1994 (9) TMI 134 - AT - Income Tax

Summary

Issues Involved:
1. Denial of claim of investment allowance on the cost of filter plant.
2. Disallowance out of motor car expenses and depreciation for personal use by directors.
3. Claim of investment allowance deposit under Section 32AB.
4. Payment to Diners Club as business expenditure.
5. Disallowance under Rule 6D.
6. Depreciation allowance on the building occupied by the Managing Director for his residence.

Detailed Analysis:

1. Denial of Claim of Investment Allowance on Cost of Filter Plant:
The primary issue in ITA No. 198/Ind/90 for the assessment year 1986-87 concerns the denial of the investment allowance claim on the cost of a filter plant valued at Rs. 8,74,060. The assessee argued that the machinery was first put to use in May 1985, during the accounting period relevant to the assessment year 1986-87, and thus claimed investment allowance under Section 32A. The Assessing Officer and CIT(A) denied the claim, asserting that the machinery was acquired in May 1983 and should have been claimed in the immediately succeeding year. The Tribunal, however, noted that the date of purchase is immaterial for investment allowance, which is admissible in the year of installation or the immediately succeeding year of first use. Since the machinery was first used in May 1985, the Tribunal directed the Assessing Officer to allow the investment allowance for the assessment year 1986-87, provided other conditions were met.

2. Disallowance Out of Motor Car Expenses and Depreciation for Personal Use by Directors:
In ITA No. 198/Ind/90 and ITA No. 199/Ind/90, the Tribunal addressed the issue of disallowance of 1/5th of motor car expenses and depreciation for personal use by the directors. The Tribunal referenced a prior decision in M/s. D&H Secheron Electrodes Pvt. Ltd., concluding that such disallowances should not be made in the hands of the company. Instead, any personal use by directors should be treated as perquisites in their hands. Consequently, the disallowances were deleted.

3. Claim of Investment Allowance Deposit Under Section 32AB:
In ITA No. 200/Ind/90, the assessee claimed a deduction of Rs. 51,700 under Section 32AB for the purchase of a slide manufacturing machine. The Assessing Officer denied the claim, noting that Rs. 41,700 remained payable to the supplier as of the end of the accounting period. The CIT(A) allowed the claim to the extent of Rs. 10,000, the amount utilized during the previous year. The Tribunal upheld this decision, emphasizing that Section 32AB allows deduction for amounts utilized during the previous year for new machinery, and the audit report filed with the revised return was valid.

4. Payment to Diners Club as Business Expenditure:
In ITA No. 200/Ind/90, the Tribunal considered the disallowance of Rs. 1,830 paid to Diners Club. The Assessing Officer and CIT(A) disallowed the expense, deeming it unrelated to business. The Tribunal, however, held that club fees are allowable business expenditures as they facilitate better business contacts. This decision was based on the precedent set in Otis Elevators (India) vs. CIT.

5. Disallowance Under Rule 6D:
In ITA No. 288/Ind/90, the Revenue contested the CIT(A)'s direction to exclude taxi hire, coolie hire, and telephone expenses from disallowance under Rule 6D, restricting it to stay expenses. The Tribunal upheld the CIT(A)'s decision, which was based on the Special Bench decision in Sundaram Finance Ltd. vs. IAC.

6. Depreciation Allowance on the Building Occupied by the Managing Director for His Residence:
In ITA No. 288/Ind/90, the Revenue challenged the CIT(A)'s direction to include the value of depreciation in the value of perquisites provided to the Managing Director and consider it for disallowance under Section 40(c). The Tribunal dismissed this ground, noting that the direction favored the Revenue and the assessee had withdrawn a similar ground in its appeal.

Conclusion:
The Tribunal allowed the assessee's appeals in part, directing the allowance of investment allowance and deletion of disallowances for motor car expenses and depreciation. The Tribunal also upheld the CIT(A)'s decisions on the restricted claim under Section 32AB and the allowance of club fees as business expenditure. The Revenue's appeals were dismissed, affirming the CIT(A)'s directions on disallowance under Rule 6D and depreciation allowance on the building occupied by the Managing Director.