1990 (4) TMI 104 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenses related to stock of bottles and wooden shells.
2. Addition of income accrued from hiring a barge.
3. Dispute over the accrual of hiring charges for the barge.
4. Disallowance of investment allowance on additions to the barge.

Detailed Analysis:

1. The first issue pertains to the disallowance of expenses related to the stock of bottles and wooden shells by the taxing officers. The assessee's practice was to capitalize expenses on the purchase of fresh stock and claim breakage of bottles as revenue expenditure. The disallowance made by the taxing officers was deleted by the CIT(A) for both assessment years. The Tribunal found no defect in the accounts and upheld the CIT(A)'s decision, stating that the assessee was entitled to deductions for costs of stock that perished or became unserviceable, as well as expenses on repairs.

2. The second issue involves the addition of income accrued from hiring a barge to a foreign company. The taxing officers added the hire charges to the assessee's income on an accrual basis, but the CIT(A) deleted these additions. The Tribunal noted that the hirer refused to make payments, leading the assessee to demand arrears without success. The Tribunal agreed with the CIT(A) that no real income accrued to the assessee, as evidenced by the correspondence and actions taken by both parties.

3. The third issue revolves around a dispute over the accrual of hiring charges for the barge. Despite the agreement terms for hire payments, the hirer failed to pay, leading the assessee to take steps to recover the amount. The Tribunal analyzed the correspondence between the parties and concluded that the debt became bad at the inception, making it unrecoverable. The Tribunal relied on legal precedents to support the decision that no real income accrued to the assessee.

4. The final issue concerns the disallowance of investment allowance on additions to the barge. The assessee claimed investment allowance under section 32A for expenses incurred on improving the barge. However, the Tribunal noted that section 32A does not permit investment allowance on additions to ships, rendering the claim not maintainable. Consequently, the Tribunal dismissed the appeals of both the Department and the assessee.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on the disallowance of expenses related to stock, the addition of income from hiring the barge, and the dispute over hiring charges accrual. Additionally, the Tribunal dismissed the claim for investment allowance on additions to the barge based on the provisions of section 32A.