9911796707
TMI Blog1987 (10) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... In response to my specific query, it was stated before me that the claim for additional depreciation on the cost of dies and electrical installation mentioned above, was not made before the ITO. The plea taken before me was that once these items are treated as plant machinery and investment allowance is granted by the ITO, the additional depreciation should have been allowed by the ITO even if it was not claimed by the appellant. In my opinion, this plea is valid but only in part. The point is that additional depreciation under s. 32(1)(iia) is allowable on the assets installed etc., after 31st day of March, 1980, but the appellant's previous year relevant to this appeal commenced on 1st Jan., 1980. So, out of the assets mentioned above, if some have been installed etc., in the first three months of the previous year, the additional depreciation under s. 32(1)(iia) would not be available. So, availability of additional depreciation is not that automatic in the appellant's case as it is sought to be made out on behalf of the appellant. Taking totality of circumstances into account, it would be reasonable to direct that if within a reasonable time (say a fortnight) of receipt of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies (like fertilizers, seeds, pesticides etc.) to the growers as prescribed in sub-cl.(b) of s. 35(C)(i) but instead, it had made payments to the following two persons who were stated to be growers of Mochi-rice: (1) Mr. Harivindar Singh Rs. 19,068 (2) Mr. Gurbux Singh Rs. 38,724 Rs. 57,792 Accordingly, the assessee's representative was informed that the provisions of s. 35C are not fulfilled in as much as only the expenditure incurred in providing certain goods, services or facilities of the type described in sub-cl.(b) will be eligible for weighted allowance, and the company has not incurred the said amount of Rs. 57,792 in providing any such goods, services or facilities. In reply, Shri Chokshi contended that the payment of Rs. 57,792 made to the said farmers was intended for provisions of facilities to them and as such the company may be allowed agricultural development allowance on this expenditure. I am afraid, this contention of the assessee's representative cannot be accepted because the section clearly prescribes that the expenditure should be incurred directly or through an association which has been ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 6th Feb., 1985. It was stated before me orally that the stamp paper was bought on 6th Feb., 1985 and the affidavit was affirmed on 7th Feb., 1985. As indicated earlier, it was filed before me on 8th Feb., 1985. So, even if the surprising irregularity of the absence of date from the affidavit is viewed leniently, it is not explained why this additional piece of evidence is ought to be produced at this late stage and why was it not produced before the ITO. Even on merits, the position that there is no evidence to prove-beyond the contents of the affidavit-that money in question was paid for purchase of fertilisers and pesticides. Actually, there is no evidence to show whether the payees at all utilised the impugned sums for the purchase of fetilizers and pesticides. All the same, it has been reasonably proved that the said sum has been paid to the cultivators of Mochi-rice from whom the appellant has actually bought Mochi--rice. So, I would not agree with the ITO that there could have been any extraneous consideration for making this payment. It may be regarded as an extra payment made to two of the sellers of Mochi-rice and would clearly be allowable as business expenditure. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, supported the action of the Commissioner (Appeals) by relying on the decision reported in CIT vs. Navbharath Enterprises Pvt. Ltd. (1987)62 CTR (AP) 189 : (1987) 165 ITR 603 (AP). He also pointed out that the Revenue has come up in appeal against the decision of the Commissioner (Appeals) allowing Rs. 57,792 as revenue expenditure. In this connection, he submitted that since the expenditure of Rs. 57,792 was incurred by the assessee for which no satisfactory evidence was produced before the ITO, the Commissioner(Appeals) ought not to have accepted the assessee's claim for deduction of Rs. 57,792 as revenue expenditure. 8. On due consideration of the rival submissions of the parties as well as the material already brought on record, we find considerable force in the submissions made on behalf of the assessee that it was not only entitled to claim deduction of Rs. 57,792 as revenue expenditure but was also entitled to weighted deduction as contemplated under s. 35C of the Act. It may be mentioned that we have gone through the aforesaid affidavit of Shri Bishansingh who was an Administrative Officer of the assessee as well as the details of the expenditure incurred on culti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and also requested it to give me an analysis of those accounts right from the beginning. This information is furnished before me only in past. List is furnished to show that it is pertaining to parties with amounts varying from Rs. 175 to Rs. 3,740. the copies of accounts of these persons are filed for and from the accounting periods 1975-76 to 1983. In most of these accounts, the relevant amounts are shown as opening balances. Since information for any period prior to 1975-76 is not furnished, it can be presumed that the relevant balances were coming from earlier years-may be many earlier years. Further, it is an admitted position that after the amounts being credited back to the Profit and Loss account on 31st Dec., 1980, no payments has been made certainly upto 31st Dec., 1983 and perhaps, even upto