TMI Blog1992 (1) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... contention has been negatived by the authorities below and that is why the assessee is now in appeal before us. In order to tell us the history of the generators purchased by the assessee from time to time between the accounting periods relevant to asst. yrs. 1977-78 to 1987-88, the assessee's learned counsel placed before us a chart, which is Annexure I to this order. The assessee is running a chemical unit atFaridabadand is engaged in the production of UF/MF Moulding powders, U.F. Prescol Glues, Formaldehyde and Hexamine. Admittedly the assessee has not been getting adequate power supply and that is why the assessee has had to purchase diesel generators from time to time. During the year under consideration the assessee purchased a Taiyo Mitubishi Diesel Generating Set of 1146 KVA (1500 RPM) fromJapanat a total cost of Rs. 34,68,690. The break up of this cost is mentioned by the Assessing Officer at page 3 of the assessment order as below: Cost Rs. Customs duty 17,24,370 Transportation Exp 14,32,817 Job work 16,798 Octroi 1,37,636 Capitalisation of interest and 1,915 Commitment cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in replacement of that generator that a new 200 KVA generator was installed at a cost of Rs. 4,82,260. As already stated the Tribunal rejected the assessee's claim for asst. yr. 1982-83 holding that it was a capital expenditure. As is evident from the facts narrated above, in the asst. yr. 1982-83 as well as in the years under consideration the assessee having itself treated the expenditure in question as capital expenditure and having capitalised the interest payable on the loan raised for the purchase of the generator and the issue having already been decided against the assessee for asst. yr. 1982-83, the matter is thus covered against the assessee. But yet since the assessee raised some issues for a fresh look, we shall deal with them below. 4(a). As stated above, the assessee, inter alia, contended that the generator in question was in replacement of an old generator and was, therefore, a revenue expenditure. To support the contention that the expenditure incurred on the replacement of a machinery was revenue expenditure, reliance was placed on CIT vs. Sri Rama Sugar Mills (1952) 21 ITR 191 (Mad) and it was contended that this authority holds that replacement of machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erators owned by the assessee had become useless and was actually replaced then the assessee should have claimed its written down value as a terminal allowance under s. 32(1)(iii). No such claim had been made before the Assessing Officer nor is any amount in respect thereof shown to have been written off in the books of accounts. Thus, the theory of replacement is not factually established. 8. Sec. 37 of the IT Act clearly prescribes that expenditure, which is of a capital nature, is not to be allowed in computing the taxable income of the taxpayer. Expenditure on the acquisition of an asset has always been held to be capital expenditure and that is how accountants and men of business treat the same and even the present assessee treated the same in the same manner in computing its profits. Even if a new asset is purchased to replace an old asset, the expenditure has to be treated as capital expenditure. 9. The learned counsel for the assessee then contended that generator is not an independent machinery and is an integral part of the assessee's plant manufacturing the goods mentioned above, but to be used in case of power failure and, therefore, it is like an accessory of a mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother assessee may be required to purchase transport vehicles because of a deterioration in the rail services or an assessee may feel it necessary to purchase an aeroplane or a helicopter for movement of its goods or men because the services offered by the Airlines are not adequate, but can, for that reason, the expenditure on acquisition of those assets be termed as revenue expenditure? We are sure that it cannot be. The assessee's contention cannot, therefore, be accepted as then the distinction between capital and revenue expenditure will vanish. 11. The learned counsel then contended that the expenditure on the purchase of generator was incurred to run and maintain the manufacturing machines, which could not be run without electricity as the assessee needs electric supply all the 24 hours of the day and that by the installation of the generator no new asset came into existence and the only advantage that accrued to the assessee was the uninterrupted supply of electricity. The expenditure was incurred to remove an obstruction in the manufacturing processes of the assessee caused by the shortage of electricity and the generator was an ancillary machinery like a jig or tool. