1987 (2) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Claim of extra-shift allowance.
2. Treatment of certain expenses as entertainment expenses.
3. Departmental appeal on the liability of Excise Duty based on a show cause notice.
4. Departmental appeal on the claim of expenditure on scientific research for assets transferred from business use.

Issue-wise Detailed Analysis:

1. Claim of Extra-Shift Allowance:
The assessee claimed an extra-shift allowance of Rs. 2,06,677, arguing that it should be provided based on the extra shift run by the concerns, not on the working of each machine. The authorities below disallowed this claim, insisting that the extra shift should be related to each machine's working. The Tribunal found the assessee's claim justified based on specific provisions in the IT Rules, which state that the calculation should be made in proportion to the number of days the concern worked double or triple shifts. Thus, the Tribunal allowed the assessee's claim.

2. Treatment of Certain Expenses as Entertainment Expenses:
The assessee contested the treatment of Rs. 38,376 as entertainment expenses. The expenses included costs incurred for lodging and boarding of buyers' inspectors, gifts to customers valued over Rs. 50, and entertainment expenses at the Labour Court. The Tribunal held that expenses incurred on lodging and boarding in a hotel could not be treated as staff welfare under Explanation 2 to Section 37(2B) and must be considered entertainment expenses. Gifts over Rs. 50 were disallowed under Rule 6B as they were for advertisement purposes. Expenses incurred at the Labour Court were also disallowed as they were not related to staff. The Tribunal confirmed the disallowance by the lower authorities.

3. Departmental Appeal on the Liability of Excise Duty Based on a Show Cause Notice:
The Department contended that liabilities of Rs. 9,06,352 and Rs. 42,257, claimed by the assessee based on a show cause notice, should not be allowed as expenses. The Tribunal noted that the show cause notice was akin to a procedural enquiry and did not constitute a quantified liability. The Tribunal emphasized that excise duty is a tax on production, not on raw materials, and must be related to the actual production of goods. The Tribunal concluded that the claim was not tenable in law, as the liability was not determined or accepted by the assessee as related to the actual goods produced. The Tribunal upheld the Department's view, citing relevant case law, including the Supreme Court decision in State Bank of India vs. CIT.

4. Departmental Appeal on the Claim of Expenditure on Scientific Research for Assets Transferred from Business Use:
The Department argued that the claim of expenditure on scientific research for assets transferred from business use was not allowable. The Tribunal referred to its earlier decision, which held that an asset must be purchased in the year for scientific research purposes to be allowed as an expenditure. Since the asset in question was transferred from business use and not purchased in the year, the Tribunal upheld the Department's claim and restored the order of the ITO.

Conclusion:
Both the assessee's and the Department's appeals were partly allowed. The Tribunal allowed the extra-shift allowance claim but confirmed the disallowance of entertainment expenses. It also upheld the Department's stance on the liability of excise duty based on a show cause notice and the claim of expenditure on scientific research for transferred assets.