TMI Blog1999 (10) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) the plea of the assessee was that it was maintaining its accounts on mercantile system and in the valuation of the closing stock the excise duty which had not become payable was not includible. Following his order for the asst. yr. 1986-87 and keeping in view the fact that the assessee had not charged the so-called excise duty either to the manufacturing account or to the P L a/c the learned CIT(A) deleted the addition. 5. The learned Departmental Representative while frankly admitting that the issue was covered in favour of the assessee by the orders of the Tribunal in its own case for the asst. yr. 1985-86 and 1986-87 submitted that in view of the Tribunal, Bombay Bench 'A' decision in the case of Godfrey Phillips India Ltd. vs. ITO (1992) 41 ITD 544 (Bom), the issue required reconsideration. The learned counsel for the assessee firstly stressed that the matter is squarely covered in favour of the assessee by the Tribunal's orders for the two preceding assessment years, copies placed at pp. 170 to 197 and 198 to 210 of the paper book. He further submitted that in view of the decision of the Tribunal, Special Bench in the case of ITO vs. Food Specialities Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors/employees. According to the AO, interest-free deposits with the landlords had resulted in the provision of better and cheaper accommodation to the directors/employees. Interest @16.5 per cent on the deposits was, therefore, treated as perquisite for the purpose of working out disallowance under s. 40(c)/40A(5) of the Act. The learned CIT(A) held that the action of the AO could not be sustained because he had already taken house rent for inclusion as perquisite. 12. The submission of the learned Departmental Representative was that on account of making deposits with the landlords, the assessee had to pay lesser amount of rent. Therefore, it was pleaded that the notional amount of interest was rightly taken into consideration by the AO for making the disallowance under s. 40(c)/40A(5) of the Act. The submission of the learned counsel for the assessee was that as is the common knowledge, deposit has to be made with the landlords as a security. Relying on the decision of the Calcutta High Court in the case of Indian Oxygen Ltd. vs. CIT (1995) 123 CTR (Cal) 224 : (1994) 210 ITR 274 (Cal) and Andhra Pradesh High Court decision in CIT vs. Vazir Sultan Tobacco Co. Ltd. (1988) 73 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee was that the issue relating to perquisite value on account of medical expenses has been decided by the Tribunal in favour of the assessee in its own case for the asst yrs. 1984-85 and 1986-87. To plead that club expenditure of directors would not constitute perquisite for the purposes of s. 40A(5), the learned counsel besides referring to two decisions of the Tribunal Benches, relied on the following High Court decisions: 1. CIT vs. Mercantile Bank Ltd. (1999) 155 CTR (Bom) 59 : (1999) 237 ITR 676 (Bom) and 2. Kores (India) Ltd. vs. CIT (1992) 196 ITR 749 (Bom). About gas, electricity and water charges reliance was placed on the decision of the Chandigarh Bench of the Tribunal in the case of Smithkline Beecham Consumer Brands Ltd. for the asst. yrs. 1978-79 to 1980-81 and for the asst. yr. 1985-88, CIT vs. Smithkline Beecham Consumer Brands Ltd. (1998) 100 Taxman 330 (P H). It was further submitted that the Department's reference applications in the aforesaid case for the asst. yrs. 1978-79 to 1980-81 were rejected by the Hon'ble Punjab Haryana High Court in the decision CIT vs. Smithkline Beecham Consumers Brand Ltd. (1997) 143 CTR (P H) 167 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 CTR (Guj) 195 : (1998) 231 ITR 583 (Guj), two views were possible, the view favourable to the assessee deserve to be applied, as was held by the apex Court in its decision in the case of CIT vs. Vegetables Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). 19. We have carefully considered the facts and circumstances of the case and the rival submission. As is mentioned in para 16.1 above, out of the four items listed above in the assessee's ground, the learned CIT(A) has adjudicated only on one item (d) i.e. telephone expenses. There being no finding whatsoever on other issues, the objections relating to items (a), (b) and (c), do not in fact arise out of the impugned order. We would, however, in the interest of justice and without going into the arguments of the rival parties on merits, restore the matter to the file of the learned CIT(A) for deciding the issues on merits and in accordance with law, after hearing both the parties. 20. As regards the perquisite value on account of personal use of telephones, the facts in brief are that the contention of the assessee was that the telephone installed at the residences of the directors was for business purposes only. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, in the assessment the AO made a disallowance of Rs. 13,81,855, which amount included, besides the aforesaid amount of Rs. 4,95,855, the following items: (i) For non-verification of vouchers-Rs. 2,00,000. (ii) For non-verification of quantum of disallowance under r. 6D-Rs. 2,00,000. (iii) Disallowance out of other expenses- Rs. 4,86,109. 24. In appeal, while the learned CIT(A) set aside the matter relating to item (i) above, for verification of vouchers, following the order for earlier year he confirmed the disallowance of Rs. 2 lakhs as per item (ii) above as also the disallowance of Rs. 4,86,109 being expenditure other than the expenditure incurred on travelling. 25. Before, us, the learned counsel for the assessee did not press its objections against the direction of the learned CIT(A) in respect of item (i) above, restoring the matter to the file of the AO. About item No. (ii), the submission of the learned counsel was that the Tribunal has in assessee's own case for the asst. yr. 1984-85, 1985-86 and 1986-87 deleted/upheld the deletion of ad hoc disallowance. About item No. (iii), the submission was that other expenses include expenses incurred on local tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been brought to our notice by the learned Departmental Representative we would, following the said order of the Hon'ble Calcutta High Court, order deletion of the disallowance of Rs. 4,86,109. We would like to specifically point out that it was not the case of the AO that such expenditure was not wholly laid out for the purpose of business. 27. The ground at Sl. No. 6 challenges the rejection of the claim for deduction under s. 80HHC of the Act on the ground that the certificate from Chartered Accountant was not filed along with the return. 