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TMI Blog1991 (7) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,22,946 and Rs. 1,25,409 respectively are revenue receipts liable to tax. 5. After hearing the parties, we are of the opinion that in view of retrospective amendment by insertion of s. 2(25) (sic) and decision of the Special Bench of the Tribunal in the case of M/s Gedore Tools (India) Pvt. Ltd., vs. IAC (1988) 70 CTR (Trib) (Del) (SB) 69 : (1988) 25 ITD 193 (Del) (SB), this ground has to be decided against the assessee. 6. The next grievance in the assessee's appeal relates to the disallowance of Rs. 75,938 under s. 37(3A) to 37(3D) of the Act. The disallowance had been made by the Assessing Officer by applying provisions of s. 37(3A) to (3D) to the following expenditure: . . Rs. (1) Car expenses 1,08,382 (2) Car depreciation 34,971 (3) Taxi hire 8,000 (4) Advertisement 43,535 (5) Free samples 2,73,066 (6) Fair exhibition 11,740 7. The submission of the learned counsel for the assessee Shri Ajay Vohra is that the car expenses include Rs. 37,741 for repairs. Expenses to repair of motor car are allowable under s. 32 (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental Representative supports the action of the CIT(A). 11. After considering the rival submissions, we find substance in the ground of the assessee and hold that this amount cannot be disallowed. 12. The next item of expenditure is on fair and exhibition, amounting to Rs. 11,740. The details of this expenditure are given at page 13 of the Paper Book. Out of total expenditure on fairs exhibitions, Rs. 11,740 were disallowed. The case of the assessee is that provisions of s. 37(3A) are not applicable for disallowance. As against this, the learned Departmental Representative supported the action of the CIT(A). 13. We have considered the rival submissions. We find that s. 37(3C)(i) excludes from the purview of disallowance under s. 37(3A) expenditure on advertisement, publicity and sales promotion outsideIndia. Therefore, we hold that the amount of Rs. 11,740 cannot be disallowed. 14. The next ground in the assessee s appeal is that the CIT(A) has erred in sustaining an addition of Rs. 800 on account of perquisite value of telephone installed at the residence of the Director. At the outset the learned counsel for the assessee pointed out that in asst. yr. 1983 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57,717 out of repairs and maintenance expenses as capital in nature. 21. Having heard both the parties we have gone through the details of expenditure incurred on repairs. We find that this expenditure was incurred on purchasing of wood for repair of windows, doors, roofing beeding, bending etc. cost of Iron Steel cost of repair of flooring (stone marble chips) and cost of doors and windows, tower bolts, handles etc. Considering the fact that this expenditure was incurred on a rented premises, it is held to be an expenditure of revenue nature. We Therefore, set aside the order of the CIT(A) and direct the ITO to delete to the same. 22. The next grievance of the assessee is that the CIT(A) erred in confirming the disallowance to the extent of Rs. 19,120 out of general expenses The assessee incurred an expenditure on entertainment of foreign buyers. The IAC (Asst) as well as the CIT(A) made disallowance under s. 37(2A) of the IT Act considering the same purely on entertainment. 23. The learned counsel for the assessee submitted that in asst. yr. 1983-84 the Tribunal has estimated 40 per cent of the expenditure to be allocable by employees participation and excluded the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in that order, we allow this ground of the assessee and direct the Assessing Officer to delete the disallowance. 31. The next grievance in the assessee s appeal is that the CIT(A) erred in confirming the disallowance of Rs. 1,62,840 out of export market development expenses During the assessment year under consideration the assessee had spent Rs. 1,84,780 for export market development fees. The Assessing officer made disallowance on the ground that the expenditure is in the nature of entertainment expenditure. The case of the assessee was that this expenditure has been incurred in connection with the travelling of foreign buyers. who come in connection with business of the assessee. However, the CIT(A) treated Rs. 21,940 for export market development and rest was disallowed. 32. The learned counsel for the assessee pointing out the details and history of the expenditure given at pages 15 and 16 of paper Book submitted that this expenditure cannot be disallowed in view of the decision of the special bench in the case of J. Hemchand Co. vs. Second ITO (1982) 1 SOT 150 (Bom) and in the case of ITO s. Happy Sound Industries (1982) 1 SOT 172 (Del). It was pointed out that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctioned for entertainment and sometime half of it. But this fact cannot be denied that the assessee had certainly spent some amount on entertainment when gone on foreign visit. Therefore, instead of Rs. 35,738 we think that Rs. 15,000 can be disallowed on estimate basis. This ground is, therefore, partly allowed. 