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TMI Blog1989 (11) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... aff was too meagre and it should anything upto 50%. His further plea was that the rule 6B restricts allowing of expenses upto Rs. 50 per gift article and as per Representative placed reliance on the Allahabad High Court ruling in PHOOL CHAN GAJANAND vs. CIT (1989) 76 CTR (All) (FB) 190 : (1989) 177 ITR 265 (All)(FB). 2.1. On this issue we have given our careful considerations. The details of the expenditures as have been placed at 48/(1 & 2) are broadly on the following: Expenses Rs. Rajanpur factory 2,19,744 On customers during meetings 1,82,054 Dry fruits on festive occasions 20,835 On seminars 10,038 Presentation articles -upto Rs. 50 13,722 -above Rs. 50 22,116 Petty expenses 36,205 Total Rs. 5,04,714 Relief allowed by CIT(A) Statutory allowance 30,000 Dry fruits 20,835 Presentation articles 7,500 Total Rs. 58,335 Considering the details and also rule 6B we are of the view that since the rule provides allowing of expenses on each of the presentation articles, to the extent of Rs. 50, the claim of the assessee, that the deduction should have been allowed to that extent is reasonable. We, therefore, allow deduction out of presentation articles Rs. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and the cheques issued to parties who has not cashed them. The aggregate amounts on these heads of Rs. 89,636 were written off by credit to wages a/c and sundry receipts a/c. The write back was an unilateral action and as and when the demands were forthcoming from the concerned parties, the amounts were paid. He emphasised that the liability in this regard were not vanquished. He pleaded that therefore these cannot be treated as deemed income as the liability had not ceased. He pleaded that by a mere entry to the profit and loss a/c, an item cannot become income, unless it is established that the liability has ceased. For this proposition he placed reliance on the following High Court rulings' (a) CIT vs. SADABHAKTI PRAKASHAN PRINTING PRESS (P) LTD. (1980) 125 ITR 326 (Bom); (B) CIT vs. SUGAULI SUGAR WORKS P. LTD. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal); (c) CIT vs. AGARPARA CO. LTD. (1986) 55 CTR (Cal) 218 : (1986) 158 ITR 786 (Cal) and (d) CIT vs. COMBINED TRANSPORT CO. PVT. LTD. (1988) 74 CTR (MP) 140 : (1988) 174 ITR 528 (MP). The learned Departmental Representative submitted that in the earlier years the issue stood decided against the assessee. 4.1 On this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Tribunal and it was so held that since there was no demand on the assessee by the Customs, the claim was an imaginary one and hence not allowable. 5.1 Our careful considerations have been given to this issue. The Customs have the right to demand the duty as per the law and it is for the assessee to establish that as per the Act there existed the additional liability. In the instant case, the facts regarding the existence of the stevedoring charges have not been established on record and therefore, the claim of assessee needs to be rejected on that score alone, which we do. In the earlier assessment year too similar claim did not find favour with the Tribunal for similar reasonings and also on the reasoning that till the date of the hearing of the appeal, there was no demand raised on the assessee. This fact is in existence for this assessment year as well. We are therefore of the view that the claim made by the assessee being an imaginary one and not based on any demand raised on it, and the identical issue having been decided against the assessee in the earlier years on similar reasoning and there being no fresh material available compelling to take a different view, the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee also had submitted during the course of hearing, that, in the assessment year 1983-84, the claim had been allowed by the CIT(A) and in case the claim is allowed in the assessment year under appeal, then he would not contest the departmental appeal for the assessment year 1983-84 wherein they had objected to the allowance by the CIT(A). To this effect the company had placed in writing by means of submission dated19th August 1989. The fact that the claim of surcharge on fuel was never disputed by the assessee is also borne out of the records. In the case relied by the learned Departmental Representative, the sales tax demanded of the assessee was disputed and the assessee had claimed deduction only to the extent of the undisputed liability. The claim to the extent of the disputed portion was made in the assessment year in which the settlement was reached and it was so allowed on the basis that the assessee was following hybrid system of accounting. In the instant case before us, the system followed by the assessee is mercantile and therefore, though the claim was raised subsequent to the assessment year in question, but being relatable to that assessment year, on the basis tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the same was included as income for the assessment year 1982-83. The learned Departmental Representative fairly conceded that the facts as submitted by the assessee are in order and he would only rely on the orders of the authorities below. 7.1 On this issue, we have given our careful considerations. The issue came to be settled in the financial year relevant to the assessment year under appeal and the claim by the sales tax authorities came to be waived in favour of the assessee and the liability ceased in the assessment year under appeal, and therefore, s. 41(1) relating to such deemed income comes into operation. The proper course in these circumstances, is to treat it as deemed income for the assessment year under appeal. We hold accordingly. As a consequence, the inclusion of the same amount as income for the assessment year 1982-83 would be wrong and would need to be excluded. 8. The next issue in this appeal by the assessee company is regarding the non-allowing of the claim of Rs. 2,68,219, as deduction representing the provision of increase in cess under the Orissa Cess Act on coal and chrome ore purchased during the previous year, from Western Coal fields Ltd. and Oris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below and also conceded to the plea made by the assessee that the allowance if allowed in the assessment year in question, then it needs to be withdrawn in the assessment year 1983-84, as fair. 8.1 On this issue, we have given our careful considerations. The accepted position is that assessee follows mercantile system of accounting and in view of the Supreme Court ruling in KEDARNATH JUTE MANUFACTURING Co. vs. CIT (1971) 82 ITR 363 (SC), the deduction claimed needs to be allowed in the assessment year in question, on the reasoning of the liability having accrued in the previous year relevant to the assessment year under appeal. The allowance would however be limited to the increase of cess for the period 1st April, 1980 to 31st Dec., 1980, for Rs. 18,566 on chrome for the period 1st Jan., 1980 to 31st March, 1980, does not survive in view of the subsequent notification by which the increase has been cancelled. The relief is accordingly restricted to Rs. 2,49,653. 