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TMI Blog1986 (11) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... Korba Unit No. 1) as on 1st March, 1978. In its Profit & Loss Account drawn for the period ending 31st March, 1978, also of Rs. 7,71,593 was disclosed. The assessee claimed deduction of Rs. 11,13,875 under s. 80J(1) being 7.5 per cent of the capital employed in the said Industrial Undertaking of Rs. 1,48,51,466 on the basis of the following computation that was submitted before the ITO: "Fixed assets (building, plant & machinery, furniture and fixture and motor vehicles) at cost Rs. 1,30,08,467 Capital goods in stock .. 1,48,489 Stores and spare parts .. 16,94,710 Capital employed : Total 1,48,51,666 From the aggregate value of the assets so determined as on the first day of the computation period, the assessee did not deduct the liabilities as shown in the Balance sheet of the following two amounts: Current liabilities & provision .. Rs. 16,72,903 Head Office/Division Current A/c. .. 1,31,78,763 Total .. Rs. 1,48,51,666 In regard to both the sums shown liabilities of the Undertaking as on 1st March, 1978, the ITO held that the same were to be deducted from the aggregate value of the asset of the Undertaking as on 1st March, 1978 in view of the provision cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the borrowed loan funds." 6. For the asst. yr. 1981-82 the assessee set up two more Industrial units at Kundra Mukh and Nasik. It claimed deduction under s. 80J in respect of Korba Unit Nos. 1 & 2, aggregating to Rs. 12,89,426 and in respect of the newly established Industrial Undertakings at Kundra Mukh and Nasik it claimed Rs. 11,93,921 being the deficiency worked out by the assessee in the said Units which was to be carried forward in terms of s. 80J(3). The ITO for the reasons mentioned in the earlier years in respect of the assessee's claim pertaining to M/s Korba Unit Nos. 1 & 2, rejected both the claims of the assessee. 7. The CIT(A) by his consolidated order dt. 31st May, 1985 directed the ITO to allow deduction under s. 80J as claimed by the assessee for each of the assessment years under appeal. The CIT(A)'s observations in this regard are as follows: "The ITO disallowed claim under s. 80J on the ground that Company's own funds had already been locked elsewhere and new projects were taken up with borrowed money. But the fact remained that the company had very little borrowing on interest although the amount payable to the sundry creditors (current liabilities) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC) wherein it has been held that for computing the fair return on the capital employed, which to be exempted from tax under s. 80J(1), the owner's capital alone should be taken into account and borrowed monies should be excluded. In reply, the assessee's ld. counsel stated that in term of s. 80J(1A) capital employed in an Industrial Undertaking is to be computed in accordance with cls. (II) to (IV) of the said section. Therefore, computation of capital is not of the assessee but of the Industrial Undertakings set up by the assessee. The assessee's ld. counsel did not dispute the fact found by the ITO that the Head Office had no surplus funds and it financed the Industrial Undertakings out of borrowed funds and debts owned to third parties. In fairness he conceded that the current liabilities and provision shown of Rs. 16,72,903 in the assessee's computation of relief claimed under s. 80J pertaining to the asst. yr. 1978-79 was to be deducted from the aggregate assets of Korba Unit No. 1 as the same represented the liabilities of the said Undertaking. According to the assessee's ld. counsel the debts and borrowings are of the Head Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lank of the ld. counsel's submission is that in the Balance-sheet of the undertaking, the amount owing to the Head Office as shown, cannot fall within the expression "debts owed by the assessee". In other words, according to the ld. counsel even though the Head office financed the undertakings out of the borrowed funds and/or debts owed by it to third parties, the same need not to be taken into consideration in computing the capital of the assessee's Undertakings under s. 80J. We are not impressed with the ld. counsel's submission made in this regard as the Undertakings admittedly are owned by the assessee and for accounting purpose only, separate Balance sheets of the Undertakings of the assessee had to be drawn up. It is the substance of a matter which is to be looked into and not its form. The amount shown as a liability in the branch Balance-sheet representing the money owing to the Head Office, in substance are the monies borrowed by the assessee in respect of the Industrial Undertakings and, therefore, need be taken into account for purposes of computing the capital employed by the assessee in those Undertakings. In this context, it would be relevant to quote the following ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersing the CIT(A)'s order restore the ITO's order rejecting the assessee's claim under s. 80J for each of the assessment years under appeal. 10. The only other ground raised for the asst. yr. 1979-80 pertains to the disallowance of Rs. 1,29,471 as capital expenditure, since deleted by the CIT(A). 11. The ITO on scrutiny of the miscellaneous expenses account, came across with he expenditure debited of Rs. 1,27,471 being the office renovation expenses incurred by the assessee. The ITO found that beside the aforesaid expenditure, the assessee further incurred expenditure towards architects fees paid of Rs. 2,000. On scrutiny, the ITO found that the expenditure was mainly on account of addition and alteration in the office premises by fixing false ceilings for air conditioning purposes, panelling and partitioning of the office premises. In the ITO's opinion, the expenditure was in the nature of capital expenditure as the assessee derived benefit of an enduring nature and thereby added back the entire amount of Rs. 1,29,471. The CIT(A) deleted the ITO's addition by placing reliance on the Delhi High Court decision in the case of Instalment Supply P. Ltd. vs. CIT (1984) 40 CTR (All) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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