Deduction of loss on the sale of bottles.
3. Treatment of expenditure on the replacement of an analyser column.
4. Allowance of investment allowance to the assessee company.
5. Allowance of loss of packing material.
6. Sales-tax liability for earlier years.

Analysis:
1. The first issue pertains to the taxability of export duty realized by the assessee company. The IAC had added the amount of export duty to the assessee's income, considering it as part of trading receipts. However, the CIT (A) deleted this addition, stating that the liability to pay export duty accrued in the accounting year and should be allowed as a deduction. The ITAT Delhi Bench 'A' had also ruled similarly in a previous case. The ITAT upheld the CIT (A)'s decision, confirming the deletion of the addition of Rs. 5,81,537.

2. The second issue concerns the deduction of a loss on the sale of bottles claimed by the assessee company. The IAC disallowed the claim, stating that the loss was not proved. However, the CIT (A) allowed a deduction of Rs. 25,000 out of the total loss claimed. The ITAT found that the loss on account of bottles was a normal incident of the business, and the CIT (A)'s decision to allow the deduction was reasonable. Therefore, the ITAT confirmed the CIT (A)'s order on this issue.

3. The next issue revolves around the treatment of expenditure on the replacement of an analyser column. The IAC disallowed the claim, considering it as capital expenditure due to the utility of the new analyser column over several years. However, the CIT (A) allowed the expenditure as revenue expenditure, noting that the analyser column was an integral part of the distillation plant. The ITAT agreed with the CIT (A)'s reasoning, confirming that the expenditure should be treated as revenue expenditure.

4. The fourth issue involves the allowance of investment allowance to the assessee company under section 32 of the IT Act. The IAC had disallowed the investment allowance, citing that the assessee was manufacturing spirits, which was a prohibited item for the allowance. However, the CIT (A) allowed the claim, distinguishing between alcoholic beverages and industrial alcohol. The ITAT upheld the CIT (A)'s decision, stating that the investment allowance was meant to deny benefits to low priority items like alcoholic beverages, not industrial alcohol.

5. The fifth issue relates to the allowance of a loss of packing material. This issue was already covered by a previous ground and did not introduce any new points for consideration. The ITAT's decision on the second ground encompassed this issue as well.

6. The final issue concerns the sales-tax liability for earlier years. The CIT (A) allowed the deduction of sales-tax payments related to earlier years, except for a penalty amount. The ITAT upheld the CIT (A)'s decision, emphasizing that the liability to pay these amounts accrued in the accounting year under the mercantile system of accounting followed by the assessee. Therefore, the payments should be allowed as a deduction. The ITAT confirmed the CIT (A)'s order on this issue, leading to the dismissal of the appeal.