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TMI Blog1991 (12) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32A(1) prohibited the deduction. The CIT (Appeals) upheld the order of the IAC by observing that though the argument was plausible, it could not be accepted if one considered the intention of the legislature in granting the investment allowance in the light of various provisions contained in the Act ; and the provisions interpreted in a harmonious way. 5. The learned counsel for the assessee, submitted that proviso (d), to section 32A(1) prohibits allowance in respect of that machinery, the whole of the actual cost of which was allowed as a deduction in any one previous year. " Any one " previous year, according to the learned counsel for the assessee, means the same previous year like a provision finding a mention in section 35(2)(iv) prior to the amendment with retrospective effect by Finance (No. 2) Act, 1980. In other words, according to him, the prohibition for allowance of investment allowance is for the same year in which the whole of the cost was allowed under section 35 and not for the other years in which the plant and machinery was actually installed or put to use. The deduction under section 35 was allowed in the assessment year 1982-83 ; the plant and machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean the same year in which the entire or whole of the actual cost of a plant or machinery was allowed under section 35(2). It may mean and include any year, either preceding or succeeding or the same previous year. The words " any one ", in our opinion, do not restrict its meaning to the same previous year. Section 35(2)(iv) prohibiting grant of depreciation in respect of such plant and machinery specifically provided that " where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clause (i), (ii), (iia). (iii) and (iv), of sub-section (1) or sub-section (1A) of section 32 for the same previous year in respect of that asset. " This section specifically prohibited the allowance for the same previous year in which a deduction had been allowed to an assessee in respect of the expenditure represented wholly and partly by an asset and it was in that context, the courts have held that the restriction was only for that year and not for other years. That analogy adopted by the learned counsel for the assessee for interpreting the provisions of clause (d), of the Proviso to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rar of Companies in connection with the issue of bonus shares is not capital expenditure and they are allowable as revenue expenditure. In that case, the assessee paid a total sum of Rs. 52,500 as fees to the Registrar of Companies for enhancement of the capital. The capital of the company had been raised from Rs. 3 crores to Rs. 10 crores. The value of the bonus shares was only Rs. 70 lacs. The Tribunal had allocated 1/10th of the expenditure as being allowable in connection with the issue of bonus shares of Rs. 70 lacs. In these circumstances, the Court held that the fees relatable to the bonus shares was allowable and the other fees relatable to the enhancement of the capital was held to be not allowable. In the present case, the authorised capital of the assessee was Rs. 1.5 crore as against the paid up capital of Rs. 96,47,120. It was to issue bonus shares of the equivalent amount of Rs. 96,47,120, which would have increased the paid up capital to Rs. 1,92,94,240, which was more than the authorised capital of Rs. 1. 5 crore. The increase of the capital to this extent of Rs. 1,92,94,240 alone could be attributed to the issue of bonus shares and the other increase would be for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the assessee. According to him, the restriction contained in the Proviso to Rule 6AA(c) applies only to expenses for the maintenance of laboratory or other facilities and not to inspection charges. 12. The learned Departmental Representative, submitted that Rule 6AA provides for deduction of expenditure incurred by the assessee on maintenance of laboratory and other facilities which is for the quality control or inspection of such goods. Both types of expenditure, namely, on maintenance of laboratory and other facilities are made subject to restricted allowance in case the assessee's turnover were both local and export. The learned counsel for the assessee, Sri B. K. Khare, on the other hand, supported the order of the CIT (Appeals) and submitted that the Proviso does not apply to inspection charges which is a category by itself unconnected with and apart from the expenditure on laboratory or other facilities, for quality control. He further submitted that the Proviso applies only to such a case where there is a possibility of mixed expenditure. When the entire expenditure is for export sale, there would be no need to apply the proportional method, which as a matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate activity and not subject to Proviso to Rule 6AA(c) is not in accordance with the law. 14. We, however, find force in the alternate contention of the assessee. The Proviso to Rule 6AA(c) is inserted to find expenditure relating to the export turnover. A rough and ready method is provided to deduce the expenditure relatable to export by adopting a proportion of export sales to the entire turnover of the assessee. It, therefore, applies to the expenditure of mixed nature. It should not be invoked in a case where the expenditure is exclusively on export sale. Proviso to Rule or a section has to be read within the parameters of the main provision for which it is inserted. Rule 6AA, as aforesaid, is meant, to prescribe the activities to sub serve the purpose of item (ix), of clause (b), of section 35B(1) which allows deduction of one and one-third times of the expenditure incurred wholly and exclusively on such prescribed activity. There is nothing in the language of section 35B to provide or authorise the restricted allowance, once it is ascertained that the expenditure was on an activity for promotion of sales etc. outside India. Therefore, any provision contained in the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 was included for the purposes of valuing the closing stock. The CIT (Appeals) in appeal held that the Assessing Officer was not justified in changing the method followed by the assessee in the past. According to him, there was no law holding that the excise duty paid should be reflected in the stock of goods remaining with the assessee at the end of the year. The valuation of closing stock, according to him, is a matter of accountancy principle and commercial practice. The CIT (Appeals) further observed that the method of valuation followed by the assessee was not altogether unrecognised by the accepted commercial principles. In this connection, he referred to the guidance note given by the Research Committee of the Chartered Accountants and the order of the Tribunal in the case of Goodlass Nerolac Paints Ltd. v. IAC [1985] 13 ITD 270 (Bom.) and deleted the inclusion of Rs. 3,55,974 from the valuation of the closing stock of the assessee. 17. We have heard the parties and considered their rival submissions. After hearing the parties, we find that the matter stands covered against the assessee by the Third Member decision of the Tribunal in the case of Raymond Woollen Mills Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, reversed and that of the Assessing Officer restored. 19. The next ground is against allowance of section 80HH deduction. While computing the relief under section 80HH, the Assessing Officer has reduced weighted deduction of Rs. 1,42,223 for arriving at the income entitled to deduction. This amount is one-third of the total expenditure entitled to weighted deduction of Rs. 4,26,670. The assessee claimed before the CIT (Appeals) that the profits for the purposes of section 80HH should be arrived at after deducting only the actual expenses for export market development and not weighted deduction. The CIT (Appeals), relying upon the decision of the Tribunal in the case of Bihar Mercantile Union (P.) Ltd. v. ITO [1984] 10 ITD 887 (Cal.) accepted the claim of the assessee and held that only the actual expenditure should be deducted for arriving at the income on which relief under section 80HH is to be allowed. 20. We have heard the parties and considered their rival submissions. In our opinion, the assessee's claim that deduction under section 80HH should be computed without deducting weighted deduction has no force. The view, in our opinion, finds support from the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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