1985 (7) TMI 162 - AT - Income Tax

Issues Involved:

1. Depreciation on plant and machinery.
2. Depreciation on machinery installed in premises of Plastics Products Ltd.
3. Admissibility of Development Rebate.
4. Disallowance of insurance charges.
5. Kamla Retreat expenses.
6. Disallowance of advertisement and publicity expenses.
7. Jurisdiction of the ITO to reframe the entire assessment.
8. Claim regarding additional bonus.
9. Disallowance of Director's remuneration.
10. Disallowance of preference shares issue expenses.
11. Disallowance of mess expenses.
12. Disallowance of foreign tour expenses.
13. Disallowance out of general charges.
14. Non-admission of the claim of non-taxability.
15. Disallowance of travelling expenses.
16. Addition on account of closing stock of spare parts.
17. Section 80J claim.
18. Depreciation on scientific research assets.
19. Disallowance under Section 40A(5).
20. Charging of interest under Sections 139(8) and 215.
21. Deletion of disallowance on account of interest.
22. Allowance of depreciation on machinery.
23. Allowance of development rebate.
24. Deletion of allowance on account of security deposit.
25. Deletion of addition on account of closing stock.
26. Deletion of disallowance on account of foreign tour expenses of PAs.
27. Deletion of disallowance on account of presentations to foreign business associates.
28. Deletion of addition on account of legal charges.
29. Depreciation on assets relating to scientific research.
30. Depreciation on SSF unit and tyre cord unit.
31. Deletion of addition on account of reduction in first grade production.
32. Direction for computing disallowance under Section 40A(5).

Issue-wise Detailed Analysis:

1. Depreciation on Plant and Machinery:
- The Tribunal upheld the allowance of 50% depreciation on plant and machinery installed in J.K. Cotton Spg. & Wvg. Mills, following earlier decisions for assessment years 1971-72 and 1975-76.

2. Depreciation on Machinery Installed in Plastics Products Ltd.:
- The Tribunal found no force in the appeal for depreciation on machinery installed in Plastics Products Ltd., following its earlier decisions for assessment years 1971-72 and 1975-76.

3. Admissibility of Development Rebate:
- The Tribunal upheld the non-admissibility of development rebate on additions to plant and machinery installed in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. and Plastics Products Ltd., consistent with the decision for the assessment year 1971-72.

4. Disallowance of Insurance Charges:
- The Tribunal allowed full insurance charges under Section 31, as there was no finding that the machinery was not used for business purposes, reversing the IT authorities' disallowance of 50%.

5. Kamla Retreat Expenses:
- The Tribunal reduced the disallowance to 50% of Rs. 21,773, following the decision for the assessment year 1971-72, where the disallowance was kept at 50% of 50%.

6. Disallowance of Advertisement and Publicity Expenses:
- The Tribunal restored the matter to the ITO for a fresh decision, following the direction issued for the assessment year 1975-76.

7. Jurisdiction of the ITO to Reframe the Entire Assessment:
- This ground was not pressed by the assessee during the hearing, so it was not considered.

8. Claim Regarding Additional Bonus:
- Similarly, this ground was not pressed by the assessee and was not considered.

9. Disallowance of Director's Remuneration:
- The Tribunal upheld the disallowance of Rs. 38,000, following earlier decisions for assessment years 1971-72 and 1975-76.

10. Disallowance of Preference Shares Issue Expenses:
- The Tribunal upheld the disallowance of Rs. 57,434 as capital nature expenses.

11. Disallowance of Mess Expenses:
- The Tribunal reduced the disallowance to 1/4th of the total expenses, i.e., Rs. 42,214, considering the nature of the expenses and relevant case law.

12. Disallowance of Foreign Tour Expenses:
- This ground was not pressed by the assessee during the hearing, so it was not considered.

13. Disallowance Out of General Charges:
- The Tribunal deleted the disallowance of Rs. 27,134 for small presentations to business associates but upheld the disallowance for lunches, dinners, guest house expenses, and ad hoc disallowance of Rs. 80,000.

14. Non-admission of the Claim of Non-taxability:
- This ground was not pressed by the assessee during the hearing, so it was not considered.

15. Disallowance of Travelling Expenses:
- The Tribunal upheld the disallowance of Rs. 23,330, finding it in order after reviewing the details.

16. Addition on Account of Closing Stock of Spare Parts:
- The Tribunal upheld the addition of Rs. 6,22,058, consistent with decisions for assessment years 1971-72 and 1975-76.

17. Section 80J Claim:
- The Tribunal upheld the CIT(A)'s direction to compute the relief in accordance with the Supreme Court's decision in Lohia Machines vs. Union of India.

18. Depreciation on Scientific Research Assets:
- The Tribunal upheld the CIT(A)'s direction to recompute depreciation in light of the Supreme Court's judgment.

19. Disallowance under Section 40A(5):
- The Tribunal upheld the CIT(A)'s direction to exclude cash allowances from perquisites for recomputing disallowance under Section 40A(5).

20. Charging of Interest under Sections 139(8) and 215:
- The Tribunal directed the ITO to give a hearing to the assessee in accordance with rules 40 and 117A before levying interest, following the decision for the assessment year 1975-76.

21. Deletion of Disallowance on Account of Interest:
- The Tribunal found no force in the Department's appeal against the deletion of Rs. 15,85,722, following earlier decisions.

22. Allowance of Depreciation on Machinery:
- The Tribunal found no force in the Department's appeal regarding depreciation on machinery installed at J.K. Cotton Spg. & Wvg. Mills Co. Ltd.

23. Allowance of Development Rebate:
- The Tribunal upheld the CIT(A)'s direction to allow development rebate on all units at 25%, following the decision for the assessment year 1971-72.

24. Deletion of Allowance on Account of Security Deposit:
- The Tribunal upheld the deletion of Rs. 5,11,597, finding no justification for considering the excess deposit receipt as income.

25. Deletion of Addition on Account of Closing Stock:
- The Tribunal upheld the deletion of Rs. 20 lakhs, finding the addition made by the ITO was based on surmises and not justified.

26. Deletion of Disallowance on Account of Foreign Tour Expenses of PAs:
- The Tribunal upheld the deletion of Rs. 18,894 and Rs. 14,182, agreeing that the expenses were not personal but for business purposes.

27. Deletion of Disallowance on Account of Presentations to Foreign Business Associates:
- The Tribunal upheld the deletion of Rs. 48,129, finding the allowance based on sound reasoning and relevant case law.

28. Deletion of Addition on Account of Legal Charges:
- The Tribunal upheld the deletion of Rs. 1,90,055, following earlier decisions and Supreme Court rulings.

29. Depreciation on Assets Relating to Scientific Research:
- The Tribunal upheld the CIT(A)'s direction for recomputation, consistent with earlier decisions.

30. Depreciation on SSF Unit and Tyre Cord Unit:
- The Tribunal upheld the CIT(A)'s decision to allow depreciation at 15%, following earlier decisions.

31. Deletion of Addition on Account of Reduction in First Grade Production:
- The Tribunal upheld the deletion of Rs. 20,09,620, following the decision for the assessment year 1971-72.

32. Direction for Computing Disallowance under Section 40A(5):
- The Tribunal upheld the CIT(A)'s direction, finding no force in the Department's appeal.

Conclusion:
The appeal filed by the assessee (I.T.A. No. 1772) is partly allowed, while the appeal filed by the Department (I.T.A. No. 1921) fails and is dismissed.

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