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ORDER B.M. Kothari, A.M.
1. This appeal by the assessee is directed against the order passed by the learned CIT(A) on 22nd March, 1991 for asst. yr. 1984-85.
2. The ground No. 1 raised by the assessee is as under :
"That the Hon'ble CIT(A) VIII, New Delhi, has erred in law and on facts in upholding the slashing down special rate of depreciation of 10 per cent in respect of factory buildings to general rate of depreciation of 5 per cent."
2.1 The learned counsel for the assessee submitted that this point is covered in favour of the assessee by the order of Tribunal in the case of a group company, namely Escorts JCB Ltd., wherein Tribunal has held in asst. yr. 1985-86 that depreciation @ 10 per cent as allowed in earlier years, may be allowed to the assessee on the entire building. He also relied upon the judgment of the Hon'ble High Court in the case of CIT vs. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad). At page 900 of ITR the Hon'ble Madras High Court has observed that there is no definition of a factory building in the Act or in the Rules. From the very nature of things and from the very object which they are intended to subserve. There is no doubt that a canteen, fire service station, pump house, overhead tanks and wells, overhead line and street line, new stores and co-operative stores, buildings are essential adjuncts to the factory premises. It is impossible to conceive of a factory building without these constructed portions. No special reasons need be mentioned to characterise these items as factory building. The administrative block is admittedly said to consists of the office of the chief engineer, industrial engineering department, drawing office, methods and progress, latrines, compound walls, token workers, gate, etc. Even the compound wall of the factory was treated to be a part of the factory building, the learned counsel submitted that the CIT ought to have allowed depreciation on the entire factory building @ 10 per cent.
2.2 The learned Senior Departmental Representative invited our attention towards para 3.1 of the order of CIT(A). He submitted that the assessee did not furnish the break-up of the building in the various divisions into factory and non-factory categories. The CIT(A), therefore, directed that 2/3rd of the building should be treated as factory building eligible for depreciation @ 10 per cent and balance 1/3rd as non-factory building eligible for depreciation @ 5 per cent. He relied upon his predecessor's orders in the case of Escorts Ltd. for asst. yr. 1985-86.
2.3 We have carefully considered the submissions made by the learned representatives of the parties and have perused the relevant orders of the departmental authorities and the other judgments cited by the learned counsel. The Tribunal in the case of Escorts JBC Ltd. in ITA No. 2629/Del/89 dt. 30th April, 1993 has directed the AO to allow the claim of the assessee for grant of depreciation @ 10 per cent subject to verifications of details in this regard by the AO. The CIT(A) in the impugned order has observed that the assessee has not furnished the break-up of the buildings in the various divisions into factory and non-factory categories. It is not known as to whether such details were required to be furnished by the AO and whether or not the details if required to be furnished by the AO, were in fact furnished or not. However, on principle, we agree with the submissions made by the learned counsel for the assessee that all structures which are functionally essential adjuncts to factory premises should be treated as part of the factory buildings and depreciation thereon should be allowed @ 10 per cent. The AO may verify necessary details in this regard and may also ascertain the final order passed by the AO in the case of Escorts JBC Ltd. (supra) and may decide this issue in the like manner as has been done in that case for asst. yr. 1985-86. The AO will grant proper opportunity to the assessee in this regard.
3. The ground No. 2 raised by the assessee is reproduced hereunder :
"That the Hon'ble CIT(A) VIII, New Delhi, has erred in law and on facts :
(a) In restricting the investment allowance and additional depreciation in respect of certain items of plant [as defined under s. 43(3)] and machinery installed within the factory premises conducive for the purpose of manufacturing operations, namely :
Allowed Disallowed Investment Additional
allowance Depreciation
Misc. equipment 50% 50% 1,965 590
(b) In upholding the non-allowance of investment allowance and additional depreciation in respect of certain items of plant [as defined under s. 43(3)] and machinery installed within the factory premises conducive for the purpose of manufacturing operations, namely :
Investment Additional
Allowance Depreciation
(i) data processing equipment 7,551 3,020
(ii) air-conditioning equipment 39,000 11,700
(iii) ship and canteen equipment 7,729 2,318
3.1 The learned counsel for the assessee submitted that the issue raised in ground No. 2(a) is covered by an earlier decision of the Tribunal in assessee's own case for asst. yr. 1983-84 with the directions to ascertain whether the equipment is installed within the factory premises or in the office premises. The learned Departmental Representative supported the order of the CIT(A).
