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TMI Blog1994 (3) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... III. (viii) Non-deduction of tax at source in respect of power bills paid to Karnataka State Electricity Board—failure to charge penal interest under s. 201(1A). 2. A detailed show cause notice was issued to the assessee-company. After considering the explanations offered, the learned CIT came to the finding that the Assessing Officer had not applied his mind on the issue and the matter raised by him in the show cause notice will have to be looked into afresh by the Assessing Officer to safeguard the interest of the Revenue. He accordingly, set aside the order of assessment for doing afresh in the following terms: "I find that all the issues raised by me in the show cause notice have not been looked into properly by the Assessing Officer. Besides, with regard to computation under s. 80J(1A) and s. 80HH, I find that prima facie, the computation has not been drawn up correctly. For example, while computing deduction under s. 80J, the capital employed was computed after deducting only current liabilities. However, borrowed funds and debts were not considered as required under the provisions of s. 80J(1A) inserted retrospectively w.e.f. 1st April, 1972. Likewise, the relief w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , challenged the jurisdiction of the CIT to invoke the provisions of s. 263 on the reasoning that the conditions precedent for the assumption of jurisdiction have not been fulfilled. According to him, the CIT has not pointed out any specific prejudice caused to the Revenue nor has given any finding in this regard before setting aside the issues to the file of the Assessing Officer. In such a case, the order of the CIT cannot be sustained. For this proposition, reliance is placed on the decision of the Hon'ble Allahabad High Court in the case of J.P. Srivastava Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All) and the subsequent decisions. Reliance also has been placed on the decisions of the Hon'ble Karnataka High Court in the case of CIT vs. T. Narayana Pai (1975) 98 ITR 422 (Kar), of the Hon'ble Punjab Haryana High Court in the case of CIT vs. Kanda Rice Mills (1990) 85 CTR (P H) 5 : (1989) 178 ITR 446 (P H) and of the Hon'ble Delhi High Court in the case of CWT vs. Prithvi Raj Co. (1991) 98 CTR 216 (Del). It is also pointed out that in the case of Venkatkrishna Rice Co. (1987) 62 CTR (Mad) 152 : (1987) 163 ITR 129 (Mad), the Hon'ble Madras High Court held that expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT vs. Orient Paper Mills Ltd. (1987) 65 CTR (Cal) 125 : (1988) 171 ITR 181 (Cal). The CIT referred to the provisions of s. 37(4) of the Act for making disallowance of the above expenditure. However, there is no application of mind in regard to this aspect and no finding has been recorded by the CIT as to what extent the said provision would have application to the facts of the case. It is further submitted that though certain expenses are to be disallowed under s. 37(4) r/w s. 37(5) of the Act, the various High Courts including the Hon'ble Calcutta High Court held that expenditure allowable under ss. 30 to 36 cannot be disallowed under s. 37(4) of the Act. Reliance was placed on the decision in the case of CIT vs. Tungabhadra Industries (IT Ref. No. 124 of 1988 of 22nd Nov., 1991) and also in the case of CIT vs. Chase Bright Steel Ltd. (1989) 75 CTR (Bom) 60 : (1989) 177 ITR 124 (Bom) of Hon'ble Bombay High Court and its subsequent decision in the case of Century Spg. Mfg. Co. Ltd. vs. CIT (1991) 99 CTR (Bom) 8 : (1991) 189 ITR 660 (Bom) and of the Hon'ble Gujarat High Court in the case of CIT vs. Ahmedabad Mfg. Calico Printing Co. Ltd. (1992) 105 CTR (Guj) 322 : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of J. Hemchand Co. vs. ITO (1982) 1 SOT 150 (Bom) (SB) for the proposition that salary of persons exclusively handling export business should be classified as coming under one or the other of the sub-clauses of s. 35B(1)(b) of the Act. 8. Coming to the next point regarding interest amounting to Rs. 1,72,53,457 in regard to moneys borrowed for modernisation of the Belur Mill and expansion of Rolling Mill at 'Taloja, it is the claim of the learned authorised representative of the assessee that the Assessing Officer himself recorded a finding that the expenditure was incurred for modernisation and expansion of ongoing business and the same was allowable deduction. Interest on moneys borrowed to set up any unit by on going business has been held deductible in the case of Prem Spg. Wvg. Mills Co. Ltd. vs. CIT (1975) 98 ITR 20 (All) and in the case of CIT vs. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj). Decisions of the Hon'ble Calcutta High Court in the case of Calcutta Electric Supply Corpn. (I). Ltd. vs. IAC (1992) 196 ITR 610 (Cal) and in the case of Kesoram Industries Cotton Mills Ltd. vs. CIT (1992) 196 ITR 845 (Cal) have also been cited in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years and, therefore, there is no question of any mistake or error which will be prejudicial to the interest of the Revenue. 11. As to the interest paid to Karnataka State Electricity Board being delayed payment of bills, it is the case of the assessee that this issue does not arise in view of the fact that the interest assumes the character of electricity dues and, therefore, s. 194A is not applicable. It is submitted that the Supreme Court in the case of Mahalakshmi Sugar Mills vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429 (SC) has held that the interest paid by the assessee on arrears of cess levied by U.P. Sugarcane Cess Act, 1956 is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The ratio of the aforesaid Supreme Court decision has been applied by the Hon'ble Calcutta High Court in CIT vs. Shree Krishna Gyanoday Sugar Mills Ltd. (1990) 186 ITR 541 (Cal). Even in any case, it is submitted that the assessee is not required to deduct interest in terms of the notification issued by the Govt. in pursuance of sub-cl. (f) of cl. (iii) of sub-s. (3) of s. 194A of the IT Act as the payment was covered by the said notification. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the learned CIT was justified in restoring this matter to be examined afresh in the light of the above facts. 14. With regard to the deduction under s. 80-O, it is submitted that the order of the learned CIT is fully covered by the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT (1975) 99 ITR 375 (Del) wherein it has been held that the word "erroneous" in s. 263 includes the failure to make an enquiry. Since there is definite finding of the learned CIT that there is a failure to make proper enquiry in this regard, he is fully justified in setting aside the order for making proper enquiry and allowing the claim in accordance with law. With regard to the claim of weighted deduction under s. 35B on the expenditure incurred on travelling, the claim of the assessee is not tenable in view of the fact that the decision of the Special Bench of the Tribunal in the case of J. Hemchand Co. has no application in view of the amended provisions of the Act. 15. In so far as the question of interest of Rs. 1,72,53,497 claimed as deduction, it is the case of the learned Sr. Departmental Representative that the plant machinery was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the Revenue, the initiation of proceeding under s. 263 cannot be questioned in terms of the decision of the Hon'ble Madras High Court in the case of Indian Textiles vs. CIT (1985) 53 CTR (Mad) 104 : (1986) 157 ITR 112 (Mad). In that view, it is submitted that the order of the learned CIT is liable to be sustained. 19. We have carefully considered the rival submissions in the light of the material on record and the arguments placed before us and find considerable merit in the contentions of the learned authorised representative of the assessee. The CIT in this case examined the assessment records of the assessee-company for the asst. yr. 1983-84 and on the basis of the show cause notice under s. 263 it was his finding that the Assessing Officer had committed errors on 8 counts. The assessee thereupon filed reply to the show cause notice and explained the various issues raised by him. After considering all these aspects, the CIT was not sure about the correctness or otherwise of the issues and did not give any definite finding on any of the points and, therefore, set aside the order on the points with a direction to the Assessing Officer to look into them afresh to saf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued in terms of the decision of the Supreme Court in the case of India Cements Ltd. Similar view has been taken by the Hon'ble Bombay High Court in the case of Premier Automobile Ltd. vs. CIT. The learned Sr. Departmental Representative, however, cited the decision in the case of Union Carbide which, in our view, is not applicable to the facts of the case. Keeping in view the decision of the Hon'ble Supreme Court and the instructions issued by the CBDT referred to above, copy of which is annexed at pages 8 to 10 of the paper book, we are of the view that s. 35D is not to be applied on such expenditure as clarified by the CBDT. We, therefore, see no error in the order of the Assessing Officer on this point. In that view of the matter, the reliance of the learned Sr. Departmental Representative on the decision of the Calcutta High Court in the case of Union Carbide becomes irrelevant. 21. The next point taken up by the CIT is in regard to the expenses incurred by the assessee on the transit house accommodation. In this regard, it is seen that s. 37(3) as inserted w.e.f. 1st April, 1964 contemplated disallowance of any expenditure incurred by the assessee after 31st March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under s. 80-O also, it is seen that the deduction allowed by the Assessing Officer is exactly in accordance with the decision of the Tribunal in the case of M.N. Dastur Co. Ltd. It is the case of the Revenue that the Assessing Officer failed to examine this issue properly and the CIT was justified in directing the Assessing Officer to examine the agreement and to examine the correctness of the computation under s. 80-O. This agreement in our view, is contrary to the facts on the record. The Assessing Officer in this case considered the claim made by the assessee for deduction of Rs. 22,55,676 under s. 80-O. After examining the agreement and the approval accorded by the CBDT, he allowed deduction of Rs. 21,80,373. In such a case, it cannot be said that the Assessing Officer failed to examine the terms of the agreement and the approval granted by the CBDT. There is, therefore, no cause for interfering with the order under s. 263 on this point also. 23. The next point is in regard to the claim of weighted deduction under s. 35B on foreign travel expenses in which proportionate salary of the employees for the period of stay outside India had been included. It was the view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that the Cathode Carbon Block Plant was set up in 1979 at a total capital of Rs. 1.50 crores financed entirely from internal accruals. In such a case we see no reason for the CIT to set aside this point on mere suspicion for fresh examination by the Assessing Officer. 26. With regard to the deduction under s. 80HH it was the view of the CIT that the Assessing Officer did not make proper adjustment of various overhead expenses including expenditure on excise duty, etc. In this regard it is the case of the assessee that the Cathode Carbon Block plant is a distinct, separate and eligible undertaking. The expenses incurred by the assessee on the excise duty aluminium price, regulation levy, administrative selling and general expenses and interest do not relate to Cathode Carbon Block plant and Belgaum Smelter III. The deduction also has been allowed by the Assessing Officer as in the earlier years and there is no scope for any variation during this year. In the absence of any material to support the order of the CIT, we are of the view that there is no error which is prejudicial to the interest of the Revenue which can be remedied under s. 263 of the Act. It is also seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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