1991 (3) TMI 208 - AT - Income Tax

Expenditure On Scientific Research, Deductions, Business Expenditure, Depreciation, Method Of Accounting, Investment Allowance

Issues Involved:
1. Disallowance of investment allowance on Digester Tanks
2. Deduction claim for Digester Tank as capital expenditure for scientific research
3. Deduction claim for Vertical Crystallisers as capital expenditure for scientific research
4. Investment allowance in Distillery Unit
5. Depreciation on Cooper Piano Miller
6. Depreciation on Energy Saving Devices
7. Deduction of Coal Subsidy in Cement Unit
8. Deduction of Wage Board Award
9. Deduction of interest on amounts due to S.T.C.
10. Deduction of repairs as current repairs
11. Treatment of Sales Tax on Packing Charges
12. Depreciation and investment allowance on Excavator
13. Deduction of commission for Sevangala Unit
14. Weighted deduction under section 35B
15. Deduction of insurance premium
16. Deduction of guarantee commission
17. Deduction of commission for Central Workshop Unit
18. Deduction of repairs for Central Workshop Unit
19. Addition of estimated additional profits
20. Deduction of liquidated damages
21. Valuation of work-in-progress
22. Deduction of pre-paid taxes under section 43B

Issue-wise Detailed Analysis:

1. Disallowance of Investment Allowance on Digester Tanks:
The assessee claimed an investment allowance on Digester Tanks which was disallowed under section 32A(1)(d) because the entire cost was allowed as a deduction in computing income in one or more previous years. The Tribunal confirmed this disallowance, interpreting "one previous year" to include multiple years.

2. Deduction Claim for Digester Tank as Capital Expenditure for Scientific Research:
The assessee's claim for Rs. 12,73,322 as capital expenditure for scientific research was initially disallowed by the Income-tax Officer and Commissioner (Appeals). However, the Tribunal allowed the claim based on prior approval from the Government of India, confirming the Digester Tank was used for scientific research.

3. Deduction Claim for Vertical Crystallisers as Capital Expenditure for Scientific Research:
The assessee's claim for Rs. 10,00,198 was initially disallowed. The Tribunal allowed the claim, relying on recognition from the Department of Scientific & Industrial Research, confirming the crystallisers were used for in-house research.

4. Investment Allowance in Distillery Unit:
The claim for investment allowance on plant and machinery in the Distillery Unit was remitted back to the Income-tax Officer to determine if the machinery was mainly used for articles not listed in the Eleventh Schedule.

5. Depreciation on Cooper Piano Miller:
The claim was remitted to the Income-tax Officer for further findings. The assessee did not press the claim for this assessment year as it was allowed in the subsequent year.

6. Depreciation on Energy Saving Devices:
The Tribunal allowed the claim for 100% depreciation on a Jyothi Generator for a 2000 KW Turbo Alternator, interpreting it as part of a co-generation system under the amended rules from 2-4-1983.

7. Deduction of Coal Subsidy in Cement Unit:
The Tribunal allowed the deduction of Rs. 2,37,982, recognizing the liability based on the Cement Controller's letter and the assessee's acceptance of the excess claim.

8. Deduction of Wage Board Award:
The Tribunal allowed the deduction of Rs. 31,03,608, recognizing the liability for increased wages accrued from the date the assessee agreed to the award's retrospective effect.

9. Deduction of Interest on Amounts Due to S.T.C.:
The Tribunal allowed the deduction of Rs. 5,76,000, recognizing the interest liability as accrued due to the condition of the stay granted by the Supreme Court.

10. Deduction of Repairs as Current Repairs:
The Tribunal allowed the deduction of Rs. 1,65,067 for the cost of replacing motors, recognizing it as current repairs under section 31.

11. Treatment of Sales Tax on Packing Charges:
The Tribunal remitted the matter to the Income-tax Officer to ascertain whether the sales tax collected was treated as deposits or trading receipts, impacting its inclusion in income and deduction under section 43B.

12. Depreciation and Investment Allowance on Excavator:
The Tribunal allowed the claim for depreciation and investment allowance on an Electric Polcain 300 CK Excavator, recognizing it was commissioned and put to use before 30-6-1983.

13. Deduction of Commission for Sevangala Unit:
The Tribunal allowed the deduction of Rs. 99,03,062, recognizing the liability for commission accrued when the contract was secured, regardless of the staggered payment terms.

14. Weighted Deduction under Section 35B:
The Tribunal allowed the weighted deduction under section 35B for commission paid to agents, recognizing the maintenance of an agency outside India for export market development.

15. Deduction of Insurance Premium:
The Tribunal allowed the deduction of Rs. 15,45,932 for insurance premium, recognizing the liability accrued from the commencement of the work covered by the policy.

16. Deduction of Guarantee Commission:
The Tribunal allowed the deduction of Rs. 14,24,170, recognizing the liability for guarantee commission incurred at the inception of the contract.

17. Deduction of Commission for Central Workshop Unit:
The Tribunal allowed the deduction of Rs. 17,96,254, recognizing the liability for commission accrued on procuring the order, regardless of the staggered payment terms.

18. Deduction of Repairs for Central Workshop Unit:
The Tribunal allowed the deduction of Rs. 1,39,779 for special attachments made for a particular job, recognizing it as revenue expenditure since they were discarded after use.

19. Addition of Estimated Additional Profits:
The Tribunal deleted the addition of Rs. 1,70,00,000, recognizing the audited accounts and the reasons for the loss, including increased costs and a strike.

20. Deduction of Liquidated Damages:
The Tribunal allowed the deduction of Rs. 19,14,141 for liquidated damages, recognizing the liability accrued from the delay in delivery as per the contract terms.

21. Valuation of Work-in-progress:
The Tribunal deleted the addition of Rs. 1,62,93,832, recognizing the assessee's long-established method of valuing work-in-progress based on direct costs as accurate and consistent.

22. Deduction of Pre-paid Taxes under Section 43B:
The Tribunal directed the Income-tax Officer to allow the deduction of pre-paid taxes incurred during the previous year, recognizing the entire amount without apportionment for certain taxes like property tax.

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