January-February, 1985. It is not shown to me that anyone of these parties has actually claimed or approached the appellant for seeking payment of the amount in question. From these basis facts, I would fasten on the appellant the responsibility of showing that the appellant company had actually admitted its liability to make the respective payments to the parties concerned. The po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, strongly relied on the orders of the IT authorities and justified their action. In this connection, he also stated that in order to decide the point at issue, we have to keep in mind the general conduct of the assessee. According to him, the provisions of s. 41(1) of the Act, were clearly applicable in the instant case. 11. On due consideration of the rival submissions of the parties, we find considerable force in the submissions made on behalf of the assessee. It is pertinent to note that the point at issue is no longer res-integra but has been considered by the Hon'ble High Court in number of cases and the decision is in favour of the assessee. Further, the commentaries of M/s Kanga Palkhiwala and M/s Chaturvedi Pithisaria clearly support the stand taken on behalf of the assessee. Following the aforesaid two reported decisions, we have no hesitation in deleting Rs. 16,997 from the total income of the assessee. 12. The next point pertains to certain disallowance made by the IT authorities under s. 40 (c) of the Act. Since this point involves certain details of the disallowances made by the IT authorities, we would reproduce below the relevant portions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of s. 40(A)(5) should be applied and not s. 40(c). This contention of the assessee is also not acceptable because s. 40(c) being specific provision in regard to a Director, the same will also be applicable in the case of directors who are employees of the company. This view also finds support from Gujarat High Court decision in the case of Addl. CIT vs. Tarun Commercial Mills Ltd. 1977 CTR (Guj) 141 : (1978) 113 ITR 745 (Guj). 12.3. From the annexure to the Balance Sheet, it is seen that the company has borne the tax liability of Rs. 20,505 in the case of Shri M. Ashara and Rs. 63,495 in the case of Shri T. Senuku. Since the income-tax payment was otherwise the liabilities of these directors and as the company has chosen to bear them, these directors have derived benefits to this extent and, accordingly, these amounts should be included for the purpose of disallowance under s. 40(c). Likewise, the personal group insurance premium paid by the company in respect of these directors will also be the benefit given to them and will accordingly be included for the purpose of disallowance under s. 40(c). 12.4. As regards the remuneration paid to the Managing Director Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration etc., given to certain employees above certain specified limits. In regard to the group insurance premium, Shri R.M. Chokshi relied on some decision on whose basis I requested for the factual information of the terms of the insurance and the beneficiary of the insurance policy. In the decisions cited by Shri R.M. Chokshi, policy-holder was the employer and the beneficiary was also the employer. If the beneficiary is the employer, it is not understood how it would not be includible in the addition to the total income of the employer. This information has not been furnished before me. So, I would reject this connection of the appellant. 6.2. Next point is whether s. 40(c) would be applicable or s. 40A(5). This is very material because in s. 40A(5), there is provision for excluding the remuneration etc., paid to the foreign technician, but the corresponding provision is not there in s. 40 (c). In the appellant's case, the persons concerned were foreign technicians as well as directors. I would agree with the ITO-refer para marked 12.2 of the assessment order that in view of the Gujarat High Court decision in Tarun Commercial Mill Ltd. the provisions of s. 40 (c) would apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act........relating to the computation of the income......." He, therefore, urged that we should consider the point involved in the light of the provisions of s. 40A(5) of the Act. 14. At the time of hearing, the learned counsel for the assessee had taken our permission to amend the ground No. 7 in the following manner: "7. The learned CIT(A) erred in confirming that total amount of Gratuity of Rs. 26,250 paid to Mr. Ohno, Dy. Mt. Director, is part of salary for the purposes of s. 40(c)/40A(5). The learned CIT(A) ought to have held that payment of Gratuity is governed by s. 40A(5)(c)(1) and hence separate ceiling of Rs. 60,000 is applicable and hence no part of the amount of Rs. 26,250 is allowable. 7.1. Without prejudice to the above contention CIT(A) ought to have held that Gratuity only in excess of amount under s. 10(10) of the IT Act, 1961, is includible as salary and not the entire amount of Gratuity paid. 7.2. The learned CIT(A) erred in confirming disallowance of remuneration of Rs. 33,778 out of total remuneration of Rs. 45,775 (including Gratuity of Rs. 26,250). Learned CIT(A) ought to have held that under proviso to s. 40A(5)(a), as ceiling is of Rs. 72,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Japan that is, 1/3rd of (Rs. 20,967+Rs. 12,068+Rs. 16,733=Rs. 49,768)= Rs. 16,859 for the export purposes and has accordingly claimed weighted deduction under s. 35B on this sum of Rs. 16,859 along with amount of Rs. 1,55,837 paid for advertisement on radio. 