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of production of penicillin and, as is evident, the expenditure was incurred on acquisition of latest technical know-how. Such technical know-how is also an intangible thing and although it provided enduring benefit to the assessee the expenditure was held to be of a revenue character. In the case before us a tangible asset has been purchased which merely provided energy to the assessee and was in no way relevant to the technical know-how required for the production of goods by the assessee. Reliance was also placed on RGS Industries vs. CIT (1990) 81 CTR (Gau) 6 : (1990) 183 ITR 31 (Guj) in which expenditure on payment for use of trade-name, pending import licences, contracts, trade benefits and advantages, etc., was held to be of a revenue nature. This too is a case of expenditure on intangible things. CIT vs. Hindustan Machine Tools Ltd. (1989) 175 ITR 212 (Kar) relied upon by the learned counsel for the assessee relates to a controversy whether an expenditure, which is otherwise of a revenue nature, but incurred on the setting up of a new unit, would be treated as capital expenditure or revenue expenditure. The Hon'ble High Court held that the expenditure was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he very fact that the assessee claimed 100% depreciation shows that the expenditure on the acquisition of the energy saving device was regarded as a capital expenditure. 16. On behalf of the Revenue reliance was placed on Indian Explosives Ltd. vs. CIT (1983) 35 CTR (Cal) 244 : (1984) 147 ITR 392 (Cal), in which it was held that expenditure that resulted in accretion to the profit-making structure is a capital expenditure. In that case the assessee had constructed air strips and buildings on land taken on licence for a period of 10 years with option for renewal for another 10 years and the question was whether the expenditure was of a capital or revenue nature. The ratio of this case supports the Revenue's case because by purchase of the generator there has been an accretion to the profit-making structure of the assessee as it provided an uninterrupted supply of electric power. The learned Departmental Representative also placed reliance on Hotel Diplomat vs. CIT (1980) 125 ITR 781 (Del), where the assessee had taken a building on rent and in accordance with the agreement with the landlord had constructed additional bathrooms. It was held that expenditure on the construction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as implying that the test of enduring benefit is hopelessly outdated and would not be applicable even if the facts and circumstances attract and justify its application." 18. We have given our careful consideration to the facts of the present case and the law as enunciated in the various authorities and for the reasons discussed above, we hold that the expenditure incurred by the assessee on the purchase of a diesel generator was a capital expenditure and it cannot be allowed as revenue expenditure. 19. The next important point arising in this appeal and which is the subject-matter of ground No. 3 relates to the disallowance of a sum of Rs. 54,81,990 in terms of s. 43B of the IT Act, 1961, which was introduced by the Finance Act, 1983 w.e.f.1st April, 1984. The relevant portion of s. 43B reads as under: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial amounts as worked by the Asstt. Collector. The Asstt. Collector may on the basis of monthly clearance demand a bank guarantee every month so as to cover the differential amount of duty in respect of the goods cleared during the month. The bank guarantee will be initially for a period of one year and will be to the satisfaction of the Asstt. Collector, Central excise,Faridabad." Pursuant to these orders, the assessee paid the full amount to the bank covering the differential amount of duty, obtained a bank guarantee and on furnishing the bank guarantee to the excise authorities obtained a clearance of the goods. During the year relevant to the asst. yr. 1984-85 the total amount of excise duty for which the assessee furnished the bank guarantee was Rs. 54,81,990. The assessee claimed this amount as deduction in computing its income but the Assessing Officer rejected the claim of the assessee invoking the provisions of s. 43B of the IT Act, 1961 as according to him the amount paid by the assessee to the bank to obtain a bank guarantee did not mean payment to the Government and, therefore, the provisions of s. 43B were attracted. This view was upheld by the learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date." to contend that payment need not be in actual cash but it could be made by cheque or draft or by any other mode and that furnishing of a bank guarantee by depositing the entire amount in question was also a mode of payment. The learned counsel also contended that the excise department had released the goods on the furnishing of bank guarantee and that meant that they had accepted the bank guarantee as equal to payment. 