28. For the assessment year under consideration the assessee had filed its return on21st Oct., 1987but the audit report dt.12th Aug., 1988, was filed only on5th March, 1990. The AO held that the audit report having not been filed along with the return of income, provisions of sub-s. (4) of s. 80HHC were not complied with. The claim was accordingly rejected by the AO and the action was upheld by the learned CIT(A). 29. The learned counsel for the assessee submitted that the requirement of filing the audit report was only a procedural requirement and in this connection relied on the order of the Tribunal in assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sold, the proceeds were being credited to the accounts. The AO did not find merit in the assessee's submission and estimated the value of closing stock of scrap at 1/10th of the sale consideration of scrap credited to the accounts. Thus, an addition of Rs. 5,57,616 was made. In appeal, the learned CIT(A) observed that the profits of the assessee cannot be correctly worked out unless the value of opening and closing inventory is correctly taken. While upholding the action of the AO, the learned CIT(A) directed him, "to value the opening stock on the basis of 1/10th of sales of last year and make the addition on account of difference between the opening and closing stock." 35. The submission of the learned counsel for the assessee was that the valuation of closing stock of scrap on ad hoc basis by rejecting the consistent practice adopted by the assessee had no basis in law. Our attention was invited to the comments of the auditors copy placed at p. 138 of the paper book, to submit that no adverse comments were recorded on account of scrap. It was further submitted that in assessee's own case for asst. yrs. 1978-79 to 1980-81 ITA 3456(Del) 1987, etc. assessee's system of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Departmental Representative do not in anyway assist the. Department. The issue is, therefore, decided in favour of the assessee. 37. The ground at Sl. No. 8 objects to the sustenance of disallowance of Rs. 15,989 out of gratuity payment. 38. Out of the claim for deduction of gratuity of Rs. 12,04,649, details and evidence for payment to the true of Rs. 15,989 were not made available by the assessee and hence the AO disallowed this amount. The disallowance was confirmed by the learned CIT(A). 39. After hearing both the parties we are of the view that it would not be fair and reasonable to disbelieve the assessee's claim of a meagre amount only because the payment voucher could not be produced when the payment is duly entered into the accounts of the assessee who is carrying on the business at a very large scale. In the circumstances of the case, we are inclined to accept the claim of the assessee on its face value. The disallowance of Rs. 15,989 is deleted. 40. The ground at Sl. No. 9 reads as under: "That the learned CIT(A) erred on facts and in law to uphold salary expenditure of Rs. 45,000 paid to a director for past period as a result of late approval received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability would crystallize only in this year. We would set aside the orders of the authorities below and restore the matter to the file of the learned CIT(A) for a fresh decision, in the light of settled principle set out above, after bringing on record the relevant material and after affording both the parties an opportunity of being heard. 44. The ground at Sl. No. 10 reads as under: "That the learned CIT(A) erred on facts and in law to uphold legal expense provision of Rs. 2.75 lakhs which was subsequently paid pertaining to the period under consideration." 45. The facts are that during the relevant previous year the assessee had made a provision of Rs. 2.75 lakhs in respect of legal expenses payable to J.B. Dadachanji Co. which was disallowed by the AO for want of bills. In appeal the learned CIT(A) upheld the disallowance by discussing the issue in the following manner: "The assessee has simply made a provision on estimate basis and the certificate of the counsel also indicates that approximate sum of Rs. 2,75,000 is estimated towards fee and expenses for the professional work done till 31st Dec, 1986. It is further observed that the actual bills in respect of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs was disallowed, prima facie on the ground of being capital expenditure. In appeal, the submission of the assessee before the learned CIT(A) was that expenditure of Rs. 52,470 could not be treated to be capital expenditure and that there was no justification for making the ad hoc disallowance of Rs. 3 lakhs. The learned CIT(A) did not find merit in these arguments and upheld the action of the AO. 50. The submission of the learned counsel for the assessee was that the expenditure on electrical job did result in any enduring benefit and was a revenue expenditure. In this connection reliance was placed on the apex Court decision in the case of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) and the Delhi Bench Tribunal decision ITO vs. S.L. Batra (1986) 19 ITD 342 (Del). About the ad hoc disallowance, the submission of the learned counsel was that the tax auditors did not report any capital expenditure and hence the disallowance was uncalled for. In this connection reliance was placed on the Delhi High Court decision Addl. CIT vs. Jay Engg. Works Ltd. 1978 CTR (Del) 156 : (1978) 113 ITR 389 (Del) and the decision of the Delhi Bench of the Tribunal, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rs. Rs. Canteen expenses 33,37,000 5,00,000 Sports activity Expenses 66,15,000 1,00,000 Sales misc. Expenses 15,78,000 2,50,000 Office expenses 35,41,000 5,00,000 Incidental expenses 22,68,000 3,50,000 ----------- Total 17,00,000 ----------- 54. The reason for making the disallowance was that the details/information called for by the AO were not made available and the relevant vouchers were not produced for examination. The AO observed that in the circumstances the canteen expenses could contain expenditure on capital nature and in the nature of entertainment and similar was the position with regard to expenses under other heads. 55. In appeal, the learned CIT(A) decided the issue against the assessee in the following manner: "The learned counsel was specifically told if he has details of the items mentioned above, so that I can analyse the admissibility or otherwise of the said item. The authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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