1986 (2) TMI 91 - AT - Income Tax

Issues Involved:
1. Higher rate of depreciation on plant and machinery.
2. Addition to the written down value of assets on amalgamation.
3. Gratuity exemption u/s 10(10) for disallowance u/s 40A(5).
4. Depreciation and investment allowance on roads and culverts.
5. Deduction of guest house expenses.
6. Deduction of annuity and lump sum benefits to employees.
7. Unabsorbed relief u/s 80J on amalgamation.
8. Cancellation of interest charged u/s 216.
9. Ceiling u/s 40A(5) for a 15-month previous year.
10. Deduction of provision for payment of pension.
11. Expenses on sales and contests for disallowance u/s 37(3A).
12. Valuation of stocks on amalgamation.
13. Deduction of legal expenses for amalgamation.

Summary:

1. Higher Rate of Depreciation on Plant and Machinery:
The Commissioner (Appeals) allowed a higher depreciation rate of 15% on the assessee's plant and machinery coming into contact with crude oil and reduced crude oil, classified as corrosive chemicals. The Tribunal upheld this decision, agreeing that the classification of corrosive chemicals should be determined by experts.

2. Addition to Written Down Value of Assets on Amalgamation:
The Commissioner (Appeals) added Rs. 21,42,815 to the written down value of assets taken over on amalgamation. The Tribunal reversed this decision, stating that the unabsorbed depreciation should be considered as "depreciation actually allowed" u/s 43(6) Explanation 3.

3. Gratuity Exemption u/s 10(10) for Disallowance u/s 40A(5):
The Tribunal followed the Special Bench decision in Kodak Ltd., holding that gratuity exempt u/s 10(10) should not be considered for disallowance u/s 40A(5). However, any excess over the exempt amount should be considered.

4. Depreciation and Investment Allowance on Roads and Culverts:
The Tribunal followed the Bombay High Court ruling in Sandvik Asia Ltd., treating roads and culverts within the factory compound as buildings, not plant. Consequently, the Commissioner (Appeals)'s order granting higher depreciation, extra shift allowance, and investment allowance was reversed.

5. Deduction of Guest House Expenses:
The Tribunal, following the Karnataka High Court ruling in N.G.E.F. Ltd., disallowed the guest house expenses, as there was no evidence that the guest houses were for the exclusive use of employees on leave.

6. Deduction of Annuity and Lump Sum Benefits to Employees:
The Tribunal held that annuity and lump sum benefits should be allowed on an actual payment basis, not on an actuarial basis, reversing the Commissioner (Appeals)'s order.

7. Unabsorbed Relief u/s 80J on Amalgamation:
The Tribunal upheld the Commissioner (Appeals)'s direction to allow the unabsorbed relief u/s 80J of Lube India Ltd. against the profits of the assessee-company, citing the binding nature of the Board's circulars.

8. Cancellation of Interest Charged u/s 216:
The Tribunal upheld the Commissioner (Appeals)'s cancellation of interest charged u/s 216, considering the bona fide estimate of income by the wholly-owned Government company.

9. Ceiling u/s 40A(5) for a 15-Month Previous Year:
The Tribunal reversed the Commissioner (Appeals)'s direction to apply a ceiling of Rs. 75,000 for a 15-month previous year, holding that the limit for an ex-employee remains Rs. 60,000.

10. Deduction of Provision for Payment of Pension:
The Tribunal reversed the Commissioner (Appeals)'s order allowing the provision for payment of pension to former employees of Caltex Oil Refining India Ltd. on an actuarial basis, maintaining the disallowance by the ITO.

11. Expenses on Sales and Contests for Disallowance u/s 37(3A):
The Tribunal upheld the Commissioner (Appeals)'s order excluding Rs. 1,07,393 of sales and contest expenses from the advertisement expenses for disallowance u/s 37(3A).

12. Valuation of Stocks on Amalgamation:
The Tribunal reversed the Commissioner (Appeals)'s deletion of the addition of Rs. 10,25,480, holding that the same method of valuation should be applied to both opening and closing stocks.

13. Deduction of Legal Expenses for Amalgamation:
The Tribunal upheld the Commissioner (Appeals)'s allowance of legal expenses for amalgamation as revenue expenditure, citing relevant judicial precedents and the nature of the amalgamation order.

Conclusion:
The appeals were partly allowed, with the Tribunal reversing and upholding various directions of the Commissioner (Appeals) based on the merits and legal precedents.

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