9. The next issue relates to the claim of Rs. 19,678 representing the claim of compensation made by the Forestry Department, Sundargarh, which the learned counsel Sh. Ganesan during the course of arguments sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also charged from it. The counsel Sh. Ganesan, submitted that the assessee entered into an agreement dt.12th Oct., 1979with New Central Jute Mills Co. Ltd., by which the company advanced Rs. 50 Lakhs on30th Oct., 1979and this was so advanced out of the company's cash credit a/c, on which interest paid at 17%. The advance was so made in the process of acquiring of the plant at Sahupuri belonging to that company with effect from13th Sept., 1980. the company had paid interest of Rs. 5,97,361 to the bank at 17% and recovered Rs. 5,25,513 from that company at 15%. The interest received has been credited to P&L a/c and the ITO disallowed the excess interest to the extent of 2%. This was so confirmed by the CIT(A) on the reasoning that the purchase was intended to acquire the capital asset and therefore the interest towards capital account can only be capitalised. His plea was that the advance being in the process of purchase of the plant, the at consideration should have been kept in mind for the consideration for the purchase price was anyway payable. He pleaded that the business of the assessee is a continuing one and any borrowal made is towards business and hence allowable. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the learned Departmental Representative being on the point of any presumption being available to the borrowed funds being applied for investing on the new project and not directly on the issue, respectfully, following the decision of the Tribunal, we hold that the interest paid to bank was an allowable deduction. In fact, the revenue having sought to tax the difference 2% representing the difference between the interest rates charged by the company and paid to the bank, it seems the short charge of interest, the same being as per an agreement between the two companies with no relation whatsoever with the source as far as the assessee company is concerned, relating of the interest paid and the interest recovered would not be proper in the circumstances of the case. The difference of 2% is hence allowable as a deduction under s. 36(1)(iii) and we hold accordingly. 13. The next issue relates to the disallowance of interest paid on borrowed funds on the assumption that it had been diverted to subsidiary companies and employees free of interest. The assessee's counsel Sh. Ganesan contended that the disallowance had been made on the same basis as was done in the past and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent to which the disallowance should be made out of (a) provision of electricity & water to the residence of the executive director, and (b) free use of car by employees, both with relevance to the provision of perquisite by the company under s. 40A(5) of the Act. The contention of the counsel for the assessee company was that since the provision was made free, the evaluation of the perquisite should be made with relevance to the r. 3(d) & 3(c)(ii), which is the basis of assessability of the perquisite the hands of the director and the employees, to which reference is made by the section too. The assessee placed reliance on the Calcutta High Court ruling in CIT vs. BRITANNIA INDUSTRIES CO. LTD. (1981) 20 CTR (Cal) 272 : (1982) 135 ITR 35 (Cal) in support of his proposition, but the learned Departmental Representative pointed to a contrary view taken by the Gujarat High Court in CIT vs. RAJESH TEXTILE MILLS LTD. (1988) 173 CTR (Guj) 65 : (1988) 173 ITR 179 (Guj). 14.1. This issue has received out careful considerations. The term salary in s. 40A(5) have been defined to carry the same meaning as is provided for in s. 17(1) read with sub-cl. (3) of that section. The perquisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal depreciation has not been established. The assessee in its ground before us has challenged this finding specifically but had only raised its claim on a general basis. In view of the categorical finding by the CIT(A) that the various installations are for residential purposes only, against which finding, there has been no contrary material brought before us, in these circumstances, we are of the view, no interference is called for an we uphold the order of the CIT(A). 16. The issues raised in grounds 21 & 22 relate to the claim of terminal depreciation of the assets which were used at the Lotspahar Quartizite Mines, destroyed by the mob consisting of some of the employees of the assessee company. The company which held the leasehold rights on the mines for several years could not get it renewed from the Govt. and this led to the retrenchment of the staff at site. The resentment was expressed by the employees by arson and looting and this resulted in damage & destruction to properties including the staff quarters, which loss was claimed as a deduction. The plea raised that the company was a going concern and therefore as decided in ANNAMALAIS ENGINEERING vs. ITO (1984) 14 TTJ (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck has to be added back as income for the assessment year under appeal and accordingly, we reverse the order of the CIT(A) on this issue and restore that of the ITO. 19. The issues relating to the allowing of the additional sales tax liability raised consequent to the completion of assessments, allowing of payment under the voluntary retirement scheme to the employees of the contractors and the allowing of payment of commission to M/s. Ceramic Sales & S.G. Supply Agencies are conceded by the revenue as covered against it by the orders of the Tribunal for the asst. yrs. 1979-80 & 1980-81, copies of which have been provided by the assessee. On these issues, the Tribunal for the earlier years had upheld the finding of the CIT(A) on facts that-(a) the additional liability in regard to sales tax arising in the year consequent to the completion of assessment in the year has accrued in the previous year relevant to the asst. Year in appeal; (b) the payment under the voluntary retirement scheme was in accordance with agreement with the contractors and hence allowable; and (c) the commission was paid as per the agreement in force and therefore was rightly allowed as a deduction. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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