3.2. After considering the submissions made by the learned representatives of the parties, we are of the view that it will be just and proper to set aside the order of the CIT(A) as well as that of the AO in relation to ground No. 2(a) and the matter should be restored back to the AO for deciding the same on the similar lines as has been done in asst. yr. 1983-84. The AO is directed to decide the issue relating to ground of investment allowance and additional depreciation on the items of plant and machinery installed as mentioned in ground No. 2(a) after allowing proper opportunity to the assessee and in accordance with the directions given by the Tribunal in its order in ITA No. 839/Del/1989.
4. As regards ground No. 2(b)(i) relating to grant of investment allowance and additional depreciation in respect of data processing equipment, the learned counsel for the assessee submitted that the similar issue was restored back by the Tribunal to the AO in asst. yr. 1982-83. The AO has passed a fresh order on 27th November, 1992, in which he has allowed investment allowance and additional depreciation on data processing equipment. He, therefore, submitted that the assessee's claim in this regard should be accepted.
4.1 The learned senior Departmental Representative submitted that the issue was not properly decided in asst. yr. 1982-83. He invited our attention towards Sch. XI appended to the IT Act, 1961, with a view to point out that item mentioned at serial No. 22 of the said Schedule, data processing equipments have been included in the office machines and apparatus. The assessee is, therefore, not entitled to investment allowance and additional depreciation on the cost of data processing equipments.
4.2 In the rejoinder, the learned counsel for the assessee submitted that the said XIth Sch. is not applicable for determining the issue relating to grant of investment allowance on data processing equipment installed in the factory premises of the assessee which is not engaged in the business of manufacturing of any of the non-priority items enumerated in the Sch. XI.
4.3 Having considered the submissions made by the learned representatives of the parties, we are of the view that the entry appearing in the XIth Sch. has no bearing on the point in issue. The XIth Sch. specifies the list of articles or things manufactured by non-priority industries which will not be entitled for grant of certain deductions allowable under the various provisions mentioned in the XIth Sch. In asst. yr. 1982-83, a similar issue regarding admissibility of investment allowance in respect of data processing equipments was restored to the file of AO. The AO passed fresh orders under s. 250 on 27th November, 1992 for asst. yr. 1982-83. Necessary details were called for by the AO and he came to the conclusion that data-processing equipment was installed in the factory and was used for processing of inventories, material control system, machinery utilisation statements, break-down of the plant and machinery, warranty claim, payrolls, stock register and other management information to organise manufacturing operations of the plant. After satisfying himself about the fulfilment of various conditions, the AO allowed investment allowance and additional depreciation in the fresh assessment so made for asst. yr. 1982-83. The facts relating to the year under consideration are identical in the year under consideration. We are, therefore, of the view that data processing equipments installed in the factory and utilised for the various manufacturing operations of the plant are eligible for grant of investment allowance and additional depreciation. The AO is accordingly directed to allow the same.
5. As regards ground No. 2(b)(ii) relating to assessee's claim for grant of investment allowance and depreciation on air-conditioning equipments, the learned counsel for the assessee submitted that this point is covered in favour of the assessee by a decision of the Tribunal in assessee's own case for asst. yr. 1983-84 in ITA No. 839/Del/1989. The Tribunal in asst. yr. 1983-84 following its earlier order in assessee's case for asst. yrs. 1980-81 and 1981-82 and restored back this issue for deciding the same in accordance with the directions given by the Tribunal in asst. yrs. 1980-81 and 1981-82. Respectfully following the order of the Tribunal in assessee's case for aforesaid earlier years, this issue is restored back to the AO for considering the assessee's claim in similar manner as has been done in asst. yr. 1983-84. The AO is directed to decide the issue in like manner after carrying out necessary verification as in asst. yr. 1983-84.
