1986 (4) TMI 128 - AT - Income Tax

Issues Involved:
1. Disallowance of depreciation on glass melting furnace.
2. Disallowance of foreign trip expenses.
3. Disallowance of building repair expenses.
4. Disallowance of entertainment expenses.
5. Levy of interest under Section 215.
6. Levy of interest under Section 216.

Detailed Analysis:

1. Disallowance of Depreciation on Glass Melting Furnace:
The primary issue revolves around the disallowance of depreciation on a glass melting furnace costing Rs. 36,94,735, which the assessee installed in the factory premises of Western India Glass Works Ltd. The furnace was owned by the assessee but used by Western India Glass Works Ltd. to manufacture glass bottles, half of which were supplied to the assessee. The IAC disallowed the depreciation claim, stating that the furnace was not used for the assessee's business, a requirement under Section 32 of the IT Act, 1961. The CIT (A) upheld this disallowance, emphasizing that the furnace was under the control of Western India Glass Works Ltd. and not used by the assessee for its business.

The Tribunal agreed with the lower authorities, stating that the furnace was not used in the assessee's business but by Western India Glass Works Ltd. for its own business. The Tribunal referenced several decisions, including The Liquidators of Pursa Ltd. vs. CIT and Punjab National Bank Ltd. vs. CIT, to support the requirement that the asset must be used by the assessee for its business to qualify for depreciation. The Tribunal concluded that the assessee was not entitled to depreciation under Section 32.

2. Disallowance of Foreign Trip Expenses:
The second issue pertains to the disallowance of Rs. 19,702 out of Rs. 39,405 incurred by the Director of the Company for a trip to the USA to purchase printing machinery and spare parts. The IAC disallowed half of the expenses as capital expenditure, a decision upheld by the CIT (A). The Tribunal agreed, noting that the trip was for purchasing a capital asset, not for business purposes, and thus upheld the disallowance.

3. Disallowance of Building Repair Expenses:
The third issue involves the disallowance of Rs. 1,00,000 out of Rs. 7,12,568 incurred on building repairs. The IAC disallowed Rs. 2,00,000, and the CIT (A) reduced this to Rs. 1,00,000. The Tribunal found no disallowable item, noting that the expenditure was for repairs and maintenance, not for creating a new asset or advantage. Citing the decision in CIT, Bombay City III vs. Oxford University Press, the Tribunal concluded that the entire expenditure was allowable as revenue expenditure and deleted the disallowance.

4. Disallowance of Entertainment Expenses:
The fourth issue concerns the disallowance of Rs. 43,107 out of Rs. 62,446 claimed as business promotion expenses. The IAC disallowed the amount as entertainment expenditure, a decision upheld by the CIT (A). The Tribunal agreed, stating that the expenditure on tea, cold drinks, and lunch for customers was clearly entertainment expenditure, regardless of employee participation, and upheld the disallowance.

5. Levy of Interest under Section 215:
The fifth issue involves the levy of interest of Rs. 8,32,895 under Section 215. The Tribunal noted that this ground did not arise out of the CIT (A)'s order and declined to entertain it. The Tribunal also referenced the Andhra Pradesh High Court decision in M. G. Brothers vs. CIT, which held that no appeal is provided against the levy of interest under Section 215.

6. Levy of Interest under Section 216:
The sixth issue concerns the levy of interest of Rs. 37,683 under Section 216. The Tribunal noted that this ground also did not arise out of the CIT (A)'s order and declined to entertain it.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the disallowance of depreciation, foreign trip expenses, and entertainment expenses, while deleting the disallowance of building repair expenses. The Tribunal declined to entertain the grounds related to the levy of interest under Sections 215 and 216.

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