1992 (1) TMI 163 - AT - Income Tax

Issues Involved:
1. Classification of cash allowances (HRA, medical expenses) as salary or perquisite.
2. Deductibility of commitment charges on unutilized loan.
3. Nature of expenses for removing burnt fittings and dismantling the floor.
4. Exclusion of certain expenditures from the purview of section 37(2A).
5. Method of accounting for export incentives.
6. Addition of "bogus liability" to net profit.
7. Treatment of insurance compensation as income.
8. Depreciation rate on plant and machinery.
9. Basis for allowing extra shift allowance.
10. Extra shift allowance on tubewells.
11. Investment allowance for machinery purchased from investment allowance reserve.
12. Weighted deduction under section 35B(1)(b)(ix).
13. Disallowance of interest on tax arrears.
14. Deduction of purchase tax.
15. Deduction for "set on" of allocable surplus under Payment of Bonus Act.
16. Additional depreciation and investment allowance on certain new machinery.
17. Depreciation on factory building.
18. Time-barred liability written back.
19. Levy of interest under section 216.

Detailed Analysis:

1. Classification of Cash Allowances:
The Commissioner (Appeals) held that cash allowances like HRA and medical expenses form part of salary and not perquisite for computing disallowance under section 40A(5). This decision was based on the Tribunal's prior ruling for the assessment year 1982-83, which favored the assessee. The Tribunal upheld this view, finding no substance in the Department's ground.

2. Deductibility of Commitment Charges:
The Commissioner (Appeals) allowed the deduction of Rs. 5,000 as commitment charges on unutilized loan, considering it a revenue business expenditure under section 37(1). The Tribunal agreed, citing a similar ruling in the case of K.S.B. Pump Ltd. by the Bombay Bench.

3. Nature of Expenses for Removing Burnt Fittings:
The Commissioner (Appeals) classified the expenses for removing burnt fittings and repairing the building as revenue in nature. The Tribunal upheld this decision, noting that the expenses were necessary to resume business operations after a fire.

4. Exclusion of Certain Expenditures from Section 37(2A):
The Commissioner (Appeals) excluded Rs. 22,864 spent on food and beverages during sales conferences from section 37(2A), considering it a business expenditure. The Tribunal agreed, noting that these expenses were incurred during the course of business meetings and conferences.

5. Method of Accounting for Export Incentives:
The Commissioner (Appeals) accepted the assessee's change in the method of accounting for export incentives from mercantile to cash basis due to practical difficulties. The Tribunal upheld this decision, referencing a similar ruling in the case of Escorts Ltd.

6. Addition of "Bogus Liability" to Net Profit:
The Commissioner (Appeals) deleted the addition of Rs. 13,168 under "bogus liability," as the amount was not debited to the Profit & Loss Account. The Tribunal upheld this view, agreeing that the amount could not be added back to the profits.

7. Treatment of Insurance Compensation as Income:
The Commissioner (Appeals) ruled that Rs. 14,31,493 received from the insurance company as an "on account" payment could not be treated as income for the assessment year. The Tribunal agreed, noting that the amount was not received as a final settlement.

8. Depreciation Rate on Plant and Machinery:
The Tribunal upheld the Commissioner (Appeals)'s decision to allow depreciation at the rate of 15% on plant and machinery, following its earlier ruling for the assessment year 1982-83.

9. Basis for Allowing Extra Shift Allowance:
The Commissioner (Appeals) allowed extra shift allowance on the basis of the concern as a whole, not factory-wise. The Tribunal upheld this decision, referencing a similar ruling in the case of Indian Aluminium Cables Ltd.

10. Extra Shift Allowance on Tubewells:
The Commissioner (Appeals) allowed extra shift allowance on tubewells, considering them part of plant and machinery. The Tribunal upheld this decision, citing the Andhra Pradesh High Court's ruling in Commissioner v. Warner Hindustan Ltd.

11. Investment Allowance for Machinery Purchased from Investment Allowance Reserve:
The Commissioner (Appeals) allowed investment allowance for machinery purchased out of the investment allowance reserve. The Tribunal upheld this decision, referencing a similar ruling in the case of Escorts Ltd.

12. Weighted Deduction under Section 35B(1)(b)(ix):
The Commissioner (Appeals) allowed weighted deduction for expenditure on quality control and inspection of goods exported. The Tribunal upheld this decision, referencing its earlier ruling in the assessee's case for the assessment year 1982-83.

13. Disallowance of Interest on Tax Arrears:
The Commissioner (Appeals) upheld the disallowance of interest on tax arrears under sections 216 and 220(2). The Tribunal agreed, citing the Delhi High Court's decision in Bharat Commerce Industries Ltd. v. Commissioner.

14. Deduction of Purchase Tax:
The Commissioner (Appeals) confirmed the disallowance of purchase tax liability provision. The Tribunal, however, set aside this order, referencing its earlier decision in the assessee's favor for the assessment year 1982-83.

15. Deduction for "Set On" of Allocable Surplus under Payment of Bonus Act:
The Commissioner (Appeals) disallowed the deduction for "set on" of allocable surplus. The Tribunal upheld this decision, noting that most High Courts had ruled against the assessee on this issue.

16. Additional Depreciation and Investment Allowance on Certain New Machinery:
The Commissioner (Appeals) disallowed additional depreciation and investment allowance on items like exhaust fans and air circulators, considering them office appliances. The Tribunal remanded the matter to the ITO for verification based on the functional test.

17. Depreciation on Factory Building:
The Commissioner (Appeals) disallowed depreciation on the factory building. The Tribunal upheld this decision, following its earlier ruling for the assessment year 1982-83.

18. Time-Barred Liability Written Back:
The Commissioner (Appeals) disallowed the deduction for time-barred liability written back. The Tribunal set aside this order, referencing its earlier decision in the assessee's favor for the assessment year 1982-83.

19. Levy of Interest under Section 216:
The Commissioner (Appeals) upheld the levy of interest under section 216. The Tribunal set aside this order, noting that the assessee's filing of estimates was bona fide due to a fire disrupting business operations.

Conclusion:
The appeal by the assessee is partly allowed, while the appeal by the Revenue is dismissed.

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