22. The learned Departmental Representative on the other hand, contended that the furnishing of a bank guarantee cannot amount to actual payment of excise duty and the only effect of furnishing a bank guarantee is that the Government can enforce the security furnished in the form of bank guarantee and is, therefore, in a better position to realise its dues. According to him, the money never went out of the coffers of the assessee in its true sense and it only changed its form, inasmuch as, the assessee converted its cash into investment in fixed deposits on which it was earning interest. He also contended that the bank guarantee was not demanded by the excise authorities. bank guarantees were furnished under orders of the High Court and the excise auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d petition and setting aside the decree or such other lesser amount as the Court may order. We, New bank ofIndia,Faridabadare hereby held firmly bound upto the High Court of Delhi atNew Delhithrough the Registrar of the said Court for the payment to it or to the President of India through the Asstt. Collector, Central excise, Faridabad on demand and without demur of the said sum of Rs. 2,95,312.69 (Rupees Two lacs ninety five thousand and three hundred twelve and paise sixty nine only) or such other lesser amount as may be ordered by the said Delhi High Court required to be paid or by M/s Nuchem Plastics Ltd., Faridabad to the President of India through Asstt. Collector Central excise, Faridabad as a result of the final disposal of the said petition and the guarantee herein contained shall not be affected by any change in the constitution of the bank and it is hereby agreed by and between the parties that this guarantee shall remain in full force and virtute till the disposal of the CMP No. 825/79 362/79 to which the aforesaid order of the Court relates and until an order of the Court is made discharging this guarantee." 25. He has also filed before us a copy of Form RT-12 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very contract of guarantee there is an implied promise by the principal debtor to indemnify the surety; and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully." 26. The above provisions make it clear that the surety after discharging the obligation of the principal debtor, steps into the shoes of the creditor (i.e, the Government) and is invested with all the rights that a creditor has (the Government) against the principal debtor. Sec. 145 of the Contract Act clearly specifies that there is an implied promise by the principal debtor to indemnify the surety and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee excluding the sums paid wrongfully. For s. 145 to apply, s. 145 supposes of an implied promise by the principal debtor to indemnify the surety by paying him all the sums that he paid to the creditor. The question of principal debtor, i.e., the assessee indemnifying the surety, i.e., the bank does not any more arise because the sums that are required to be paid by the surety were already paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full money and when on the receipt of the money the bank gave a guarantee to the Central excise authorities that it would make the payment to the Central excise authorities on the decision of the matter by the High Court and when the Central excise authorities accepted this bank guarantee and released the goods, allowing the assessee to sell them and appropriate profits thereon, can it be said that the assessee has not actually paid the money to the Central excise authorities. In our opinion, it is a payment made by the assessee to the Central excise authorities through the medium of the bank although it may mean that the Central excise authorities would not get the money till the Court decided the matter. On the Court deciding the matter against the assessee and on the bank paying the guaranteed amount to the Central excise authorities, what the bank would be doing is discharging the obligation it has undertaken under the contract of guarantee absolving the assessee of all its obligations. The assessee has, therefore, nothing to do after making the payment to the bank pursuant to the orders passed by the High Court. When the bank discharges its obligation to the Central excise aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance actually paid to the following members of the proprietor's family owning an impartible estate....." the maintenance allowance thus actually paid has to be allowed as a deduction in computing the income. In that case the amount was not actually paid to the widow but it was actually spent on behalf of the widow and the question arose whether the amount so spent on behalf of the widow would come within the meaning of the expression "actually paid". The High Court held : "There is no question about the position that in fact this amount was actually spent on behalf of the widow of the previous proprietor for her necessities. There is no doubt about the genuineness of the account showing the transfer of these items to the maintenance allowance of the widow. Medical expenses and the expenses for essential religious ceremonies according to the status of the widow are well within the meaning of the maintenance expenses. The only contention made by the Department is that the assessee is not entitled to deduction of this amount as the amount was not `actually paid' as used in the rule itself. In our opinion, the construction proposed by the Department is too narrow to be accepted. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. As to actual Bias; Damages; Delivery; Fraud; Malice; Notice; Occupation; Custer; Possession; Residence; Seisin; Total loss". This shows that the word "actually" means real, and effective as opposed to possible. In this case there is a real and actual payment to the bank, which is not unusual or supposed. 29. It is no doubt true that the learned Departmental Representative placed great reliance upon the observations of the Supreme Court in the case of Asstt. Collector of Central excise vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC). The relevant observations are: "Governments are not to run on mere bank guarantees. We notice that very often some Courts act as if furnishing a bank guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere bank guarantees. Liquid cash is necessary for the running of a Government as indeed any other enterprise." These observations only deprecate the practice of the Courts ordering furnishing of bank guarantees as if they would meet the ends of justice by pointing out that for running the Government liquid cash is necessary. There is nothing in these observations to point ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has exhausted his remedies against the principal debtor. It is also held that the remedy against the principal debtor is barred when the liability of the surety arises and this question has to be decided on the terms of the contract of guarantee by which the surety has bound himself. In the case before us the guarantee provided that the bank would pay the money to the excise authorities on demand. Therefore, there is no scope for the Central excise authorities to proceed against the assessee for the payment of excise duty in case the High Court decides the matter against the assessee. 31(a). Sec. 129 of the Contract Act speaks of continuing guarantee which extends to a series of transactions and here from the nature of guarantee given, it can be said that it is a continuing guarantee, which cannot be revoked by the surety, i.e., the bank under any circumstances even though s. 130 of the Contract Act provides for the revocation of the continuing guarantee because the terms of the guarantee were such that there was no scope for revocation by the bank at any stage. There are other sections in the Contract Act which provided for the circumstances under which a surety is discharged bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a contingency, still the guarantee given by the bank cannot be said to be a bond. There is nothing to make the obligation void on the happening or performance of a specified act. As rightly pointed out, in the case decided by the Tribunal, the bank guarantee was only to the extent of 25% as against 100% given in this case. This decision is, therefore, distinguishable. 32. It may also be mentioned that in the case of M/s Narendra Singh Ors., liquor contractor vs. ITO in ITA. No. 6391/Del/87 a similar point came up for consideration before Delhi Bench `B'. By its order dt. 31st Oct., 1991, the Bench held that payments made to the bank in obtaining bank guarantees in compliance with the directions or instructions of the officers of the Excise Department of the State of U.P. satisfied the requirements and amounted to sufficient compliance of the provisions of s. 43B of the IT Act for the purpose of allowing of that payment as a deduction. The Bench there held that payment to the bank to obtain a bank guarantee to cover the entire disputed amount was actual payment and, therefore, allowable as a deduction. This view is in accordance with the view we are taking and in a way fort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 equal monthly instalments, the first instalment was payable one month after the date of the signing of the agreement; 20% of the aforesaid sum was to be paid in five equal monthly instalments to start from the 13th month after the signing of the agreement; 5% was payable upon the mechanical completion of the plant and the balance of 5% was payable upon the commissioning or 3 months after the mechanical completion of the plant, whichever was earlier. In pursuance of this agreement the assessee paid Rs. 10 lakhs as ad-hoc advance towards fees, the amount was to be adjusted towards the consultants progress invoices from time to time. M/s Dalal Consultants is a company in which the assessee's Managing Director is a Director and the sum of Rs. 10 lacs that was paid by the assessee to M/s Dalal Consultants was passed over as a deposit to M/s Nuware India Ltd., a company connected with the assessee. 