6. As regards ground No. 2(b)(iii), the learned counsel for the assessee submitted that this issue is covered in favour of the assessee by decision of the Tribunal in assessee's own case vide order dt. 18th April, 1994, in ITA Nos. 767 & 783/Del/1988 for asst. yr. 1982-83. The Tribunal in the aforesaid order in assessee's case for asst. yr. 1982-83 had considered the issue relating to grant of investment allowance and additional depreciation on various equipments installed in the factory premises including on the water coolers, etc. This matter is also restored back to the AO for deciding the same in similar manner has been finally decided by the AO for asst. yr. 1982-83 pursuant to the directions given by the Tribunal vide order dt. 18th April, 1994, in ITA Nos. 7686 & 7083/Del/1988.
7. Ground No. 3 relates to confirmation of disallowance under s. 43B in respect of sales-tax payable amounting to Rs. 12,80,115. The learned counsel for the assessee contended that this amount represents sales-tax collected during the quarter October-December, 1983, last quarter of the accounting year. The amount was duly paid within the stipulated period as contemplated under the relevant law in the next year. This issue is covered in favour of the assessee by the judgment of Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT (1997) 224 ITR 677 (SC). The AO is directed to allow deduction in respect of said account after verifying the fact that the amount in question has been paid in the next year before due date prescribed under s. 139(1) of IT Act, 1961.
7.1 The assessee has also made one more claim in ground No. 3 that the sales-tax payable or the last quarter of the preceding year, i.e., for the quarter October-December, 1982, amounting to Rs. 12,80,519 actually paid during the calendar year 1983 relevant to asst. yr. 1984-85 should be allowed in the year under consideration, when it has actually been paid. At the time of hearing, the learned counsel for the assessee submitted that this part of the ground has now become infructuous since the amount has been allowed in asst. yr. 1983-84 itself. This part of the ground is, therefore, rejected.
8. Ground No. 4 relates to confirmation of the disallowance of a sum of Rs. 8,000 paid to Khurana Engineers & Consultants included under the head "Legal and Professional Expenses". The CIT(A) confirmed the said disallowance on the ground that payment to Khurana Engineers & Consultants was made for obtaining administrative approval from HSEB for obtaining 66 K.V. sub-station for ETL. This expenditure was incurred for obtaining approval for installation of a capital asset. Hence, the expenditure was treated as a capital expenditure.
8.1 The learned counsel for the assessee invited our attention towards the details of such expenses submitted at p. 40 of the compilation. The learned Departmental Representative supported the order of the CIT(A).
8.2 We have considered the submissions made by the learned representatives of the parties. Reality of the expenditure of Rs. 8,000 incurred by the assessee has not been doubted. The efforts made for obtaining approval from HSEB for obtaining 66 K.V. sub-station for ETL may be a step towards expansion of the existing business. Hence, such an expenditure will be clearly allowable as a revenue expenditure. Such a view is clearly fortified by the judgment reported in CIT vs. Modi Industries (1993) 200 ITR 341 (Del) and CIT vs. Aluminium (P) Ltd. We, therefore, direct the AO to allow the said deduction of Rs. 8,000.
9. Ground No. 5 relates to confirmation of the disallowance of Rs. 39,017 being the payment of additional royalty on account of exchange rate variations at the time of remittance debited under the head "adjustments relating to earlier year in Schedule M". The expenditure in question relates to asst. yr. 1983-84 but the same was actually paid in the accounting year relating to asst. yr. 1984-85. The Tribunal in assessee's case in ITA No. 839/Del/1989, vide order dt. 30th April, 1993, has directed that such additional royalty on account of exchange rate variation, should be allowed in the year of actual remittance. The Revenue had expressed their no objection to such findings as is clearly recorded in para 17 of the said order. The amount of Rs. 39,017 was stated to have been actually paid in the year under consideration. The correctness of this fact has not been disputed by the learned Departmental Representative nor by the Departmental authorities in their respective order. We, therefore, respectfully following the order of the Tribunal in the preceding year, direct the AO to allow deduction of the said sum of Rs. 39,017 subject to verification of the fact that the said sum has actually be paid in the year under consideration.
