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1991 (3) TMI 180 - AT - Income TaxAccounting Year, Additional Depreciation, Advance Tax, Bona Fide, Business Expenditure, Carrying On Business, Investment Allowance, Plant And Machinery, Sales Tax Act, Sales Tax Liability
Issues Involved:
1. Disallowance of sales-tax provision. 2. Denial of additional depreciation and investment allowance on foreign exchange rate difference. 3. Levy of interest under section 215. 4. Treatment of subsidy for depreciation and investment allowance purposes. 5. Allowance of additional depreciation and investment allowance on exchange rate difference. Detailed Analysis: 1. Disallowance of Sales-Tax Provision: The appellant company made a provision of Rs. 27,25,559 for potential sales-tax liability on sales to M/s. Western India Erectors Ltd. (W1) for the accounting years 1980-81 and 1981-82. The provision was based on legal advice indicating possible sales-tax liability. However, the Income-tax Officer disallowed the provision, stating it was based on mere doubt and was eventually reversed in subsequent years. The CIT(A) confirmed this disallowance, noting that the liability never actually accrued. The Tribunal upheld this view, emphasizing that deductions for statutory liabilities can only be allowed if the liability definitely and actually existed in the year of accrual. The Tribunal cited the Supreme Court judgment in Kedarnath Jute Mfg. Co. Ltd. v. CIT but found it inapplicable since no sales-tax liability was ultimately imposed by the sales-tax authorities. 2. Denial of Additional Depreciation and Investment Allowance on Foreign Exchange Rate Difference: The appellant claimed additional depreciation and investment allowance on foreign exchange rate differences related to machinery installed in previous years. The Income-tax Officer denied this claim, stating that such differences should not be included in the actual cost of assets for these purposes. The CIT(A) directed the Income-tax Officer to verify the exchange rate difference related to machinery installed during the year under consideration and allow the deductions if other conditions were met. The Tribunal confirmed this decision, noting that the conditions for these deductions are not fulfilled for machinery installed in earlier years. 3. Levy of Interest Under Section 215: The Income-tax Officer levied interest under section 215, which was confirmed by the CIT(A). The appellant argued that the appeal against the levy of interest is maintainable, citing the Supreme Court's judgment in Central Provinces Manganese Ore Co. Ltd. v. CIT. The Tribunal agreed that the appeal is maintainable and examined whether the provision for sales-tax could have been anticipated when estimating advance-tax. The Tribunal concluded that the appellant had a bona fide belief about the sales-tax liability, which was not unreasonable given the circumstances. Therefore, the Tribunal directed the Income-tax Officer to verify the figures and delete the interest if the pre-paid taxes exceeded the tax due after excluding the disallowed sales-tax provision. 4. Treatment of Subsidy for Depreciation and Investment Allowance Purposes: The Revenue appealed against the CIT(A)'s decision that subsidy should not be deducted from the actual cost for depreciation and investment allowance purposes. The Tribunal dismissed this ground, citing the Gujarat High Court judgment in CIT v. Grace Paper Industries (P.) Ltd., which supported the CIT(A)'s view. 5. Allowance of Additional Depreciation and Investment Allowance on Exchange Rate Difference: The Revenue also contested the CIT(A)'s direction to allow additional depreciation and investment allowance on exchange rate differences related to machinery installed during the year. The Tribunal found no merit in this contention, noting that the CIT(A) had directed the Income-tax Officer to verify the conditions and allow the deductions accordingly. Conclusion: - The Tribunal dismissed the appeals concerning the disallowance of sales-tax provision and denial of additional depreciation and investment allowance on foreign exchange rate differences. - The Tribunal allowed the appeal regarding the levy of interest under section 215 for statistical purposes, directing verification of figures. - The Tribunal dismissed the Revenue's appeal concerning the treatment of subsidy and the allowance of additional depreciation and investment allowance on exchange rate differences.
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