36. The Assessing Officer observed that the assessee had not produced a copy of the work schedule given to M/s Dalal Consultants and the assessee had not produced any evidence to show whether they had rendered any services during the relevant accounting period that ended onthe 31st of Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s Dalal Consultants. In the absence of any evidence to show that the rendering of services by M/s Dalal Consultants had been commenced within the accounting year ending 31st of December, 1983, no part of this amount could be allowed as a deduction even under s. 37 of the Act. We are, therefore, of the view that the order passed by the Assessing Officer disallowing the assessee's claim in respect of payment of Rs. 10,40,000 to M/s Dalal Consultants was correct and the order passed by the CIT(A) cannot be sustained. We, therefore, reject the assessee's ground on this point and accept the Revenue's ground No. 1 in ITA No. 1980 and setting aside the CIT(A) order on this point we restore that of the Assessing Officer. As stated above, it was contended by the learned counsel for the assessee that it may be directed that the necessary deduction will be allowed in the year in which the services are rendered. That, in our view, is the correct position of law and no direction of this Tribunal in that regard is, therefore, necessary. 38. Now we come to ground No. 4 in the assessee's appeal which relates to a disallowance of Rs. 58,894 in respect of payments made to one M/s G.L. Chawla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recomputing the assessee's income, the Assessing Officer shall recompute the allowance/disallowance of entertainment expenditure by including therein this sum of Rs. 41,500. 41. Ground No. 6 relates to disallowance of Rs. 25,000 representing 1/4th of the expenditure incurred on a car provided to the Managing Director from whom a sum of Rs. 5,400 is recovered for the personal use of the car. This ground also challenges an addition of Rs. 10,826 on account of salary paid to Chowkidars deputed at the residence of the assessee's Managing Director. For computing the disallowance under s. 40(c)/40A(5) the Assessing Officer included the entire expenditure of Rs. 1,02,000 incurred by the assessee on a car provided to the Managing Director. On appeal the learned CIT(A) held that only 1/4th of the expenditure aforesaid could be treated for the personal use of the car by the Managing Director and he, therefore, directed that the disallowance be calculated with reference to Rs. 25,500 only. The learned counsel for the assessee pointed out that in the assessee's own case the Hon'ble High Court has in CIT vs. Nuchem Plastics Ltd. (1990) 82 CTR (P H) 357 : (1989) 179 ITR 196 (P H) held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture on scientific research. We have already discussed this point while dealing with the assessee's appeal and, therefore, this ground of the Revenue stands accepted. 45. Ground No. 2 in the Revenue's appeal relates to another expenditure of Rs. 12,66,293 incurred by the assessee in connection with the aforesaid project of scientific research. The details of this expenditure have been mentioned by the Assessing Officer at page 8 of the assessment order as below: . Rs. "Building Pilot Plant 7,775 Building Oxyphan Butazone 2,35,908 P M common 1,99,667 P M Oxyphan Butazone 4,67,601 P M Pilot Plant for Polycarbonates 3,33,385 Lab apparatus common 13,697 F F 1,418 Library 6,824 . 12,66,293" 46. The Assessing Officer has held that this expenditure was not approved by the Department of Science Technology for purposes of s. 35(2B) and in his view it could not be allowed under s. 35(2)(ia) because, according to him, the various sub-sections of s. 35 were mutually exclusive and once a research programme was approved by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, find no force in this ground and the same is hereby rejected. 49. In its cross objection the assessee has justified the deletion of Rs. 12,66,293. A cross objection can be filed only to contest the order under appeal and a cross objection to support the order under appeal is not provided for. Therefore, this ground of cross objection became infructuous. 50. The third ground in the Revenue's appeal is about an amount that has been brought to tax by the Assessing Officer as capital gains. During the year under consideration the assessee had sold to its employees three plots of land for a total consideration of Rs. 26,230. The cost of acquisition of those three plots was Rs. 7,096 and the assessee had returned a capital gain of Rs. 19,224 on the said transaction. The Assessing Officer observed that the market price on the date of sale was Rs. 200 per sq. yd. while the price at which the plots were sold to the employees was only Rs. 60 per sq. yd. and, therefore, invoking s. 52(1) of the IT Act, 1961 he adopted the consideration for sale at Rs. 1,26,600 and computed the capital gains at Rs. 1,19,604. On appeal the learned Commissioner(A) held that these and several other pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive laws and, therefore, they should be allowed as deduction. For this view reliance was placed on S. Subbarao Co. vs.UnionofIndia(1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP). The learned Commissioner(A), therefore, directed the Assessing Officer to verify the dates of payments of various amounts totalling Rs. 5,02,858 and in case the payment had been made within the time statutorily allowed to allow them as deduction for computation of income. 