1997 (3) TMI 142 - AT - Income Tax

Issues Involved:

1. Disallowance of investment allowance on plant and machinery.
2. Addition on account of cash assistance.
3. Disallowance towards provision for doubtful debts and doubtful advances.
4. Disallowance on account of entertainment expenses.
5. Disallowance on account of consumption of molds in the glass division.
6. Disallowance of investment allowance on increased cost of plant and machinery due to foreign currency loans.
7. Charging of interest under section 216 of the IT Act.
8. Set off of deficiency under section 80J during the assessment year.

Issue-wise Detailed Analysis:

1. Disallowance of Investment Allowance on Plant and Machinery:

The assessee claimed an investment allowance of Rs. 4,55,884 on new machinery installed, but the AO disallowed the claim for certain machinery used primarily in the liquor division, as per item No. 1 of the 11th Schedule to the IT Act. The CIT(A) upheld the AO's decision, noting that the machinery was primarily intended for the liquor division despite some usage in the malted milkfood division. The Tribunal considered the argument that steam, generated by the machinery, is an independent product used in both divisions. The Tribunal referred to the Gujarat High Court decision in Ambalal Sarabhai Enterprises Ltd. vs. Union of India and the Tribunal's decision in Goodlass Nerolac Paints Ltd. vs. ITO. The Tribunal restored the issue to the AO for reexamination in light of these arguments.

2. Addition on Account of Cash Assistance:

The learned counsel did not press this ground, and it was rejected.

3. Disallowance Towards Provision for Doubtful Debts and Doubtful Advances:

The learned counsel conceded that this ground should be decided against the assessee due to an arbitration award made in November 1982. This ground was rejected.

4. Disallowance on Account of Entertainment Expenses:

The AO disallowed Rs. 14,212 as entertainment expenses. The CIT(A) upheld the disallowance of Rs. 13,444, including Rs. 4,375 spent on refreshments for shareholders, which was considered entertainment expenditure. The Tribunal allowed 35% of the expenses on account of employee participation in the shareholders' meeting and directed the AO to provide appropriate relief.

5. Disallowance on Account of Consumption of Molds in the Glass Division:

The AO treated the expenditure on molds as capital expenditure, allowing only 30% depreciation. The CIT(A) upheld this decision. The Tribunal referred to the Karnataka High Court decision in CIT vs. Mysore Spun Concrete Pipe Pvt. Ltd., which held that replacement of molds is revenue expenditure. The Tribunal directed the AO to allow the expenditure as revenue expenditure.

6. Disallowance of Investment Allowance on Increased Cost of Plant and Machinery Due to Foreign Currency Loans:

The AO disallowed the claim of Rs. 1,51,385 for investment allowance on increased cost due to foreign currency loans. The CIT(A) upheld the disallowance, noting that the machinery was installed in an earlier year. The Tribunal, referring to multiple decisions, including the Delhi Bench decision in Dalmia Cement, upheld the CIT(A)'s decision and rejected the ground.

7. Charging of Interest Under Section 216 of the IT Act:

The AO charged interest under section 216. The CIT(A) upheld the AO's decision but noted that interest should not be charged for the first installment based on the statement of advance tax. The Tribunal referred to the Calcutta High Court decision in CIT vs. Indian Tube Co. Ltd., which supported the assessee's compliance with section 209A. The Tribunal set aside the CIT(A)'s order and deleted the interest levied under section 216.

8. Set Off of Deficiency Under Section 80J During the Assessment Year:

The AO disallowed the claim for deduction under section 80J. The CIT(A) observed that any unabsorbed claim should be considered for the assessment year 1981-82. The Tribunal directed the AO to consider the claim in light of the Tribunal's decision for the assessment year 1981-82.

Conclusion:

The appeal of the assessee was allowed in part, with specific directions for reexamination and relief on certain issues.

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