37. The next grievance in the assessee s appeal is that the CIT(A) erred in confirming the disallowance in respect of guest house at Mussoorie. At Mussoorie the assessee company has building which is used as a guest house The case of the assessee is that the guest house expenditure is allowable under s. 32. It cannot be disallowed under s. 37(4) as held by the Bombay High Court in the case of CIT vs. Chase Bright Steel Ltd. (1989) 75 CTR (Bom) 60 (1989) 177 ITR 124 (Bom) and various decisions of the Tribunal given as under; (i) Eicher Good earth Ltd. vs. IAC (A) Delhi Bench 'E'' (ii) Purolator India Ltd. vs. IAC (A) Delhi Bench. (iii) American Bureau of Shipping vs. ITO (1986) 19 ITD 793 (Bom). It was submitted that the depreciation is allowable on building. As against this, the learned Departmental Representative supported the action of the revenue authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rheads incurred by the head office to Mathura Unit on the ground that in the previous year relevant to the asst. yr. 1982-83 the unit had worked only for three months whereas it has worked for full 12 months. The learned Departmental Representative supported the action of the CIT(A). 41. We have considered the rival submissions. Keeping in view the fact that the unit had worked for full 12 months in the previous year relevant to the asst. yr. 1983-84 the submission of the learned counsel for the assessee seems to be justified with regard to Mathura Unit. Therefore, we, direct that while working out deduction admissible under s. 80HH the assessees allocation of fixed overhead expenditure incurred by the Head office atMathuraunit should be worked out. We would, therefore, direct IAC (Asst) to compute deduction by taking 10 per cent of the over-head expenses claimed This ground is allowed. 42. The next grievance in the assessee s appeal relates to deduction under s. 80-1 in respect of Jamna Kinara Unit The assessee claimed deduction under s.80-1 in respect of Jamna Kinara Unit on the same basis as given for Mathura Unit However the IAC (Asst) and CIT(A) had disallowed deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were reduced from the profit and it resulted into a loss. Therefore, the assessee could not pay first two instalments of advance tax. This is a bona fide action of the assessee. If there is no Mens rea the assessee cannot be held liable to pay interest on advance tax. We find substance in the submission of the learned counsel for the assessee because the retrospective amendment after the decision of Gedore Tools (India) Pvt. Ltd. came in the year 1990, by Finance Act, 1990 whereby the CCS and Import Entitlement are held to be taxable. In view of these facts, it cannot be said that the assessee acted Mala fidely by not considering the CCS and duty draw back as taxable receipt. In view of these facts and the coupled with the decision of Gujarat High Court in the case of Nagri Mills Ltd we are of the opinion that interest under s.216 cannot be charged unless it is proved that the estimate was deliberately understated which is absent in the assessee s case. Therefore interest under s. 216 cannot be charged The IAC (Asst) is directed to delete the same. 47. The next grievance in the assessee's appeal is that the CIT(A) erred in upholding the levy of interest under s. 215. This gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1459/Del/87 (Ramnath Exports Pvt. Ltd.) has decided this issue in favour of the assessee. 51. We have considered the rival submissions. We find that the facts in this year are similar to the facts of the asst. yrs. 1982-83 and 1983-84, therefore, for the reasons given in those orders, we also accept the assessee's contention and do not find any substance in the Revenue's ground. This ground is hereby rejected. 52. The next grievance in the Revenue's appeal is that the CIT(A) erred in deleting the addition of Rs. 60,000 made on account of staff welfare and Diwali expenses. The IAC (Asst.)disallowed the same on the ground that large part of the expenditure was in the nature of entertainment expenses. The CIT(A) after considering the details furnished before him, deleted the addition. 53. The learned Departmental Representative supported the action of the IAC (Asst.). The learned counsel for the assessee relied upon the order of the Tribunal for the asst. yrs. 1982-83 and 1983-84 whereby the deletion of the disallowance was upheld. 54. We have considered the rival submission. We find that on similar facts the Tribunal has upheld the deletion in the asst. yrs. 1982-83 and 1983- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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