10. The next ground No. 6(a) relates to confirmation of the disallowance of Rs. 7,000 out of advertisement and publicity expenses representing the payment made to G. B. Pant University of Agricultural & Technology. The learned counsel invited our attention towards the letter dt. 28th January, 1983, sent by the Vice-Chancellor of the University to the assessee requesting them to sponsor a lunch/dinner on the eve of 28th Annual Convention at Pant Nagar organised by the Indian Society of Agricultural Engineers. It appears that a total sum of Rs. 15,000 was approved by the group of these companies. Rs. 8,000 was sent by Escorts Ltd. and the balance sum of Rs. 7,000 was paid and borne by the appellant company for hosting the lunch on the eve of the said conference. The learned counsel submitted that such an expenditure was incurred for the business purposes of the appellant company. The ISAE is the appex national body of agricultural engineers and the deliberations of the society carry considerable weight not only with the private sector but also with the development departments and policy-making bodies of the State Governments as well as the Government of India in planning policies and priority programmes relating to agro industries and agricultural production in the country. The outcome of the convention were obviously of considerable interest to the assessee as the assessee's industry is an agro-based industry. We are, therefore, of the considered opinion that the expenditure of Rs. 7,000 was wholly incurred for business purposes of the company and is, therefore, clearly allowable. We direct the AO to allow the same.
11. Ground No. 6(b) relates to confirmation of disallowance of a sum of Rs. 50,000 paid to Faridabad Industries Association debited under the head "Advertisement-publicity-public Relations" on account of services rendered for settling industrial dispute during the lock out period following labour trouble in the factory.
11.1 The learned counsel for the assessee submitted that the management gave notice for "lock out" of the factory with effect from second shift of 19th October, 1993, until further decision as per the relevant provisions of Industrial Dispute Act, 1947. In view of the serious labour trouble in the factory, the services of Faridabad Industries Association were taken for settling the industrial dispute during the lock out period following labour trouble in its Faridabad project. The said association gave a bill for Rs. 50,000 for the special services rendered by the said association in this regard. The amount was paid vide cheque No. 063790, dt. 14th November, 1983. He submitted that such expenses incurred by the assessee was wholly for business purposes of the company and ought to have been allowed.
11.2 The learned Senior Departmental Representative submitted that there is no material on record to show that the said association had rendered any specific services for resolving the dispute between the management and the labour. No details explaining the role of the said association in resolving the labour problem has been furnished before the Departmental authorities. He thus strongly supported the order of the CIT(A) in respect of the said disallowance.
11.3 We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the learned departmental authorities and other details and documents submitted in the compilation. It is an undisputed fact that there was a labour problem in the factory of the assessee. The lock out remained in force from 25th October, 1983, to 2nd November, 1983. The Faridabad Industries Association, which is a registered body, helps the industrial units of the said area in resolving their problems experienced in field, namely, power, water and labour, etc., the association has given a bill for the said sum of Rs. 50,000. The payment has been made by cheque. These vouchers and the fact of payment have not been proved to be non-genuine. The expenditure in question, therefore, clearly appears to have been incurred wholly and exclusively for business purposes. In our view the said expenditure is clearly allowable. The AO is directed to allow the same.
