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TMI Blog1989 (7) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which the assets were discarded and credited the entire sale proceeds of scrap value as income as and when assets or scraps were sold. This method of accounting had been followed consistently by the assessee and accepted in the past by the Department. The assessee placed reliance on a decision of the Tribunal in the case of International Computers India P. Ltd. in ITA No. 1193 (Bom)/79 for the asst. yr. 1974-75. The CIT(A) following the rationale of this decision, accepted the contention of the assessee. He found that the assessee was regularly writing off the written down value of the assets discarded an the assessee was crediting the sale proceeds in the year in which the concerned assets/scraps were sold. Such method of accounting was regularly followed and was accepted in the past by the Department. The CIT(A) directed that the loss of Rs. 47,469 arrived at on this basis should be allowed. The Department has challenged this finding of the CIT(A). 3. Before us, the details of written down value of various assets which are discarded and the sale price of the assets when sold have been filed. Copy of the aforementioned decision of the Tribunal in International Computers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Department is in appeal against such decision. 5. After going through he papers filed before us and the orders of the CIT(A) and the Tribunal, on which the CIT(A) relied, we are satisfied that the order passed by the CIT(A) in this regard does not require any interference. The company arrived at a settlement with its employees on 29th Oct., 1980. The account in period of the assessee for the assessment year under appeal ended on 31st March, 1981. Therefore, it is not correct to say that the liability in this regard did not arise during the accounting year. A copy of the agreement with the workers has been filed before us. Having regard to the case of CIT vs. Sivanandha Mills Ltd. (1985) 156 ITR 629 (Mad), we are satisfied that the decision of the CIT(A) is correctly reached and does not call for any interference. The second ground of appeal is also rejected. 6. The third ground in the departmental appeal is directed against the deletion of the addition of Rs. 30,000 made on account of entertainment expenditure. The CIT(A) has dealt with this issue in para 4 of his order. The company had debited a sum of Rs. 1,47,395 under the head 'entertainment expenses'. The company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head 'entertainment expenditure' was spent of food and beverages provided by the assessee to its employees in factory, office or other places of their work. The estimate of 1/5th of the total expenditure having been spent for expenditure of this type does not appear to be unreasonable having regard to the facts and circumstances of the case. the CIT(A)'s decision in this regard is confirmed and this ground of appeal dismissed. 8. The fourth ground is that the CIT(A) erred in giving relief of Rs. 3,24,231 under s. 40A(5)/40(c) of the Act. The CIT(A) has dealt with this issue in paragraph 6.4 of his order. The CIT(A) held, inter alia, that medical reimbursement should be excluded while computing the disallowance under s. 40(c)/40A(5). As regards actual salaries paid to servants and driver and actual expenditure on gas, electricity, etc., the CIT(A) upheld the action of the IAC a far as the actual salary paid to servants an inclusion of actual expenditure on gas, electricity, etc., was concerned. The CIT(A) followed the decision of the Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. vs. CIT (1983) 32 CTR (Bom) 306 : (1984) 145 ITR 793 (Bom). As for the perqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exclude expenses incurred on municipal taxes, society charges, repairs and maintenance of the flats from the purview of s. 40(c)/40A(5). While challenging this decision of the CIT(A), Shri Sridhanaram for the Department relied on the decision of the Spl. Bench of the Tribunal in Kodak (India) Ltd. s. IAC (1986) 18 ITD 213 (Bom) (SB). He pointed out that the Special Bench in that case had decided that cl. (b) to Expln. 2 to s. 40A(5) r/w sub-cl. (ii) of cl. (a) of the said sub-section would embrace all expenditure incurred by the employer on providing rent free accommodation to the employee. This would cover not on y the rent but also other expenditure incurred by the employer. Provisions of such accommodation means that all the expenses on the said accommodation are to be borne by the employer because the employer has undertaken to bear all the burden in respect of the said flats. The Tribunal held that even the expenditure on painting, repairing and society charges would be covered by sub-cl. (ii) of s. 40A(5)(a). Shri Sridhanaran also relied on a decision of the Kerala High Court in the case of CIT vs. Forbes, Ewart And Figgis (P) Ltd. (1981) 24 CTR (ker) 87 (FB) : (1982) 138 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. In such a situation, the rule generalia specialibus non derogant is to be applied, and, consequently, the expenses incurred on the maintenance of flats should be considered only under perquisites. This aspect of the matter was not canvassed before the Kerala High court in the case relied upon by the Revenue.; However, repair and maintenance expenses do not per se provide rent-free accommodation but are primarily incurred by the assessee as owners of the premises. Hence, such expenses would not add to the perquisite in the shape of rent-free accommodation, and would, hence, fall outside the purview of s. 40A(5). Respectfully following this rationale, we would confirm the order of the CIT(A) in so far as it relates to expenditure on municipal charges, society charges and repairs maintenance of flats. 