1990 (6) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deductions for provision of liquidated damages.
2. Claim for weighted deduction u/s 35C.
3. Deduction for contributions to Zilla Parishad.
4. Deduction u/s 80J.
5. Claim for higher rate of depreciation.
6. Deduction of bad debts.

Summary:

1. Disallowance of Deductions for Provision of Liquidated Damages:
The assessee, a Public Limited Company, claimed a deduction of Rs. 21,47,801 as a provision for liquidated damages due to delays in machinery delivery. The Income-tax Officer disallowed this, stating that the delivery dates and actual damages fell beyond the previous year. The Commissioner (A) upheld this view, noting that the liability could not be enforced until contract completion. However, the Tribunal found that the liability for liquidated damages accrued at the point of breach, i.e., when the delivery was delayed, and thus, the provision should be allowed as a deduction. The Tribunal directed verification of quantification and noted that any subsequent waiver or rebate should be taxed u/s 41(1).

2. Claim for Weighted Deduction u/s 35C:
The assessee claimed weighted deductions for three items: contributions to the Cane Development Council Fund, cash subsidies to cane growers for seeds, and expenses for equipment repair. The Commissioner (A) allowed the first item based on a prior Tribunal decision. The Tribunal upheld this. For the second item, the Tribunal accepted the assessee's method of reimbursing the difference in seed prices as eligible for deduction. The third item was also upheld, reasoning that repair expenses were intrinsic to the provision of equipment.

3. Deduction for Contributions to Zilla Parishad:
The assessee contributed Rs. 5,00,000 to the Chairman, Zilla Parishad, and Rs. 1,50,000 for road formation. The Income-tax Officer and Commissioner (A) disallowed these as capital expenditures. The Tribunal, referencing the Supreme Court's decision in L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT, held that these contributions facilitated business operations and were deductible u/s 37. However, the claim for weighted deduction u/s 35C was denied as the Zilla Parishad was not an approved body.

4. Deduction u/s 80J:
The claim u/s 80J was not pressed by the assessee as it was subsequently allowed by the Income-tax Officer.

5. Claim for Higher Rate of Depreciation:
The assessee's claim for a higher rate of depreciation on machinery in contact with corrosive chemicals was rejected, consistent with prior years and upheld by the Andhra Pradesh High Court.

6. Deduction of Bad Debts:
The Commissioner (A) found that Rs. 21,520.25 was a rebate, not a bad debt, and allowed it as a deduction u/s 37. The Tribunal confirmed this, noting the rebate was due to complaints about printing quality.

Conclusion:
The appeal by the assessee is partly allowed, and the appeal of the Revenue is dismissed.