TMI Blog1992 (1) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... isites. As against this, the learned counsel for the assessee Shri Pradeep Dinodia pointed out that the same issue came up for consideration before the Tribunal and the Tribunal has decided the matter in favour of the assessee in assessment year 1982-83, vide order dated 23rd September 1991 in Income-tax Appeal Nos. 4596/Del/86 3973/Del/86. 3. We have considered the rival submissions. We find that this issue is covered by the decision of the Tribunal in assessment year 1982-83 cited above. Since facts are similar in this year, therefore, for the reasons given in that order, we do not find any substance in the Departmental ground. 4. The next grievance in the Revenue's appeal is that the Commissioner (Appeals) erred in deleting the disallowance of Rs. 5,000 being the commitment charges in respect of the unutilised loan of Rs. 10 lakhs when expenditure is related to the capital structure of the assessee and thus is capital in nature. The assessee company was sanctioned a term loan of Rs. 25 lakhs by ICICI Ltd. in December, 1980 for modernisation/replacement of carbon steel blade production facility against security of first mortgage of company's all immovable properties and fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed on the decision of the Supreme Court in the case of Commissioner v. Kalyanji Mavji (1980) 122 ITR 49 (SC). However, the ITO disallowed the claim holding it expenditure of capital in nature. 9. When the matter came before the Commissioner (Appeals) he held that this expenditure is of revenue in nature. The learned Departmental Representative submitted that this expenditure is capital in nature. Therefore, the ITO has rightly disallowed it. However, the learned counsel for the assessee supported the action of the Commissioner (Appeals). 10. We have considered the rival submissions. The Commissioner (Appeals) has noted that the fire has taken place in May 1982 which caused damage to the machinery and electric wiring. The expenses on the replacement of electrical wiring and making of the brick floor were in order to resume business of the assessee. Keeping in view this fact finding, we are of the opinion that this is an expenditure of revenue in nature. Therefore, the Commissioner (Appeals) has rightly allowed the same. No interference is called for. 11. The next grievance in the Revenue's appeal is that the Commissioner (Appeals) erred in holding that the expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 4,67,524 made by the ITO while making cash assistance, duty drawback and insurance claims for shortage of goods on accrual basis. The company explained that the method of accounting for export incentives has been changed from mercantile to cash systems during the year owing to the inordinate delays in settlement of these claims, difficulties in quantifying them. Most of the claims have been settled after a lapse of about 3/4 years and in certain cases the claims have been rejected or sanctioned for lesser amounts. It has been necessitated by the practical and technical consideration. However, the ITO rejected the assessee's contention and made an addition for cash incentive and duty drawback. 16. When the matter came before the Commissioner (Appeals), he discussed this issue in detail in paragraph 11 of his order and deleted the addition. 17. The learned Departmental Representative submitted that for these two items, change in method of accounting is not permissible. As against this, the learned counsel for the assessee pointed out that this very issue came for consideration before the Tribunal in the case of Escorts Ltd. which was a concern related to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lted in damage of capital as well as revenue assets of the assessee. The book value of fixed assets partially damaged by fire was determined at Rs. 8.51 lakhs and the value of assets completely destroyed by the fire was fixed at Rs. 10.69 lakhs which included Rs. 10.31 lakhs of current assets, i.e., stock of raw material, packing and process material, finished stock, etc., and Rs. 0.38 lakhs being written down value of capital assets completely destroyed. The assessee filed its first tentative claim with the insurance company at a figure of Rs. 69.09 lakhs. The total claim comprises current assets claim of Rs. 31.60 lakhs and fixed assets claim of Rs. 37.49 lakhs. The insurance company processed the claim for almost 3 years and finally settled the same in December, 1985. The payment made by the insurance company against the said firm are detailed as under : Rs. (i) 25 lakhs 12-10-1982 (ii) 18,43,623 17-2-1983 (iii) 5,10,687 5-9-1985 (iv) 3,64,319 9-12-1985 52,18,629 The assessee filed a certificate from the National Insurance Company before the ITO stating that the first payment of Rs. 25 lakhs was "on account" payment. A note to this eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it is ascertained whereas statutory liability under mercantile system of accounting is allowable irrespective of non- quantification thereof. The contractual liability of the insurance company under the insurance policy would be said to accrue or arise only after the claim has been processed, sanctioned and agreed to between the parties. In the instant case it was only in December, 1985 that the final settlement took place and the appellant received the amount of Rs. 3,64,319 by way of final settlement of claim. In this view of the matter the amount of Rs. 14,31,493 credited to the suspense account cannot be treated as income of the appellant for the year under appeal. 