52. The learned Departmental Representative relied on a judgment of the Hon'ble High Court of Delhi in Sanghi Motors vs. Union of India (1991) 91 CTR (Del) 15 : (1991) 187 ITR 703 (Del) in which it has been held that the proviso to s. 43B, which was inserted w.e.f. 1st April, 1988 is not retrospective in operation. The learned counsel for the assessee, on the other hand, placed reliance on a judgment of the Hon'ble Patna High Court in Jamshedpur Motor Accessories vs. Union of India (1991) 91 CTR (Pat) 19 : (1991) 189 ITR 70 (Pat) in which it has been held that the said proviso is retrospective in operation and, therefore, the amendment is applicable to asst. yr. 1984-85 as well. The same view has been taken by the Hon'ble Kerala High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance as retained by the learned CIT(A) a further sum of Rs. 58,894 paid to Shri G.L. Chawla has also been deleted by us while dealing with the assessee's appeal. The allowance of Rs. 4,68,170, which the Revenue challenges, consists of several items. The first expenditure amounting to Rs. 78,128 consisting of Rs. 66,728 and Rs. 11,400 relates to litigation expenses in connection with some cases instituted by R.K. Jain, Sanjog Jain, etc., who were employees and director of the assessee. The cases were instituted against the other directors of the company. The learned Assessing Officer disallowed this expenditure observing that the cases, in respect of which this expenditure was incurred, related to internal fights amongst directors. The learned CIT(A) has held that this expenditure related to the business of the assessee. The CIT(A) has mentioned in his order about the nature of the litigation which included a winding up petition against the assessee company moved by the said R.K. Jain. On the other hand, the learned Assessing Officer has not mentioned any facts and the learned Departmental Representative also apart from relying on the order of the Assessing Officer, could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition has been unnecessarily prolonged and as held by the Supreme Court in the case of M/s Dunlop India Ltd. vs. Collector of Central excise (1989) 154 ITR 170 (SC), certain assessees file writ petitions challenging the levy or impost by a Government statute and then try to prolong the decisions so that that the Government dues are not paid in time. The Excise Department has not brought any new interpretation to the existing statute during the year under consideration which would have necessitated further legal advice. It is only pursuing of the writ petition filed in 1979 that had required the engagement of Shri D.D. Verma. The payments relating to earlier years cannot be allowed, as the assessee is following mercantile system of accounting. As far as payment for this year is concerned, the same is also not allowed as the same has not been incurred for business consideration. Disallowance comes to Rs. 6,43,532. The above disallowance is also made in view of the fact that no details of expenses by Shri D.D. Verma incurred have been furnished." 57. The learned CIT(A) has retained the disallowance in respect of fees which related to earlier years but has deleted the addition to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance to the extent of Rs. 10,000. It is not disputed that in the expenditure in question there were many petty items which were not verifiable. Before the CIT(A) the assessee had, inter alia, contended that the disallowance was excessive and no attempt was made before us from either side to show whether the figure of Rs. 50,000 or the figure of Rs. 10,000 was correct or whether there should have been no disallowance at all. In such circumstances we uphold the order under appeal. 61. The next ground (Ground No. 8) relates to an addition of Rs. 47,500 made by the Assessing Officer out of expenses on advertisement. The CIT(A) upheld the disallowance of Rs. 41,500 but deleted the disallowance of Rs. 6,000 and while dealing with the assessee's appeal challenging the retention of disallowance of Rs. 41,500, we have held that this expenditure be treated as expenditure on entertainment. The dispute now is only about an expenditure of Rs. 6,000 which admittedly was incurred on providing tea and snacks to 600 participants at the 1983 Afro Asian Marketing Convention. The learned CIT(A) has allowed this expenditure holding that it was not of the nature of entertainment but was expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture was not in connection with the assessee's business. The learned CIT(A) has held that this expenditure was related to lawn and gardens inside the assessee's factory premises and, therefore, it was an expenditure in connection with the assessee's business. The learned Departmental Representative did not dispute the fact that the expenditure incurred was in relation to lawns and gardens in the assessee's factory premises. Therefore, maintenance of such lawns and gardens is an expenditure connected with the assessee's business because a businessman has to maintain a congenial atmosphere in and around its place of work. This ground has, therefore, no force and is hereby rejected. 