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TMI Blog1999 (8) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the detailed submissions in this regard along with the copies of the details submitted before the lower authorities in support of his contentions. On the other hand the learned Departmental Representative Shri Vatsiayan relied on the observations of the CIT(A) and submitted that the impugned order does not call for any interference. 4. We have considered the rival submissions and the evidence on record. We have also considered the various case laws cited by both the parties. We proceed to record our findings in respect of various issues in the ensuing paragraphs. 5. The first ground of appeal relates to disallowance of the value of presentation articles amounting to Rs. 54,594. The AO has applied r. 6B for making the disallowance and the CIT(A) confirmed the addition by relying on his order in the assessee's own case in the asst. yr. 1992-93. 5.1. The learned counsel for the assessee submits that the details of the articles presented, the value in respect of each item and the number of items were all furnished to the AO. Similar disallowance made for the asst. yr. 1988-89 was disallowed by the CIT(A). The presentation articles did not bear the name or logo of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- According to the learned counsel the hostel and transit house maintained by the assessee are not guest houses within the meaning of s. 37(4) and the expenditure being in the nature of lodging and boarding mainly for the employees is necessary for the purpose of business and is allowable a such. It is further submitted that the expenditure on food and beverages at hostel building and transit house would not fall within the meaning of the word 'maintenance1. Reliance in this connection is placed on the following decisions: (1) CIT vs. Parshva Properties Ltd. (1986) 53 CTR (Cal) 151 : (1987) 164 ITR 673 (Cal); (2) Hindustan Lever Ltd. vs. IAC (1996) 56 TTJ (Bom) 598 : (1996) 58 ITD 555 (Bom); and For expenses on repairs of air-conditioners. CIT vs. Maharana Mills Ltd. (1994) 120 CTR (Guj) 271 : (1994) 208 ITR 972 (Guj) 6.2. The learned Departmental Representative on the other hand vigorously disputed the contentions of the assessee's counsel as the entire expenditure is covered by the provisions of s. 37(4) of the Act. 6.3. On considering the rival submissions, we find that the decisions of the Hon'ble Gujarat High Court in (1994) 120 CTR (Guj) 271 : (1994) 208 ITR 972 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------ Name Balances of advances Interest disallowed as on 31-3-95 per in assessment order assessment order (Rs. in lakhs) (Rs. in lakhs.) --------------------------------------------------------------------- Gujarat (GNAL) Narmada Auto 4,073.66 137.77 Ltd. Gujarat Narmada Finance & 1.19 0.16 Investment Co. Ltd. (GNF & IC) Narmada Education & Scientific 173.01 23.76 Research Society (NE & SRS) Total 4,247.86 161.69 --------------------------------------------------------------------- 7.1. The learned counsel points out that the issue of disallowance of interest under s. 36(1)(iii) arose for the first time in the asst. yr. 1990-91 and the AO followed the same pattern for the asst. yrs. 1991-92 to 1995-96. In the appeals for the asst. yrs. 1990-91 and 1991-92 the CIT(A) deleted the additions. In this connection the detailed arguments of the learned counsel for the assessee are as under: (1) Own funds exceeds interest-free advances. Net profit plus depreciation for the financial year 1994-95 relevant to asst. yr. 1995-96 of Rs. 12,314.02 lakhs exceeds net advances of Rs. 174.20 lakhs granted to concerns referred to in the assessment order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by CIT(A) in asst. yr. 1992-93 are distinguishable on facts and not applicable. Reliance in this connection is placed on the following case laws: (1) Shahibag Entrepreneurs vs. ITO (1994) 49 TTJ (And) 554 : (1994) 50 ITD 113 (Ahd); (2) Jyoti Ltd. ITA 334/Ahd/90; (3) Durametallic India Ltd. vs. IAC (1991) 38 ITD 211 (Mad); (4) EID Parry (India) Ltd. vs. Dy. CIT (1992) 42 TTJ (Mad) 209 : (1993) 46 ITD 389 (Mad); (5) Shri Digvijay Cement Ltd. vs. CIT (1982) 26 CTR (Guj) 184 : (1982) 138 ITR 45 (Guj); (6) CIT vs. Hotel Savera (1998) 148 CTR (Mad) 585 : (1999) 102 Taxman 247 (Mad); and (7) Regal Theatre vs. CIT (1998) 100 Taxman 116 (Del). On the other hand the learned Departmental Representative strongly placed reliance on the order of the CIT(A) and the AO. He points out that the interest-bearing advances have been diverted to associate concerns on interest-free basis and therefore the disallowance of portion of the interest was justified. 7.2. We have considered the rival submission. On going through the figures in the balance sheet of the assessee-company as on 1st April, 1994 and 31st March, 1995, we find that the share capital and the reserves and surplus togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry purchased by the assessee. The banks, acting as authorised dealers, are permitted to enter into forward contracts for purchase and sale of permitted foreign currencies. The banks are required to ensure that the forward cover was not provided for anticipatory transactions but in a case of firm commitment only. The forward contracts could be cancelled as and when desired. The assessee had entered into such contracts in the past and also in the current year which resulted in surplus on cancellation thereof. Though the said amounts are credited to P&L a/c the same is not in the nature of income. As an alternative plea it was contended that since the gain arose on cancellation of foreign exchange cover arranged for repayments of loans obtained for acquisition of fixed assets the cost of acquisition/WDV was required to be reduced by such amount. This would result in reduction of depreciation allowable in each of the relevant assessment years. The company was required to pay installments due in foreign currency in respect of plant & machinery purchased by it. The company entered into foreign exchange contract for purchase of permitted foreign currency. Such contracts when cancelled rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992-93 relevant for the asst. yr. 1993-94. Depreciation claimed for those years was allowed by the AO. However, at the end of the financial year 1992-93, the assessee-company found that the product was not economical, due to unfavourable market conditions and, therefore, no production was made during the financial year 1993-94. However, the plant was kept in ready for use condition during the financial year 1993-94. The assessee-company continued to sell Butachlor during the said year and sale for financial year 1993-94 came to Rs. 93.33 lakhs. It is therefore, pointed out that the assessee-company has tried to retain the market for its own product and waited for an opportunity to produce the item and sell it again. 9.1. The learned counsel submits that this claim made by the assessee has not been mentioned in the assessment order. Inasmuch as the plant was kept in good condition and the machinery was also ready to put to use as soon as the market revived, the assessee was entitled to depreciation on the said plant and machinery. The learned counsel placed reliance on the following case laws in support of its plea: (1) Whittle Anderson Ltd. vs. CIT (1971) 79 ITR 613 (Bom); (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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