11. The next item of expenditure is on medical insurance premium and group insurance premium which as per the details given by the assessee's counsel amounted to Rs. 7,497. In our opinion, the CIT(A) was fully justified in holding that such expenses will not be includible in view of the Calcutta High Court decision in CIT vs. Duncan Bros, and Co., Ltd. (1981) 23 CTR (Cal) 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with this issue in para 7 of his order. The assessee had provided a sum of Rs. 27,000 as fees payable to Income-tax consultants. The IAC found that our of the provision made in the earlier assessment year, a sum of Rs. 22,000 was paid in this year. It was the case of the assessee before IAC that out of the payment of Rs. 22,000, Rs. 5,250 was in respect of representation before the IT authorities, while the balance of Rs. 16,750 was for other services like assistance in preparation and filing of appeals, etc. It was, therefore, argued that a sum of Rs. 5,250 was only covered by s. 80VV. The CIT(A) accepted the assessee's argument that the provision made in the earlier year was considered in the assessment for the asst. yr. 1980-81 and its allowability could not be considered in this year. Therefore, the disallowance out of the claim relating to the earlier year was deleted by the CIT(A). This decision, in our opinion, is correct. The CIT(A) further found that out of the provision of Rs. 27,000 made in this year, only a sum of Rs. 22,000 had been paid in the subsequent year. Therefore the CIT(A) rightly observed that the balance of Rs. 5,000, being excess provision, was clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de on account of valuation of stock. The CIT(A) has dealt with this ground in paragraphs 11 to 11.3. The IAC (Asst) found that the value of raw materials and goods pledged with the Bank was Rs. 1,00,81,000 while the amount shown in the balance-sheet was Rs. 98,94,000. It was stated before the IAC (Asst) that the difference was due to goods in transit at the end of the year. The IAC (Asst) rejected this explanation and added the difference of Rs. 1,87,000 on ground that it was not properly reconciled. The CIT(A), after hearing the assessee's Representative, accepted the explanation that the closing stock in the balance-sheet was shown at Rs. 98.94 lakhs after making the following adjustments: "Stock as per Bank Statement Rs. 100.81 lakhs Less : Provision for obsolete stocks Rs. 2.02 lakhs . Rs. 98.79 lakhs Add : Process material Rs. 0.15 lakhs Stock as per B/Sheet Rs. 98.94 lakhs The CIT(A) accepted that the value of stock had gone down at the finalization of accounts because he felt that the company had adequate internal control procedures and a regular procedure for determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l claim of bad debt of Rs. 82,667. The assessee filed a written reply in response to the queries made the IAC (Asst) in this regard. The IAC(Asst) held that the assessee's claim was not tenable to the extent of Rs. 82,667 as the assessee had not taken any steps for recovery of these debts. 16.1 Before the CIT(A), it was argued that items in respect of which the IAC (Asst) had held that the debts had become bad in earlier years should have been allowed by the IAC(Asst) as deduction in the earlier year under s. 36(2)(iv) r/w s. 155(6). As for the rest, reliance was placed on the decision of the Bombay High Court in Jethadhai Hirji and Jethabhai Ramdas vs. CIT (1978) CTR (Bom) 415 : (1979) 120 ITR 792 (Bom). The CIT(A) accepted the contention of the assessee, firstly, on the ground that most of the amounts written off were small amounts or in the nature of discounts where recovery proceedings were considered worthwhile and, secondly, because in respect of other major items like the amount of Rs. 29,794 due from Sonapur Thana Cold Storage or the amount of Rs. 12,965 due from Navjivan Trimming recovery was not possible. The CIT(A) has culled out the principles laid down by the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned and not in plastic goods and, therefore, the CIT(A) was not justified in directing that depreciation should be allowed at 40 per cent. After going through the records, we are satisfied that the finding given by the CIT(A) in this regard does not call for interference. The same is confirmed and the last ground of appeal rejected. 19. We will now deal with the cross objection of the assessee. The first cross-objection is that if the CIT(A)'s decision allowing claim under s. 32(1)(iii) of the IT Act for Rs. 47,469 is reversed, then the assessee should be permitted deduction under s. 32(1)(iii) in an appropriate year. This cross-objection has to be rejected because while dealing with the first ground of appeal we have already confirmed the decision of CIT(A) confirming the addition of Rs. 47,469 under s. 32(1)(iii). 20. The second cross-objection is that in case the decision of the CIT(A) deleting addition on account of excess of the raw materials is reversed, the IAC should be directed to increase the closing stock for the asst. yr. 1981-82 and he should be further directed to increase the value of the opening stock for the asst. yr. 1982-83. This cross-objection is rej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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