12. Ground No. 7 relates to confirmation of disallowance of total sum of Rs. 25,100 debited under the head "Rates & Taxes". The details of the said amount is as under :
Rs.(a) Application fee under TDS for automatic
head changing machine 5,100
(b) Amount paid to Haryana State Board for
the prevention or control water pollution 20,000
-----------
25,000
-----------
12.1 The learned counsel submitted that Rs. 5,100 represents the amount of application fee paid for import licence application to Technical Development Fund Scheme. The other amount of Rs. 20,000 was paid to Haryana State Board for the prevention or control of water pollution. A copy of letter dt. 25th May, 1983, sent by the said Board demanding the balance amount of Rs. 20,000 was also produced in the compilation at p. 50. The learned counsel submitted that such expenses incurred by the assessee for prevention of pollution is a necessary business expenditure.
12.2 The learned Senior Departmental Representative submitted that Rs. 20,000 paid by the assessee is merely a deposit and not an annual fees as contended on behalf of the assessee.
12.3 We have considered the submissions made by the learned representatives of the parties and have perused the relevant documents and orders of the departmental authorities.
12.4 The CIT(A) has confirmed disallowance of Rs. 5,100 on the ground that the application fee under TDF for automatic head changing machine was a capital expenditure. It was contended on behalf of the assessee that the expenditure was primarily aimed at achieving better efficiency.
12.5 In our view the expenditure of Rs. 5,100 incurred by the assessee by way of application fees for import of an automatic head changing machine should be allowed as a revenue expenditure. Such expenses incurred for improvisation of the production should be treated as revenue expenditure regardless of the fact that it may result in some enduring benefit. The Hon'ble Supreme Court in a recent judgment in the case of Addl. CIT vs. Akkamamba Textile Ltd. (1997) 227 ITR 464 (SC) has held that a guarantee commission paid to bank and insurance companies for purchase of machinery is a revenue expenditure. The Hon'ble Supreme Court in yet another case of CIT vs. Bombay Dyeing & Manufacturing Co. Ltd. held that contribution towards construction of tenements for workers, ownership of which vested with Government, constituted revenue expenditure. These judgments indicate that the test of enduring benefits cannot by itself be treated as sole criteria for deciding as to whether an expenditure should be treated as a capital expenditure or revenue expenditure. The nature of the expenses have to be examined from the point of view of a trader. The expenses incurred for travelling, guarantee commission for purchase of latest plant and equipments or expenditure incurred for extension of existing business have been held to be allowable expenditure in various cases. We are, therefore, of the view that the assessee is clearly entitled to grant of deduction of the said sum of Rs. 5,100.
12.6 As regards Rs. 20,000 paid to Haryana State Board of Prevention and Control of Water Pollution is concerned, the same is clearly allowable as a business expenditure. The contention of the learned Senior Departmental Representative that the said sum of Rs. 20,000 paid to Haryana State Board for prevention of water Pollution was a deposit is incorrect. A perusal of letter dt. 25th May, 1983, sent by HSB clearly shows that an aggregate sum of Rs. 50,000 was payable by the assessee to them towards consent/annual licence fee. This consists of Rs. 15,000 as consent fee for the year 1976-77 and Rs. 35,000 as an annual licence fee at the rate of Rs. 5,000 per year from 1977-78 to 1983-84. The assessee had deposited towards the aforesaid fees an aggregate sum of Rs. 30,000 for the earlier years. The additional demand of Rs. 20,000 was created by HSB vide aforesaid letter dt. 25th May, 1983, in relation to renewal of consent of discharge of effluent under s. 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 for the year 1983-84. It was clearly indicated in the said letter that failure to deposit the balance amount of Rs. 20,000 will render the appellant company liable for legal action under the said Act. It is universally known that the concerning pollution control authorities and the Courts are taking a very strict view in matters relating to prevention and control of water and air pollution, etc. The failure on the part of various industries have resulted in closure of larger number of industrial units in the recent years by virtue of various judgments of High Court and the Hon'ble apex Court. Such an expenditure was necessary business expenditure. We are, therefore, of the view that assessee is clearly entitled to grant of deduction of the said sum of Rs. 20,000 paid to HSB. The AO is directed to allow the same.
