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TMI Blog1989 (4) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... total expenditure of Rs. 41,606 spent by the assessee for the purpose of its business. We have heard the parties on these grounds. 3. Before we take up these grounds for consideration along with the submissions that have been made before us, we bring into focus the factual backdrop from which they emerge. The assessee, during the previous year, continued the business of manufacture of solanium along with other business activities, such as manufacture of thyristor and diodes. The registered office of the company is at "Jeevan Tara", 5-Parliament Street, New Delhi. It had set up an independent silicon manufacturing unit at Faridabad. The return of income for the year under appeal was filed originally on 29-6-1979 declaring loss of Rs. 7,31,900. This return was, however, revised twice subsequently on 26-9-1981 and 6-7-1982 respectively declaring loss of Rs. 4,28,194 and Rs. 4,33,487. During the course of assessment proceedings, the IAC(A) came to consider the claim for deduction u/s. 80J with regard to silicon unit at Faridabad. The assessee had made a claim of deduction of Rs. 2,55,217 under this section, The IAC(A) found that the assessee had computed the deduction of Rs. 2,55,21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of meetings of different committees. He also found that some of the expenses as was evident from the details thereof filed before him were of entertainment nature on the customers of the assessee. He was, therefore, of the view that it would be reasonable and fair to treat 50 per cent of the expenses as relating to the expenses incurred on the employees. He, however, held that such expenses will not amount to entertainment expenditure. Thus, out of the total of Rs. 46,606 it was held by him that expenses to the extent of Rs. 23,304 were of the nature of entertainment expenditure. U/s. 37(2A) deduction to the extent of Rs. 5,000 was admissible to the assessee. Therefore, from Rs. 23,304 Rs. 5,000 were allowed and the balance of Rs. 18,304 was held as justified addition as against the addition of Rs. 41,606 made by the IAC (Asst.). This is the second issue raised in appeal that has to be determined by us. 7. Before us, the ld. counsel for the assessee submitted that the authorities below have not appreciated the first issue at all on the peculiar facts and circumstances of this case. It was contended that there is no presumption that money that was advanced by the assessee to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in itself a borrowing and, therefore, hit by the provisions of rule 19A read with section 80J and the manner and method in which the authorities below proceeded to determine the admissible deduction u/s. 80J was, therefore, fully justified. The ld, DR invited our attention in particular to the judgment of the Hon'ble Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 and a judgment of the Rajasthan High Court in the case of CIT v. Lodha Enterprises [1988] 170 ITR 107. It was pointed out that this judgment clearly lays down that special deduction u/s. 80J of the Income-tax Act, 1961. In respect of the newly established industrial undertaking is not allowable in respect of the borrowed capital. 10. Replying to the submission of the assessee that the case of the assessee is covered by the ratio of the judgment of the Tribunal in the case of Bishamber Dayal Badri Prasad, the ld. DR submitted that that case was not relevant because that was not on an issue involving deduction u/s. 80J. It was also contended that if the aggregate value of the assets and the borrowings is taken, the borrowings are in excess of the assets and, therefore, the proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also considered total capital of the main branch including the borrowed capital. Thereafter, the capital employed in the silicon unit as worked out by the assessee and capital and reserves of the main branch have been multiplied and divided by the capital of the main branch including the borrowed capital. By this process, the deduction u/s. 80J at 6 per cent of the capital employed has been arrived at amounting to Rs. 98.825 because the capital employed has been taken at Rs. 16,47,086 as against Rs. 42,53,617. In nut shell, the issue is whether this method adopted by the assessing officer is justified on the facts and circumstances of the case or under the provisions of law. 13. It is apparent that the assessing officer did not find any direct transfer of borrowed funds by the company to the silicon unit. This is so because no mention of it has either been made by him or by the ld. CIT(A). Even at the time of hearing before us no such transfer could be shown to exist. On the other hand, there is vehement assertion by the assessee that no borrowed capital, whatsoever, was transferred to silicon unit and as such, there is no link at all between the borrowings and the capital empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer on the basis of which the capital employed was reduced cannot be justified at all. The very basis on which the claim of the assessee was rejected in fact did not exist, as the denial of rightful claim was on mere conjectures and surmises without any enquiry to establish factual employment of borrowed capital in the silicon unit. 15. We also find that the assessee accepted the proposition that in case borrowed capital by the company is brought into the working capital of the silicon unit, the assessee will be not entitled to include it in the capital employed. On the other hand, the assessee had asserted that the capital employed in the silicon unit came out of paid up capital and reserves and surpluses of the company. It is not denied by the revenue that paid up capital and reserves and surpluses were in excess of the capital employed in the silicon unit. We also find that silicon unit is maintaining separate books of account, which have been audited by authorised chartered accountants. These books have also been accepted by the revenue. The assessee, therefore, could correctly work out capital employed by taking the figures recorded in these books. Therefore, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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