1979 (8) TMI 114 - AT - Income Tax

Issues Involved:
1. Eligibility of profit on sale of import licenses for relief under Section 80J.
2. Eligibility for extra shift allowance on plant and machinery.
3. Computation of capital employed for Section 80J relief.
4. Eligibility for weighted deduction under Section 35B.
5. Deduction of hotel bill expenses under Section 37(ii)(b).

Issue-wise Detailed Analysis:

1. Eligibility of profit on sale of import licenses for relief under Section 80J:
The assessee contended that the profit on the sale of import licenses should be considered as profit derived from an industrial undertaking eligible for relief under Section 80J. The Income Tax Officer (ITO) had excluded this profit, arguing it was not "derived from" the industrial undertaking. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision. However, the Tribunal found merit in the assessee's argument, noting that the import licenses were intimately connected with the export business. The Tribunal referenced the dictionary definition of "derived" and relevant case law, concluding that the sale proceeds of import entitlements should be considered as derived from the industrial undertaking. Thus, the assessee's contention was allowed.

2. Eligibility for extra shift allowance on plant and machinery:
The assessee claimed extra shift allowance on plant and machinery used in the manufacturing process. The AAC denied this allowance, interpreting the relevant depreciation schedule to exclude refrigeration plant containers from extra shift allowance. The Tribunal upheld the AAC's interpretation, noting that the prohibition of NESA (No Extra Shift Allowance) applied to refrigeration plant containers, regardless of whether they contained racks or not. Therefore, the assessee's contention was rejected.

3. Computation of capital employed for Section 80J relief:
The assessee argued that the capital employed should be computed based on the balance sheet as of the last day of the previous year, rather than the first day, and without deducting liabilities. The AAC directed the ITO to follow the Madras High Court decision in Madras Industrial Linings Ltd., which prescribed the computation of capital without deducting liabilities. The Tribunal agreed, referencing several High Court decisions that supported the assessee's position. However, the Tribunal rejected the assessee's further contention that the gross value of assets as of the last day of the previous year should be used, finding no support for this proposition.

4. Eligibility for weighted deduction under Section 35B:
The assessee claimed weighted deduction under Section 35B for various expenses, which was not initially claimed before the ITO. The AAC rejected this claim due to the lack of a detailed breakdown of expenses. The Tribunal upheld the AAC's decision, citing the Supreme Court decision in Addl. CIT vs. Gurjargravures Pvt Ltd., which held that new claims requiring factual investigation should not be entertained at the appellate stage. Thus, the assessee's claim for weighted deduction was rejected.

5. Deduction of hotel bill expenses under Section 37(ii)(b):
The ITO had disallowed a sum of Rs. 4,907 as entertainment expenses. The AAC, upon reviewing the details, restricted the disallowance to Rs. 2,500, finding part of the hotel bill to be inadmissible. The Tribunal found the AAC's allocation reasonable and declined to interfere. Therefore, the Revenue's appeal on this ground was dismissed.

Conclusion:
The Tribunal allowed the assessee's appeal in part, granting relief under Section 80J for the profit on the sale of import licenses and confirming the computation of capital employed without deducting liabilities. However, it rejected the claims for extra shift allowance, weighted deduction under Section 35B, and the use of the last day's balance sheet for capital computation. The Tribunal also upheld the AAC's partial disallowance of hotel bill expenses, dismissing the Revenue's appeal on this ground.

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