13. Ground No. 8 relates to confirmation of the addition of a sum of Rs. 12,556 on account of shortage of 200 items under the Code 3200-2149 noted at the time of physical verification of the inventory vis-a-vis the book records of total value of inventory at Rs. 823.82 lakhs.
13.1 The learned counsel submitted that the said shortage of certain items were noted while preparing physical inventory, the CIT(A) disallowed the same on the ground that the assessee gave no specific explanation relating to shortage of this particular item, hence, confirmed the addition, the learned Senior Departmental Representative simply relied upon the orders of the Departmental authorities.
13.2 We have considered the submissions made by the learned representatives. The shortage in respect of items under the computer code 3200-2149 valued at Rs. 12,556 had emerged at physical verification of the stock during the course of normal business operation. Keeping in view the large volume of stock and the fact of actual shortage found during physical verification by assessee, such a meagre amount of shortage found as a result of physical verification should not have warranted any disbelief or suspicion about the correctness thereof. In our view the said shortage valued at Rs. 12,556, which represents the actual shortage found as a result of physical verification, should have been treated as a genuine and real shortage. The AO is directed to delete the said addition of Rs. 12,556.
14. Ground No. 9 reads as under :
"That the Hon'ble CIT(A) VIII, New Delhi, has erred in law and on facts in upholding non-allowance of provision of car with chauffeur with regard to general manager and above cadres as forming part of perquisites regardless of the fact that such a facility has not been provided vis-a-vis contract of services issued to all such cadres of executives."
14.1 The CIT(A) in para 37.3 of the order passed by him has held that use of company's cars with chauffeur by the executives for their personal purposes is to be treated as a perquisite even if there is no provision in the service contracts for providing such benefits. However, the AO is not justified in making an ad hoc disallowance of Rs. 10 lakhs. He, therefore, directed the AO to obtain he necessary information and details from the appellant company regarding use of company's car by the executives and the expenses incurred thereon and thereafter recompute, the amount disallowable on this account under s. 40A(5). He further held that in case full details are not available, the AO would be at liberty to estimate the disallowance on the basis of the facts and information on record.
14.2 A similar ad hoc disallowance of Rs. 12 lakhs was made by the AO in assessee's case for asst. yr. 1983-84. The Tribunal vide its order dt. 29th September, 1995 in ITA No. 839/Del/1989 observed that there is no infirmity in the orders of CIT(A) and it accordingly sustained the order of the CIT(A) in this regard. Respectfully following the order of the Tribunal for the preceding year in assessee's own case, the findings given by the CIT(A) in the year under consideration relating to this ground is confirmed.
15. Ground No. 10 raised by the assessee is reproduced hereunder :
That the Hon'ble CIT(A) VIII, New Delhi, has erred in law and on facts in upholding inclusion of the following items within the ambit of disallowance under sub-cl. (3B)(ii) of s. 37 in respect of running and maintenance of motor cars :
Rs.
(i) Car expenses, fuel and maintenance 2,55,564
(ii) Insurance of motor cars 17,081
(iii) Vehicle maintenance purchases 33,142
(iv) Conveyance reimbursement of cars 7,55,840
(v) Taxi hire charges debited under
the head "Directors 'travelling" 1,378
(vi) Token tax for motor cars 11,614
(vii) Driver salary on ad hoc basis 1,00,000
(viii) Depreciation on cars 50,688
(ix) Depreciation on vans, ambulance and jeep. 43,247
15.1 We have considered the submissions made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. A similar issue regarding disallowance under s. 37(3B) has been decided by the Tribunal in the case of Escorts JBC Ltd. for asst. yr. 1985-86 in ITA No. 2629-3169/Del/1998, whereby it has been held that vehicle repair expenses, insurance of cars, depreciation on cars, road taxes are not to be aggregated for computing the amount disallowable under s. 37(3B) of the Act. However, expenses incurred for car running expenses, fuel and maintenance Rs. 2,55,564, conveyance reimbursement Rs. 7,55,840, driver's salary Rs. 1,00,000, taxi hire charges 1,378 have to be aggregated for working out the disallowable amount under s. 37(3B). It has been held in various cases that expenses which are allowable under ss. 30 to 36 will not be covered within the ambit of s. 37(3A) r/w s. 37(3B) and only those expenses which are allowable under s. 37(1) will be subject to partial disallowance of expenses contemplated in s. 37(3B). We, therefore, respectfully following the aforesaid decisions of the Tribunal based on various earlier decisions, hold that the expenses mentioned in ground No. 10(ii) relating to insurance of motor cars Rs. 17,081, ground No. 10(iii) vehicle maintenance Rs. 33,142, ground No. 10(vi) token tax for motor cars Rs. 11,614, ground No. 10(viii) depreciation on cars Rs. 50,688 and ground No. 10(ix) depreciation on vans, ambulance and jeep Rs. 43,247 should be excluded for the purposes of computing the amount disallowable under s. 37(3B). The disallowance made with reference to other expenses mentioned in ground No. 10 is confirmed.
