2001 (3) TMI 259 - AT - Income Tax

Issues Involved:
1. Disallowance of late payment of ESI, P.F., etc. u/s 43B.
2. Disallowance of unpaid bottling fees u/s 43B.
3. Disallowance of depreciation on R&D assets.
4. Treatment of expenditure on replacement of transformer as capital expenditure.
5. Addition of service charges on packing material u/s 40A(2)(b).
6. Disallowance of public relation and staff welfare expenses as entertainment expenses.

Summary of Judgment:

Issue 1: Disallowance of late payment of ESI, P.F., etc. u/s 43B

The Revenue's appeal (ITA No. 1546/Jp/1995) for the assessment year 1992-93 contested the deletion of disallowances u/s 43B by the CIT(A). The Tribunal upheld the CIT(A)'s order, citing decisions from other cases that payments made within the accounting year, even if beyond the due date, should be allowed as deductions. The Tribunal found no fault with the CIT(A)'s deletion of disallowances.

Issue 2: Disallowance of unpaid bottling fees u/s 43B

In ITA No. 1561/Jp/1995 and ITA No. 2072/Jp/1992, the assessee contested the disallowance of unpaid bottling fees u/s 43B. The Tribunal held that furnishing a bank guarantee for the unpaid amount should be treated as actual payment, thus allowing the deduction and deleting the disallowance of Rs. 6 lacs.

Issue 3: Disallowance of depreciation on R&D assets

The assessee's appeals (ITA No. 1561/Jp/1995 and ITA No. 2072/Jp/1992) contested the disallowance of depreciation on R&D assets. The Tribunal noted that the R&D assets were included in the block of assets and had not been discarded or closed. Following the concept of "block of assets" introduced w.e.f. 1st April 1988, the Tribunal allowed the depreciation and deleted the disallowance.

Issue 4: Treatment of expenditure on replacement of transformer as capital expenditure

The assessee argued that the expenditure on replacing a damaged transformer should be treated as revenue expenditure. The Tribunal agreed, citing various judicial pronouncements that replacement of worn-out parts does not bring in a new asset but maintains the efficiency of the existing setup. The Tribunal allowed the expenditure as revenue expenditure but ordered the withdrawal of depreciation already allowed as capital expenditure.

Issue 5: Addition of service charges on packing material u/s 40A(2)(b)

The assessee contested the addition of Rs. 8,889 u/s 40A(2)(b) for service charges on packing material supplied to M/s Sona Distilleries Ltd. The Tribunal followed its earlier decision in the assessee's own case for the assessment years 1985-86 and 1986-87, where such additions were deleted based on business expediency. The Tribunal deleted the addition.

Issue 6: Disallowance of public relation and staff welfare expenses as entertainment expenses

The assessee contested the disallowance of Rs. 97,350 out of public relation expenses and Rs. 30,000 out of staff welfare expenses as entertainment expenses. The Tribunal found the treating of Rs. 30,000 out of total staff welfare expenses as entertainment expenses to be reasonable. However, for public relation expenses, the Tribunal estimated that Rs. 50,000 out of Rs. 97,350 should be treated as entertainment expenses. Thus, a total of Rs. 80,000 was treated as entertainment expenses instead of Rs. 1,27,350.

Conclusion:

- The Revenue's appeal (ITA No. 1546/Jp/1995) was dismissed.
- The assessee's appeal (ITA No. 1561/Jp/1995) was allowed.
- The assessee's appeal (ITA No. 2072/Jp/1992) was partly allowed.

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