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TMI Blog1990 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Excise Department withdrew the rebate on excise duty already allowed and, therefore, the assessee had to make a provision. The assessee produced two demand notices dated 9-2-1982 and a show-cause notice dated 3-3-1982 from the Excise Department as to why the demand should not be confirmed. The Income-tax Officer was of the opinion that this actually indicated that there was a proposal to withdraw the rebate and since the action was taken beyond the time prescribed, the demand itself was illegal and untenable and, therefore, there was no need for this provision. He, accordingly, added back this amount. On appeal, the Commissioner of Income-tax(A) confirmed this view of the Income-tax Officer and added that in view of section 43B of the Income-tax Act, the provision for payment of taxes could not be allowed until actual payment is made. 3.2 In the further appeal, it was contended on behalf of the assessee that there was an enforceable demand, which had been set aside subsequently by the order of the Assistant Collector, Central Excise dated 17-3-1986 and, therefore, the provision was correctly made in the accounts of the assessee. It was further submitted that section 43B ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opinion that contribution to Sugar Cane Council was eligible for deduction as he had granted this deduction for earlier assessment year 1982-83. Similarly, he followed his own order for earlier year and allowed the expenditure on repairs but disallowed the cash subsidy. 4.3. The assessee is in appeal to reiterate the claim for the amounts disallowed, whereas the Revenue is in appeal to contend that the decision of the Commissioner (A) for the earlier year had not become final and, therefore, even the expenditure held to be eligible was not in fact eligible for the deduction. 4.4. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed on all these items. With reference to contribution to Sugar Cane Development Council, we find that it has been held to be eligible for deduction by the order of the Appellate Tribunal in ITA No. 1973/Hyd./83 dated July, 1984 for the assessment year 1981-82, which has been followed for the immediately preceding year 1982-83. Since the facts remain the same, the assessee must be held to be entitled to the deduction of this amount for this assessment year also. With reference to the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, it could not be said that the assessee had manufactured any prohibited item. On the other hand, it was contended on behalf of the Revenue that since the bulk of the production was arrack, the assessee did not qualify for the investment allowance. 5.2 On a consideration of the rival submissions, we are of the opinion that this matter requires further consideration by the Income-tax Officer. The relevant facts arc that under section 32A, investment allowance is granted in respect of machinery installed in an industrial undertaking for the purpose of manufacture of any article not being an article specified in the 11th Schedule. The first item in the 11th Schedule is "beer, wine and other alcoholic spirits". The industrial licence originally given to the assessee dated 7-11-1952 was for "Scheduled Industry (23) power and industrial alcohol". This was amended on 1-5-1957 to read as "Scheduled Industry 26(1) alcohol". In the previous year, the assessee had manufactured rectified spirit and denatured spirit as well as raw spirit, which was issued for making arrack at the instance of the State Government. We also have a letter dated 3-3-1978 addressed to the President of All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including replacement of worn out machinery. In the present case it is not in dispute that the original motor was burnt out and the present motor was acquired as a replacement for that. The only objection of the Revenue is that the burnt out motor had not been thrown away but had been kept as a stand-by. But this is a later development, for the main intention of acquiring the new motor was only by replacement. The old motor has been kept only as a stand-by and that prudent action of the assessee would not by itself convert the replacement into an additional capacity of an enduring nature. In the circumstances, we accept the claim of the assessee for the deduction of this amount under section 31 of the Income-tax Act. 7.1 The next point relates to the claim for provision for liquidated damages amounting to Rs. 27,47,473 in respect of contracts for supply of machinery. The case of the assessee was that in the contracts for the supply of machineries time was the essence and, therefore, it. was provided that for delay in supply the assessee had to pay liquidated damages at rates specified for the period of the delay. According to the assessee, the liability accrued on the date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the claim for liquidated damages was withdrawn by that party in view of the request made on 11-2-1981. In respect of West Godavari Coop. Sugars also, the matter was settled subsequently and in the accounting year ended 30-6-1985 the assessee had written back the remitted amount. However, the Income-tax Officer was of the opinion that the assessee must have had a hint of the settlement of the claims in the previous year relevant to this assessment year itself and he, therefore, added back these amounts to the total income of this assessment year. On appeal, the CIT (Appeals) sustained the additions on the ground that the date of remission had not been proved by the assessee. In the further appeals before us, it was contended on behalf of the assessee that the amounts had been written back in the relevant years where the remission had actually taken place and in the absence of evidence to show that the remission took place in this year, there was no justification for these additions under section 41(1) of the Income-tax Act. On the other hand, it was contended on behalf of the revenue that the remission must be taken to have occurred at the earliest point of time and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not billed by Bengal Bihar Construction Co. to the extent of Rs. 7,42,399. Subsequently, final bills were received to the extent of Rs. 9,51,719 which was accounted for in the subsequent assessment year thereby reversing the provision. The Income-tax Officer disallowed this provision on the ground that it was a future liability. The CIT (Appeals) allowed the deduction on the ground that it was the value for the work completed for which bills were not received. The revenue is in appeal and the ground taken is that there was no verification of the point whether a corresponding value was taken in the balance sheet as finished goods or work-in-progress. We see no merit in this ground. Apart from the fact that this is the outcome of suspicion and vague allegation, the assessee has engaged Bengal Bihar Construction Co. Ltd. as a sub-contractor and was liable to pay for the work done and, therefore, had to provide for the liability on accrual basis since the assessee was following the mercantile method of accounting. The accounts have been adjusted on the basis of the bills received subsequently. We see nothing wrong in the accounts of the assessee when it has been audited. Hence thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acking charges and secondly he was of the view that when the assessments had been reopened there was no subsisting demand until the assessments were completed and hence the entire liability of Rs. 29,75,546 had to be disallowed. On appeal, the CIT (Appeals) noted that except for two sums of Rs. 2,96,781 and Rs. 97,740 relating to the assessment years 1981-82 and 1982-83, the rest of the amount were covered by assessment orders which were in various stages of appeal and hence they had to be deleted. The assessee is in appeal to contend that even the amount of Rs. 3,94,522 sustained by the CIT (Appeals) represented collections made in the previous year relating to this assessment year in respect of which the liability had to be provided for as current liability. On the other hand, the revenue has appealed against the amounts deleted on the ground that there was no accrued liability for which a provision was required, as the sales tax proceedings had not been concluded finally. 12.2 On a consideration of the rival submissions, we are of the opinion that these additions were actually misconceived. It is not in dispute that these provisions were made in the earlier years with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an essential component of the distillery unit itself and could not, therefore, be regarded as a capital asset used for research. The CIT(Appeals) agreed with this view and disallowed the claim. In the further appeal before us it was contended on behalf of the assessee that this tank was an independent unit meant only for research and, therefore, it was eligible for the deduction. On the other hand, it was contended on behalf of the revenue that the asset was not eligible for the deduction as it should be treated as part of the distillery itself'. However, we are not called upon to decide this issue because under section 35(3) if any question arises as to whether any asset was used for scientific research, it shall be decided by the prescribed authority whose decision shall be final. It has been brought to our notice that the assessee had applied for renewal of approval by the prescribed authority indicating that the digester tank was also used for research and the approval has been given on that basis vide Government of India, Ministry of Science Technology, Department of Scientific Industrial Research letter No.TUD/IV-D/59/85-86 dated 11-7-1985. Since the issue has to be deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum explaining this provision which was introduced by the Finance Act, 1976 states as follows : "Investment allowance will be inadmissible not only in respect of the assets referred to in (1) and (2) above but also in respect of the following, namely : (1) Machinery or plant the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the taxable income of any one previous year. Thus, no investment allowance will be admissible in respect of (i) any machinery or plant the actual cost whereof, being less than Rs. 750, is allowed to be written off by way of depreciation allowance under the first proviso to section 32(1)(ii); (ii) any machinery or plant on which depreciation is admissible at the rate of 100 per cent under the Income-tax Rules; or (iii) any machinery or plant the entire cost of which is allowed as deduction under section 35(2)(ia) by way of expenditure of a capital nature on scientific research." In this background it is clear that the expression 'one previous year' cannot be equated to "the same previous year" so as to say that the embargo does not apply in respect of amount which has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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