16. Ground No. 11 relating to credit for surcharge deposited with IDBI under Companies Deposits (Surcharge on Income-tax) Scheme, 1983, amounting to Rs. 1,10,000 was not pressed by the learned counsel for the assessee as the same was allowed by the AO under s. 154. Hence, ground No. 11 is rejected as not pressed.
17. Ground No. 12 raised by the assessee is reproduced hereunder :
"That the Hon'ble CIT(A) VIII, New Delhi, has erred in law and on facts in upholding in not treating interest and financing charges in respect of plant and machinery purchased, installed and commissioned on deferred payment terms under IDBI. Bills rediscounting scheme as being capital expenditure and hence, eligible to depreciation, additional depreciation and investment allowance within the meaning of ss. 32, 32(1)(ii) and 32A of the IT Act, 1961 respectively."
17.1 The learned counsel for the assessee submitted that this point is covered in favour of the assessee by an order of the Tribunal in assessee's own case for asst. yr. 1983-84.
17.2 The learned Senior Departmental Representative submitted that the Tribunal in the preceding year, has not properly appreciated the provisions contained in Expln. 8 to s. 43(1) of IT Act, 1961. He also pointed out that the Hon'ble Karnataka High Court in the case of CIT vs. Vidia India Ltd. (1992) 193 ITR 475 (Kar) had not considered their earlier decision reported in State Bank of Mysore vs. CIT (1989) 175 ITR 607 (Kar). He pointed out that the amount paid by way of interest and financing charges in respect of plant and machinery purchased, installed and commissioned on deferred payment terms under IDBI is in the nature of interest. Expln. 8 to s. 43(1) specifically prohibits capitalisation of such interest pertaining to the period after the date of installation of the plant and machinery. He, therefore, strongly urged that the order of the CIT(A) should be confirmed instead of following the order of the Tribunal in assessee's case in the preceding year.
17.3 In the rejoinder, the learned counsel for the assessee contended that this issue was not only decided in favour of the assessee in the immediately preceding year by the Tribunal but the view taken by the Tribunal is further supported by the following decisions :
(a) Decision of Tribunal, Madras reported in India Piston Repco Ltd. vs. IAC (1988) 30 TTJ 502 (Del);
(b) Decision of Tribunal, Delhi in ITA No. 2756 and 2550/Del/1983 in the case of assessee's group companies Escorts Transmission Ltd. which was followed by the Tribunal in the earlier assessment years. The copies of the aforesaid judgments were also submitted by the assessee.
17.4 We have carefully considered the submissions made by the learned representative of the parties and have gone through the various decisions cited by both of them.