65. This concludes the Revenue's appeal in which no other point was raised and in view of the above discussion, the Revenue's appeal is partly allowed, while the assessee's cross objection is rejected. ITA No. 5194 ( Del )/89 66. This appeal is directed against an order dt.21st May, 1991passed by the CIT(A). Vide order dt.30th July, 1990the CIT(A) had restored the matter regarding two items of expenditure to the Assessing Officer. The first item was an expenditure of Rs. 6,13,246 claimed to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations and directions of the CIT(A) in his appellate order dt.30th July, 1990. In the result, the disallowance of Rs. 6,13,244 is restored to the file of the Assessing Officer for fresh appraisal with the direction that the assessee may be asked to file the specific details or evidences required and adequate time may be afforded before rejecting the claim of the assessee in case he fails to file details of evidences asked for." 67. In the present appeal the assessee challenges the CIT(A) order restoring the matter to the Assessing Officer and contends that the necessary material had been duly submitted before the Assessing Officer. In our view, there is no ground to interfere with the order passed by the CIT(A) because as the matter stands the Assessing Officer did not record any findings on those aspects of the matter that have been highlighted by the learned CIT(A) in the above order and the CIT(A) has also not recorded any findings on those aspects of the matter. This Tribunal as a final fact finding body, cannot for the first time record a finding as to whether the expenditure was actually incurred or not and whether or not it was incurred for the purposes mentioned by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for supply of material, etc. This made up a total of Rs. 16,89,706 and included Rs. 3,71,300 paid for acquisition of land. Expenditure on the acquisition of land is not allowable and, therefore, the net claim of the assessee was for Rs. 13,18,406. According to the CIT(A) Rs. 3,32,000 represented advances made for the purchase of machinery and, therefore, this being a mere advance could not be treated as expenditure. He also doubted the factum of any scientific research atFaridabad. He, therefore, did not allow deduction for the expenditure in question. 71. Under s. 35(1) and (2) capital expenditure incurred on scientific research is allowable as a deduction. These provisions are different from the provisions of s. 35(2B), under which weighted deduction is admissible is respect of revenue expenditure. Thus, while s. 35(1) and (2) deals with capital expenditure, s. 35(2B) deals with revenue expenditure and it is only under s. 35(2B) that the research programme has to be an approved one. 72. The Assessing Officer's reference to the expenditure of Rs. 9.59 lakhs is off the point because the same related to earlier years. The expenditure which the assessee claimed as a deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to s. 43B. As regards the sum of Rs. 23,891 payable on account of Employees State Insurance the said proviso does not cover such payments and for the reasons stated in connection with the appeal for asst. yr. 1984-85 we uphold this disallowance. 75. The next ground i.e., ground No. 4 in this appeal is about the assessee's claim that interest earned on the fixed deposit receipts pledged with the bank in connection with the bank guarantees provided for payment of excise duty was not the assessee's income. The assessee's contention has been rejected by the authorities below and for the reasons discussed in detail while dealing with the matters for asst. yr. 1984-85 we uphold their view. 76. Ground No. 5 deals with the cost of the replacement what has been described as an old Buss-Ko-Kneder with a new NPC Twin Screw machine at a cost of Rs. 31,39,831 and also the cost of a 750 KVA transformer purchased to replace a 500 KVA burnt out transformer. The assessee's contention was that these were revenue expenses, while the authorities below have held that both were capital expenditure. The authorities laying guidelines for deciding whether a particular expenditure is capital expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a new machine like that be allowed as revenue expenditure. There is no technical evidence produced by the assessee that Buss-Ko-Kneder was such a subordinate part of the assessee's plant that its replacement would amount to effecting repairs to the remaining plant. We, therefore, uphold the orders of the authorities below on this point. 77. Similarly, an electric transformer is an independent machine performing a specific and independent function. In this case the assessee claims to have purchased a new transformer of 750 KVA as against a 500 KVA transformer, which is said to have been burnt. As observed by the learned CIT(A) the assessee itself has treated it as capital expenditure and shown it as an addition to the asset. For the reasons already discussed we hold that the authorities below rightly held this expenditure to be of a capital nature. 