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1994 (11) TMI 180 - AT - Income TaxA Firm, Assessing Officer, Attributable To, Business Expenditure, Electricity Charges, High Court, Investment Allowance, Previous Year, Raw Material, State Electricity Board, Writ Petition
Issues Involved:
1. Admissibility of revenue deduction for the provision made by the assessee for incremental power tariff charges. 2. Consignment expenses. 3. Investment allowance on computer. 4. Debit balance written off. 5. Disallowance of interest. Detailed Analysis: 1. Admissibility of Revenue Deduction for Incremental Power Tariff Charges: The core issue in both appeals is the admissibility of revenue deduction for the provision made by the assessee concerning incremental power tariff charges due to revisions by the Andhra Pradesh State Electricity Board (APSEB) in 1987 and 1989. - Facts: The assessee, a manufacturer of cotton and synthetic yarn, faced upward revisions in HT power tariffs by APSEB in 1987 and 1989. The assessee challenged these revisions in court, resulting in a stay order to pay only 50% of the increased rates until further orders. The assessee made provisions for the stayed portion of the charges in its books for the year ending 31-3-1990. - Assessment Officer's Decision: The Assessing Officer disallowed the provisions, arguing that the liability to pay the incremental charges arose only after the court's final decision on 2-4-1990, which was after the close of the relevant previous year. The officer added Rs. 60,28,091 to the assessee's income. - CIT(A) Decision: The CIT(A) allowed the provision for the current year's demand but disallowed the prior period expenditure, reducing the addition to Rs. 28,47,369. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision to allow the current year's provision, citing that the liability was statutory and not contractual. However, it disallowed the provision for prior period expenditure, stating that the liability became real and enforceable only after the court's decision on 2-4-1990. 2. Consignment Expenses: - Facts: The assessee incurred Rs. 75,26,707 in consignment expenses, including bank commission and interest charges. The Assessing Officer disallowed Rs. 11,65,085 related to interest charges, arguing that the consignment agents were responsible for these charges. - CIT(A) Decision: The CIT(A) allowed the assessee's claim, stating that the interest charges were a bona fide business expenditure. - Tribunal's Decision: The Tribunal agreed with the CIT(A), emphasizing that the expenditure was related to the assessee's business and dismissing the related grounds of the department's appeal. 3. Investment Allowance on Computer: - Facts: The assessee installed a computer in its office and claimed investment allowance, arguing that the computer facilitated manufacturing operations. - Assessing Officer's Decision: The claim was disallowed on the ground that the computer was used mainly for office work. - CIT(A) Decision: The CIT(A) allowed the claim based on a certificate stating that the computer was used for processing data related to raw material and production. - Tribunal's Decision: The Tribunal reversed the CIT(A)'s decision, holding that the computer was a labour-saving device and not integral to the manufacturing process, thus not qualifying for investment allowance. 4. Debit Balance Written Off: - Facts: The assessee wrote off Rs. 23,70,538 related to a contract dispute with a supplier. The Assessing Officer disallowed the claim, arguing that the liability arose in the previous year relevant to the assessment year 1989-90. - CIT(A) Decision: The CIT(A) upheld the disallowance. - Tribunal's Decision: The Tribunal agreed with the lower authorities, stating that the liability arose on the date of the Memorandum of Compromise (5-9-1988) and not in the assessment year 1990-91. 5. Disallowance of Interest: - Facts: The assessee had given an interest-free advance of Rs. 2 lakhs to a related party and failed to recover it promptly. The Assessing Officer disallowed Rs. 38,000 as interest, later reduced by the CIT(A) to Rs. 13,772. - Tribunal's Decision: The Tribunal allowed the assessee's appeal, stating that the initial advance came from the assessee's own funds and not borrowed capital, thus no disallowance was warranted. Conclusion: - The Tribunal upheld the CIT(A)'s decision on the current year's provision for incremental power tariff charges but disallowed the prior period expenditure. - The Tribunal agreed with the CIT(A) on consignment expenses but reversed the decision on investment allowance for the computer. - The Tribunal confirmed the disallowance of the debit balance written off and allowed the assessee's appeal on the disallowance of interest.
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