14.1. Notwithstanding the aforesaid claim, assessee's representative was asked to give particulars of these visits and the purposes for which the visits were undertaken. In reply to this query, assessee's representative submitted copy of letters dt. 10th Dec., 1979 and 24th Oct., 1980 addressed to Reserve Bank of India for sanction of foreign exchange. From a reading of these two letters, it was found that the aforesaid visits and particularly the last 3 visits were undertaken mainly for the inspection, import and shipment of the machineries for implementation of the expansion project which the Company desired to complete by the end of March, 1981. Besides the aforesaid objectives, discussions with the foreign collaborators in regard to business plan of the Company for the year 1981 and the export programme for the year 1980-81 were also mentioned in these two letters as residuary objectives. The assessee's representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the assessee should at least show that the expenditure in question was incurred for the purpose of export, which could or could not materialise. Since the same has not been done in this case, no part of the expenditure incurred on foreign travelling has been treated as for export purpose and, accordingly, weighted deduction under s. 35B has not been allowed. Order of the Commissioner (Appeals): "7. Next ground of appeal is directed against the disallowance of Rs. 92,886 out of foreign tour expenses claimed at Rs. 1,23,848. The ITO has listed the foreign tours and the analysis of expenses in para 14 of the assessment order. In all, there are four items of which one foreign tour was undertaken in January 1980 and the remaining three were undertaken in November and December, 1980. The ITO has held that the only material available for deciding whether the tours were undertaken for the purposes of business or in connection with the inspection and acquisition etc., of the new plant and machinery, are the two letters dt. 10th Dec., 1979 and 24th Oct., 1980 given by the appellant company to the Reserve bank of India for seeking release of foreign exchange. Copies of these letters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction available to the appellant would be remaining 75 per cent of the said sum of Rs. 24,984 which comes to Rs. 18,738. Appellant gets a relief of this sum of Rs. 18,738 and the balance of addition which would be 75 per cent of the foreign tour expenses of November and December 1980 would be confirmed as on capital account, but the appellant would be free to claim the capitalised part of foreign tour expenses as part cost of plant machinery, if so advised." 18. The learned counsel for the assessee strongly urged that the IT authorities were no justified in disallowing certain expenses under this head. In any event, he strongly urged that the assessee ought to have been allowed investment allowance/depreciation on the expenditure treated by the IT authorities as capital expenditure. The learned representative for the Department, on the other hand, once again supported the order of the IT authorities. 19. We have considered the rival submissions of the parties and we do not find any justification to interfere with the order of Commissioner(Appeals) on this point. It appears from the concluding para of the order of the Commissioner (Appeals) (reproduced above) that he has fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 738). As the chance would have it and let me mention that it is purely by co-incidence that the appellant's claim is for a sum of Rs. 49,768 but the basis of appellant's claim is not at all logical. On the three foreign tours excluding the one of Shri S.K. Khurana Maintenance Engineer, appellant has stated a claim for 1/3rd of the expenses being entitled to relief under s. 35B. To my mind, there are two points in it, firstly, the basis of treating 1/3rd of the expenses as covered by s. 35B is not clear when the appellant staked the claim for allowance of the total amount of foreign tour expenses as on revenue account. Second and more interesting point is that the appellant has not claimed relief under s. 35B on any part of the airfare of even those three foreign tours. It is not understandable whether it was merely an omission. Be as it may, I should be only consistent in my approach and as already mentioned, the figures have somehow come very near to each other. In my opinion, appellant is entitled to relief under s. 35B on the total expenditure out of foreign tour expenses which is allowed on revenue account i.e. Rs. 49,700. The ITO is directed to allow such relief under s. 35B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It means that the appellant company had been previously assessed by way of regular assessment and hence, s. 209A(1)(b) was not applicable. For asst. yr. 1976-77, assessment order mentioned the amount of loss to be carried forward not only for that year but also for the preceding year in addition to deficiency of unabsorbed depreciation, development rebate etc. So, on the basis of the last completed regular assessment, upto the month of June, 1980 or for that matter, even upto the month of March, 1981 there was no positive income on which the tax would have been payable. On this basis, it has to be held that the appellant company was not bound to file a statement even under s. 209A(1) (a). So, sub-s.(1) of s. 209A did not fasten any liability on the appellant to file a statement of income. Hence, sub-ss. (2), (3) and (4) of s. 209A were not applicable. Actually, appellant company had not paid any tax 'Self-assessment upto March 1981 because the first payment of tax on 'self-assessment' was made in the moth of June 1981 i.e., asst. yr. 1981-82 itself. On these facts, I would hold that there was no liability to file a 'Statement' under s. 209A(1) nor was there any liability to file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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