17.5 The Tribunal in assessee's own case in the immediately preceding year vide para 26 has held as under :
"Rival submissions heard and relevant orders read including the concerned pages of the paper-book referred to before us. The issue in question is dealt with at para 9 of the aforesaid order of the Tribunal in the assessee's own case, belonging to the assessee's group, wherein the Tribunal respectfully following its earlier decision in the case of India Pistons Repco Ltd. vs. IAC (1988) 30 TTJ 502 (Del) held that the amount so paid was to be treated as instalment only and, therefore, is part of capital and this would be outside the ambit of Expln. 8 to s. 43(1) of the IT Act, 1961 and that, therefore, the assessee would be entitled to depreciation and investment allowance on it. It is also not disputed before us that the aforesaid order of the Tribunal was also approved in the case of CIT vs. Vidia India Ltd. (1992) 193 ITR 475 (Kar). Therefore, we accept the stand of the assessee in this regard by setting aside the order impugned and granting relief to the assessee, accordingly."
17.6 A similar view was taken by the Tribunal in the case of Indian Pistons Repco Ltd. (supra) and in the case of Escorts Transmissions Ltd. (supra). It has been held in the aforesaid decision that the enhanced price due to the facility given by the IDBI Scheme for deferred payment is quite distinct from either interest paid on capital borrowed or interest paid on unpaid price. The Tribunal also considered the provisions contained in Expln. 8 to s. 43(1) by the Finance Act, 1986, with retrospective effect from 1st April, 1974. After considering the entire material, the amended provisions and the above referred decisions, the Tribunal, came to the conclusion that the amount paid by the assessee is to be treated as instalment only and, therefore, that would be part of capital and would be outside the ambit of Expln. 8 to s. 43(1) of the IT Act, 1961. The assessee was also held to be entitled to depreciation, additional depreciation and investment allowance on such discounting charges paid in respect of plant and machinery purchased under IDBI bills rediscounted scheme. We, therefore, respectfully following the above referred earlier decisions, hold that the assessee will be entitled to depreciation, additional depreciation and investment allowance on such discounting charges paid in respect of plant and machinery purchased, installed and commissioned on deferred payment terms under IDBI bills rediscounting scheme. The AO is directed to allow the same.
18. Ground No. 13 is reproduced hereunder :
"That the Hon'ble CIT(A), VIII, New Delhi, has erred in law and on facts in upholding in not allowing entertainment expenses claimed as business deduction under s. 37(1) of the Act amounting to Rs. 88,202 [beyond maximum admissible at Rs. 35,271 otherwise admissible under s. 37(2A) being on slab basis on the profitability before providing such entertainment expenditure and investment allowance] 50 per cent of which amounting to Rs. 44,101 has been necessitated by business expediency and is neither lavish hospitality nor amusement provided to the business customers/constituents of the appellant-company.
50 per cent of the balance amounting to Rs. 44,101 being partly expenditure on food, beverages having been provided to the employees during the course of their discharging duties while being outside the headquarters for the purpose of business of the company as not in the nature of entertainment being a misnomer although having been debited in the financial books under the account head 'Entertainment' but is 'Staff welfare' and hence, may please be directed to be allowed as business expenditure under s. 37(1) of the IT Act, 1961."
19. The learned counsel for the assessee submitted that the Tribunal in assessee's case for asst. yrs. 1982-83 and 1983-84 has held that a reasonable estimate amounting to 25 per cent of the entertainment expenses be attributed to employees participation and to that extent it will be allowed as staff welfare expenses as relatable to employees participation. Respectfully following the earlier decisions of the Tribunal in assessee's own case, we direct the AO to (sic) participation and to that extent, the expenses should be allowed as staff welfare expenses. The AO is directed to compute the amount of relief in similar manner as has been done in assessee's case for asst. yrs. 1982-83 and 1983-84.
20. Ground No. 14 relates to restoration of various deductions back to the AO for considering the same afresh. The learned counsel for the assessee did not press this ground at the time of hearing. Hence, ground No. 14 is rejected, as not pressed.
21. Ground No. 15 relates to confirmation of levy of interest under s. 215. The learned counsel submitted that the AO may be directed to grant consequential relief depending upon the relief granted in quantum of various additions/disallowances. The AO is accordingly directed to grant consequential relief.
22. In the result, the appeal is partly allowed.