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TMI Blog1992 (5) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... owance were claimed and allowed on the basis of such actual cost. Subsequently on account of retrospective amendment of the definition of actual cost under section 43, the ITO passed an order under section 154 in assessment years 1982-83 and 1983-84 withdrawing a part of depreciation and investment allowance granted on the enhanced cost on account of capitalisation of bill discounting charges, etc. Thus the depreciation and investment allowance to the extent it was attributable to the element of bill discounting charges included in actual cost were withdrawn in view of the retrospective amendment of section 43. The appellant company thereafter put forward a claim for deduction of interest on accrual basis in each of the subsequent years. Accordingly accrued interest of ₹ 1,00,900 pertaining to previous year relevant to assessment year 1984-85 was claimed by the assessee. The ITO allowed ₹ 26,000 only on the basis of actual payment of discount's charges made during the previous year. The ITO rejected the assessee's claim for grant of deduction of interest on accrual basis claim of ₹ 1,00,900. The assessee raised this ground in the appeal against the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehend the chart submitted by the assessee. The assessee's appeal against the order under section 154 has been dismissed by the Commissioner (Appeals) on the ground that the accrued interest worked out by the assessee has not become due/payable in the previous year relevant to assessment year 1984-85. The claim for deduction of accrued interest does not directly arise from amendment in the definition of actual cost and consequent withdrawals of depreciation and investment allowance. The amount of accrued interest now claimed as deduction has not been debited to P&L A/c. and, therefore, it cannot be allowed even under mercantile system of accounting and not in any case by resort to proceedings under section 154. Such grounds given by the Commissioner (Appeals) are not valid. The deduction in respect of the entire amount of accrued interest ought to have been allowed as a deduction. 5. The learned Departmental Representative relied on the orders of the Commissioner (Appeals) as well as the order passed by the assessing authority. He further submitted that Explanation 8 in section 43 w.e.f. 1st April 1974 only clarifies that the interest pertaining to the post-production period w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice is higher and accrued interest is lower in latter years when unpaid portion of purchase price is lower. On the contrary the discounting charges is lower in the initial years while it is higher in the latter years. However, the total aggregate amount of interest payable by the assessee would be the same as figure of ₹ 3,98,700. The following chart clarifies this position : Assessment Year Discounting charges Rs. Accrued Interest Rs. 1982-83 Nil 6,500 1983-84 8,400 98,400 1984-85 26,600 1,00,900 1985-86 54,200 87,700 1986-87 88,900 67,500 1987-88 1,40,000 35,200 1988-89 80,500 2,500 . 3,98,700 3,98,700 Once the amount of interest in connection with the acquisition of an asset relatable to any period after such asset is first put to use is excluded from the actual cost of such asset by virtue of a retrospective amendment, it naturally follows that the amount of interest pertaining to that period will be allowable as a revenue expenditure. Such deduction will have to be allowed keeping in view the method of accounting adopted by the assessee. In the instant case the assessee had adopted mercantile system of accounting. Since the assessee had earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the calculation of accrued interest. 7. Now we will consider the Revenue's appeal for assessment year 1983- 84, one against the order of the Commissioner (Appeals) relating to assessment made under section 143(3) and the other against the order of the Commissioner (Appeals) against the order under section 154 passed by the ITO on 2nd February 1987. 8. We will first deal with Income-tax Appeal No. 1173/Ahd/1989 for assessment year 1983-84 relating to assessment under section 143(3). Ground No. 1 is against the deletion of an addition of ₹ 35,351. The ITO disallowed the sum of ₹ 35,351 out of interest on the ground that the assessee has not charged any interest from the two concerns viz. Agro Engg. Works and Engineering Products Co., New Delhi on the ground that the assessee has diverted its borrowings for non-business purposes. The Commissioner (Appeals) deleted the said disallowance in view of the reasons recorded in para 6 of the order passed by him. 8.1 The learned Departmental Representative contended that in view of the detailed reasons given in the assessment order the Commissioner (Appeals) ought to have confirmed the said disallowance. 8.2 The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and is not merely a provision. Respectfully following the decisions of the Tribunal in the case of Commissioner v. Gujarat Machine Tools in Income-tax Appeal No. 666/Ahd/1985 we confirm the order of the Commissioner (Appeals) holding that the said payment is not hit by section 40A (7). 10. Now we will take up Income-tax Appeal No. 1172/Ahd/1989. The only point in this appeal by the Revenue relates to findings given by the Commissioner (Appeals) that the action of the ITO under section 154 for withdrawing deductions allowed in respect of certain travelling expenses is not justified. The Commissioner (Appeals) further held that even on merits the calculation of disallowable amount under r. 6D is to be worked out with reference to all tours made by the person during the previous year and not with reference to the individual tour. 10.1. We have heard the learned representatives. In our view the ITO could not validly disallow any part of the travelling expenses by invoking the provisions of r. 6D in a manner which is clearly contrary to the decision of the Tribunal in the case of S.V. Ghatalia v. ITO [1983] 4 ITD 583 (Bom.) while passing the order under section 154. Such a disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Commissioner (Appeals) has erred in holding that the unpaid amount of family pension fund and Employees State Insurance Fund was not covered by section 43B and accordingly directed the ITO to delete the said addition. 13.1 The ITO made an addition of ₹ 4,718 and ₹ 1,035 being the amount of E.S.I. and family pension in view of section 43B. The Commissioner (Appeals) held that the provisions of section 43B are not applicable in relation to these items. 13.2 The learned Departmental representative relied upon the reasons given in the assessment order. The learned counsel for the assessee contended that these amounts represent deduction made from the salary of the employees and the amount of such deduction made from employees' salary were duly deposited in the E.S.I. and family pension fund in the next year within the prescribed time. 13.3 In our view the Commissioner (Appeals) has rightly deleted the said addition. The deduction made from salary of employees for their contribution towards ESI and pension fund has been brought within the definition of income in section 2(24)(x) w.e.f. assessment year 1988-89 which does not apply to the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this deduction. 16. After carefully considering the submissions made by the learned representatives and after going through the various judgments relied upon by the assessee's counsel we are of the view that the Commissioner (Appeals) has rightly allowed the deduction in respect of the interest paid for late payment of sale tax, which is clearly compensatory in nature. 17. In ground No. 6 the revenue has contended that the Commissioner (Appeals) has erred in directing the ITO to work out the deduction under section 80- I allowable to the assessee though no separate books of accounts were maintained for the new unit and the assessee has shown loss in the old unit. 17.1 The learned Senior Departmental Representative relied on the reasons mentioned in the assessment order. He submitted that in the absence of separate accounts for both the units it is impossible to work out the deduction allowable under section 80-I. Furthermore there is loss in the old unit which is more than the profit in the new unit. The assessee is therefore not entitled to grant of deduction under section 80-I. 17.2 The learned counsel for the assessee submitted that bifurcation of the profit of two unit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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