14.8 Even on the basis of alternative contention of the learned counsel that the provisional amount of compensation received may be allocated towards the capital assets since the allocation favourable to the appellant has to be adopted has substantial merit in it. Delhi High Court decision in Addl. Commissioner v. Roshan Dass Brij Bhushan (1982) 136 ITR 816 (Del) cited by the learned counsel fully supports the contention. On this basis also the addition made by the ITO is liable to be deleted." 25. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e opinion that this issue came up for consideration before the Tribunal in assessee's own case for assessment year 1982-83 and the Tribunal vide its finding given in paragraph 5, has held that the assessee is entitled to depreciation at the rate of 15 per cent. Since the facts in this year are same, therefore, respectfully following the decision of the Tribunal in assessee's own case for assessment year 1982-83, we do not find any substance in this ground. The same is hereby rejected. 28. The next grievance in the Revenue's appeal is that the Commissioner (Appeals) erred in holding that extra shift allowance should be allowed to the assessee on the basis of working of the concern as a whole and not on factorywise basis. We have heard the parties. This very issue came up for consideration before the Tribunal's 'D' Bench in the case of Indian Aluminium Cables Ltd. in Income-tax Appeal No. 483/Del/85 in which it was held that the triple shift allowance should be allowed on the basis of concern as a whole and not on the machine basis. Reference against this order was rejected by the Tribunal vide its order dated30th September 1985and reference under section 256(2) has also been rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he, following the earlier year's order in appeal No. 136/85-86 for assessment year 1982- 83 dated 22nd June 1987, held that there is no specific prohibition against allowance of investment allowance in case of purchase of machinery out of investment allowance reserve. 35. The learned Departmental Representative supported the action of the ITO and submitted that this cannot be allowed. As against this, the learned counsel for the assessee pointed out that similar issue came for consideration before the Tribunal in the case of Escorts Ltd. v. IAC in Income-tax Appeal No. 3995/Del/87 and the Commissioner (Appeals) also allowed similar investment allowance in assessment year 1982- 83 which is given at pages 65 to 68. The Department has not gone in appeal against that order. Therefore, it cannot be refused. 36.We have considered the rival submissions. Keeping in view the decision of the Tribual in the case of Escorts Ltd., and the fact that the Commissioner (Appeals) has allowed in earlier year, therefore, for the reasons given in these two orders, the investment allowance is allowable even if the machinery is purchased out of the investment allowance reserve account. No interferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumer." The assessee had mentioned that the function of Quality Control Manager, Supervisor, other members of the staff are aimed at the production of blades. The expenditure incurred by the assessee had necessarily to be done for the production of blades. Without such expenditure production would not have been possible. Therefore, it is allowable. However, the ITO disallowed the claim of the assessee holding that the assessee did not give any evidence that it never established a laboratory with the aim exclusively for keeping a control on the quality of its product. The expenditure incurred on salary of staff, had necessarily to be incurred for the production of blades and such expenditure was an integral part of their production as wages and other direct expenses. For the failure on the part of the assessee that the expenditure had to be incurred not only wholly but also exclusively on the maintenance of laboratory for quality control, the claim was disallowed. 38. When the matter came before the Commissioner (Appeals), he allowed the assessee's claim. 