1990 (6) TMI 112 - AT - Income Tax

Business Expenditure, Agricultural Development Allowance, Repairs And Insurance, Investment Allowance

Summary

Issues Involved:
1. Disallowance of provision for excise duty rebate.
2. Weighted deduction under Section 35C.
3. Investment allowance on plant and machinery in the Distillery Unit.
4. Disallowance of expenditure for acquiring an 11 KV motor.
5. Provision for liquidated damages.
6. Addition under Section 41(1) for outstanding liabilities.
7. Addition under Section 41(1) for supplies to Dongarkada Project.
8. Provision for work completed and not billed.
9. Addition under Section 41(1) for wrong billing by APSEB.
10. Provision for sales tax on packing material.
11. Provision for remission of excise duty on packing charges.
12. Deduction for capital expenditure on scientific research.
13. Investment allowance for computer acquisition.
14. Claims under Section 80J and depreciation rates.
15. Rectification order by CIT (Appeals).

Analysis of Judgment:

1. Disallowance of Provision for Excise Duty Rebate:
The assessee claimed a provision of Rs. 24,39,553 for excise duty rebate withdrawn by the Central Excise Department. The Income-tax Officer and Commissioner (A) disallowed this provision, citing Section 43B, which mandates actual payment for deduction. However, the Tribunal held that since the assessee followed the mercantile system of accounting and the demand notices were enforceable until withdrawn, the provision was valid. Section 43B was not applicable as it came into force from 1-4-1984.

2. Weighted Deduction under Section 35C:
The assessee's claim for weighted deduction under Section 35C for various expenditures was partially allowed by the Commissioner (A). The Tribunal upheld the assessee's entitlement, referencing previous Tribunal decisions that allowed similar deductions for contributions to the Sugar Cane Development Council, subsidies for superior seeds and pesticides, detrashing wages, and other miscellaneous expenditures.

3. Investment Allowance on Plant and Machinery in the Distillery Unit:
The Income-tax Officer denied investment allowance for machinery used to produce arrack, a prohibited item. The Tribunal remitted the matter for fresh consideration, directing the Income-tax Officer to determine if the assessee mainly produced non-prohibited items, as the industrial licence was for industrial alcohol, not specifically arrack.

4. Disallowance of Expenditure for Acquiring an 11 KV Motor:
The assessee claimed the cost of an 11 KV motor as revenue expenditure, which was disallowed by the Income-tax Officer as capital expenditure. The Tribunal allowed the claim, stating that the replacement of a burnt-out motor falls under Section 31 for repairs and maintenance, even if the old motor was kept as a stand-by.

5. Provision for Liquidated Damages:
The assessee provided for liquidated damages of Rs. 27,47,473 for delayed machinery supply. The Tribunal upheld the provision, stating that liability accrued at the time of breach and the assessee's method of accounting for such provisions was consistent. Any subsequent waiver or rebate would be taxable under Section 41(1).

6. Addition under Section 41(1) for Outstanding Liabilities:
The Income-tax Officer added Rs. 3,38,186 for liquidated damages related to contracts with Hindustan Lever Ltd. and West Godavari Co-op. Sugars. The Tribunal deleted the additions, noting that the liabilities were written back in the years when remission occurred, and there was no evidence of remission in the current assessment year.

7. Addition under Section 41(1) for Supplies to Dongarkada Project:
The Income-tax Officer added Rs. 1,00,000 under Section 41(1) due to lack of details on a pending court case. The Tribunal directed verification of the assessee's records, noting that the amount was accounted for in the year the liability was remitted.

8. Provision for Work Completed and Not Billed:
The Tribunal upheld the provision of Rs. 7,42,399 for work completed by Bengal Bihar Construction Co. but not billed, rejecting the revenue's objection about verification of corresponding values in the balance sheet.

9. Addition under Section 41(1) for Wrong Billing by APSEB:
The Income-tax Officer added Rs. 1,70,521 for wrong billing by APSEB, claiming the liability ceased when the High Court vacated a stay. The Tribunal deleted the addition, noting the liability ceased only on 29-12-1983, and the amount was offered for assessment in the correct year.

10. Provision for Sales Tax on Packing Material:
The Income-tax Officer disallowed Rs. 29,75,546 for sales tax on packing materials, citing no subsisting demand. The Tribunal deleted the addition, stating the provision was valid under the mercantile system of accounting, and no final assessment had concluded in the current year.

11. Provision for Remission of Excise Duty on Packing Charges:
The Tribunal confirmed the deletion of Rs. 81,445 for remission of excise duty on packing charges, as the liability was pending before the Supreme Court and had not reached finality in the current year.

12. Deduction for Capital Expenditure on Scientific Research:
The Tribunal deleted the disallowance of Rs. 3,63,962 for a digester tank used in scientific research, noting the prescribed authority had approved it as an asset used for research.

13. Investment Allowance for Computer Acquisition:
The Tribunal rejected the claim for investment allowance on a computer, as the cost was already allowed as a deduction under Section 35 in a previous year, and the embargo on double deduction applied.

14. Claims under Section 80J and Depreciation Rates:
The assessee and revenue did not press their claims under Section 80J and for new depreciation rates, making these issues academic.

15. Rectification Order by CIT (Appeals):
The Tribunal set aside the rectification order dated 17-3-1987 by the CIT (Appeals) due to a violation of natural justice, directing a re-adjudication after hearing both sides.

Conclusion:
Appeal No. 1786/Hyd./86 is partly allowed, appeal No. 1284/Hyd./87 is allowed, and appeal No. 1913/Hyd./86 is dismissed.