1993 (7) TMI 131 - AT - Income Tax

Business Expenditure, In The Nature, Previous Year, Revenue Receipt, Sales Tax, State Electricity Board

Issues Involved:
1. Addition on account of power subsidy.
2. Disallowance under section 43B.
3. Disallowance of Mineral Rights Tax and excess provision for Mineral Rights Tax.
4. Disallowance of provision for leave encashment.
5. Provision for shortfall in levy cement share.
6. Disallowance of replacement of diesel engine.
7. Investment allowance on certain assets.
8. Expenditure on maintenance of guest house.

Issue-wise Detailed Analysis:

1. Addition on Account of Power Subsidy:
The assessee received power subsidies from APSEB for the assessment years 1984-85, 1985-86, and 1986-87, which were claimed as capital receipts and transferred to the Capital Reserve Account. The ITO treated these subsidies as revenue receipts, relying on the Andhra Pradesh High Court's decision in Sahney Steel & Press Works Ltd. The CIT(Appeals) disagreed, distinguishing the facts and treating the subsidies as capital receipts based on the Madhya Pradesh High Court's decision in Dusad Industries. The Tribunal upheld the CIT(Appeals)' decision, emphasizing that the subsidies were part of a package of incentives for industrial growth and hence capital in nature.

2. Disallowance under Section 43B:
For assessment years 1985-86 and 1986-87, the ITO disallowed unpaid sales tax amounts under section 43B. The CIT(Appeals) allowed the assessee's claim, referencing the jurisdictional High Court's decision in Srikakollu Subba Rao & Co. The Tribunal restored the matter to the Assessing Officer to verify if the payments were made within the stipulated time and directed that no disallowance should be made if payments were timely.

3. Disallowance of Mineral Rights Tax and Excess Provision for Mineral Rights Tax:
The ITO disallowed the provision for mineral rights tax, treating it as a tax under section 43B. The CIT(Appeals) allowed the provision, stating it was a cess and section 43B did not apply. The Tribunal upheld the CIT(Appeals)' decision, noting the nature of the payment as a cess and referencing the Andhra Pradesh High Court's ruling that the tax imposition was unconstitutional.

4. Disallowance of Provision for Leave Encashment:
The ITO disallowed the provision for leave encashment, considering it contingent. The CIT(Appeals) allowed the provision, and the Tribunal upheld this decision, directing the ITO to determine the quantum based on actuarial valuation, recognizing the liability as ascertained and enforceable.

5. Provision for Shortfall in Levy Cement Share:
The ITO disallowed the provision for excess realization due to unfulfilled levy quota. The CIT(Appeals) allowed the provision, referencing relevant case laws. The Tribunal upheld the CIT(Appeals)' decision, recognizing the provision as a quantified liability under the Cement Control Order.

6. Disallowance of Replacement of Diesel Engine:
The ITO disallowed the cost of a new diesel engine, treating it as a capital expenditure. The CIT(Appeals) allowed the claim, and the Tribunal upheld this decision, referencing judicial precedents that considered such replacements as revenue expenditures.

7. Investment Allowance on Certain Assets:
The ITO disallowed investment allowance on air-conditioners, plant roads, and telephone exchange, treating them as office equipment or building. The CIT(Appeals) allowed the claims. The Tribunal upheld the allowance for the telephone exchange and directed verification for air-conditioners' installation location but reversed the allowance for plant roads based on the Supreme Court's decision in Gwalior Rayon Silk Mfg. Co. Ltd.

8. Expenditure on Maintenance of Guest House:
The ITO disallowed the guest house expenses under section 37(5). The CIT(Appeals) allowed 50% of the expenses, considering them related to employees' accommodation. The Tribunal upheld the CIT(Appeals)' decision, recognizing the expenses as partly allowable.

Conclusion:
The Tribunal's decisions largely upheld the CIT(Appeals)' rulings, emphasizing the nature of subsidies, the applicability of section 43B, the characterization of expenses, and the need for detailed verification in certain cases. The appeals were partly allowed, with specific directions for further verification and adjustments.

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