78. The next ground raised in this appeal is about the perquisite value of Chowkidars provided to the Managing Director and also of the insurance premium paid at Rs. 335. With regard to the Chowkidars we have already decided the issue in connection with the appeal for asst. yr. 1984-85 and our directions already given in that regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5,000 and added back Rs. 50,000. On appeal the learned CIT(A) estimated that Rs. 15,000 related to matters covered by s. 80VV and he, therefore, upheld the disallowance under s. 80VV at Rs. 10,000 out of a total expenditure of Rs. 75,875. The balance of Rs. 21,875 was held to relate to year ending31st Dec., 1983relevant to asst. yr. 1984-85 and was held to be not allowable this year. The learned counsel for the assessee conceded that the earlier year's expenditure could not be allowed. As regards the expenditure which could be subject to the restriction of s. 80VV he did not place before us any material to justify interference with the CIT(A)'s estimate of Rs. 15,000. We, therefore, reject the assessee's ground. 82. The last point raised in this appeal was about the levy of interest under s. 215 and the learned counsel for the assessee conceded that it was merely consequential in nature and the question of levy of interest and the extent thereof will have to be redecided by the Assessing Officer while giving effect to the present order. 83. No other point was raised in this appeal which stands partly allowed. ITA No. 2641 ( Del )/90. 84. This is an appeal by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made at Rs. 1,33,812. He, therefore, upheld the disallowance at Rs. 76,361 but deleted the addition of Rs. 57,451. The learned Departmental Representative did not dispute this finding and accordingly we do not find any force in the Revenue's plea. 87. The next ground is about disallowance under s. 40(c)/40A(5). The Assessing Officer had made a total disallowance of Rs. 1,98,941, out of which the learned CIT(A) deleted an amount of Rs. 1,16,000. A similar point was agitated before us in connection with asst. yr. 1984-85 and it was conceded that the facts and circumstances for the year under consideration were similar. We, therefore, direct that the disallowable portion, if any, be recomputed in accordance with our directions for asst. yr. 1984-85, as also our direction in the earlier part of this order in respect of the amount of insurance premium paid in connection with the Managing Director. 88. Ground No. 5 raised by the Revenue is also regarding disallowance under s. 40A(5). This is just a repetition of ground No. 4 and the same directions will accordingly apply. 89. Ground No. 6 relates to a disallowance of Rs. 7,981 out of foreign tour expenses of Shri R.C. Brar which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake of Rs. 1 lakh in the amount of PF and PPF. The amount mentioned at page 4 of the assessment order was Rs. 1,44,949. According to the assessee, the correct amount was only Rs. 44,949. The assessee moved an application for rectification and vide an earlier order dt.21st Nov., 1990the CIT(A) had directed the Assessing Officer to make necessary enquiries and do the needful. The Assessing Officer did not find any mistake because, according to him, no mistake was established by the assessee. On appeal the learned CIT(A) again restored the matter. 94. We find that while dealing with Appeal No. 165/89-90 the CIT(A) at page 17 of his order has recorded a categorical finding that there was a totalling mistake of Rs. 1 lakh, which according to him, "May be considered and allowed." This finding was not challenged by the Revenue before us when it preferred ITA No. 2641 (Del)/90. Therefore, it is established that there was a totalling mistake of one lakh. We, therefore, accept the assessee's plea and direct that the correct amount of PF and PPF was only Rs. 44,949 and it is this amount alone that will be considered for disallowance, if any. Even otherwise this issue has become academic bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o explain why it could not provide for these expenses in the accounts. The learned Commissioner(A) has also held that the assessee has failed to justify why no provision was made in the accounts of the earlier year. The assessee has placed before us at page 13 of the paper book, the details of the various items of expenditure. These details do not show when the expenditure was actually incurred and why could the same be not claimed in the accounting period to which it related. Since the assessee is maintaining accounts on mercantile basis, it was entitled to provide for all expenses before the accounts were finally closed and adopted. It is not shown that the accounts of the preceding year were closed before the requisite bills were received. We, therefore, find no infirmity in the orders of the authorities below and we uphold the same. 97. The last point raised in this appeal is with regard to the expenditure of Rs. 1,40,584 claimed under s. 35(1)(iv) read with s. 35(2)(ia) being capital expenditure incurred in connection with scientific research. In this connection it was conceded before us that the Assessing Officer may be directed to get the matter referred to the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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