39. The learned Departmental Representative supported the action of the ITO. As against this, the learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order from the sales tax authorities had, however, been received for the assessment year 1977-78 raising such demand against the assessee. Sales tax Tribunal on appeal, held that the liability with regard to process material is leviable and no such liability in respect of packing material can be levied. On the basis of these facts, the ITO held that since no liability for the assessment year 1983-84 has been levied by the sales tax authorities, the provision made by the assessee does not represent a liability which has crystallised or accrued under the sales tax statute. 43. When the matter came before the Commissioner (Appeals), he confirmed the order of the ITO. 44. The learned counsel for the assessee submitted that this issue was considered by the Tribunal in assessee's own case for assessment year 1982-83 cited above. As against this, the learned Departmental Representative supported the action of the Revenue authorities. 45. We have considered the rival submissions. Keeping in view the decision of the Tribunal in the assessee's own case for assessment year 1982-83, we are of the opinion that this liability has to be allowed. We, therefore, set aside the order of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 32(1)(iia) and investment allowance under section 32A (1) are in identical terms. The Commissioner (Appeals) referring to the proviso to sections 32(1)(iia) and 32A (1) held that once the ITO has allowed investment allowance on certain plant and machinery during the year, by his own reasonings, the claim of additional depreciation on such plant and machinery cannot be allowed unless it is proved that it is impossible for the equipment to function without the particular type of structure. The particular apparatus or item must be used for carrying on the assessee's business and must not be his stock-in-trade. Therefore, following the decision of the Delhi High Court in the case of R.C. Commercial Industries v. Commissioner (1982) 134 ITR 330 (Del) the Commissioner (Appeals) held that these 4 items are not plant since the manufacturing operation of the plant was not carried out with these assets and these are not the tools of the assessee's trade. 49. The learned counsel for the assessee submitted that this machinery was installed by the company during the year and it is an integral part of the apparatus for manufacturing. Exhaust fan and air circulator are helping in the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is impossible for the equipment for function without the particular type of structure. (emphasis supplied). The particular apparatus or item must be used for carrying on the assessee's business and must not be his stock-in-trade. Applying the test laid down by the Hon'ble Delhi High Court, the four items of assets namely exhaust fan, air circulator, steel shelves and steel partition cannot be treated as plant since these are not the means of carrying on the business and it cannot be said that these are integral part of manufacturing apparatus of the appellant. Similar principles have been enunciated by the Hon'ble Bombay High Court in Commissioner v. Sandvik Asia Ltd. (1983) 144 ITR 585 (Bom). Their Lordships have applied the functional test for determining whether any assets were 'plant' within the meaning of section 43(3) which is the essence of the test laid down by the various High Courts for determining whether an asset can be called as plant. In the case before us applying the functional test, the four items of assets mentioned above are not plant since the manufacturing operations of the appellant are not being carried out with these assets and these are not the tools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration before the Tribunal in the assessment year 1982-83 and the Tribunal has allowed the time-barred liability written back and decided in favour of the assessee. Since the facts in this year are same, therefore, that decision should be followed. As against this, the learned Departmental Representative supported the action of the Revenue authorities. 54. We have considered the rival submissions. Keeping in view the order of the Tribunal in the assessee's own case for the assessment year 1982-83, we are of the opinion that the Commissioner (Appeals) has gone wrong in disallowing the same. We, therefore, set aside the order of the Commissioner (Appeals) and direct the ITO to allow the same. 55. Last ground in the assessee's appeal is that the Commissioner (Appeals) erred in upholding the levy of interest under section 216 amounting to Rs. 23,370. The facts of the case are that the assessee company filed estimate of income in Form No. 29 on three dates as under : (a) June 1982 estimating nil income (b) September, 1982 at an income of Rs. 25 lakhs (c) December, 1982 at an estimate of Rs. 30 lakhs. The return of income filed in June 1985 was at an income of Rs. 14.57 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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