TMI Blog1991 (12) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,48,039.00 Less : paid on self-assessment in earlier years Rs. 1,856.25 Balance at the year Rs. 2,46,182.75 What the Assessing Officer did was to allow only an amount of Rs. 57,906 which pertained to the period 1st April, 1978 to 31st Dec., 1978 since the accounting period relevant to the assessment year in question was from 1st Jan., 1978 to 31st Dec., 1978. He disallowed he rest. 3. In appeal, the learned CIT(A) upheld the disallowance holding that the assessee was contesting the remaining amount and that it also did not relate to the year of account. He, however, directed that the balance amount be allowed in the year in which the final payment was accepted and made by the assessee. 4. The rival submissions have been heard and duly considered. It appears that the Assessing Authority, "Bhoomi and Bhawan Kar", Dist. Ajmer and Bhilwara, assessed the market value of land and building vide his order dt. 31st Jan., 1978 as a result of which demand was raised on 31st Jan., 1978 for these past years amounting to Rs. 1,90,132.50. However, in the same demand notice, the amount paid on self-assessment for the earlier years was shown as Rs. 1,356 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering that there were some disallowable items in the details given, the net amount disallowable in terms of s. 37(2A) is held to be Rs. 10,000 for this year also. 8. The next ground relates to the disallowance of Rs. 9,390 out of legal fee. The total claim of the assessee was as under: Shri S.K. Jain, Rs. 6,720 Shri S. Kothari Co. (Auditors), Rs. 245 Shri A.R. Agarwal,, Advocate Rs. 2,500 Retainership fee Rs. 9,000 ITAT fee Rs. 125 . Rs. 18,590 After going through the details and on the basis of the directions of the IAC, the ITO kept the disallowance at Rs. 9,390 whereby the amounts paid to Shri H.C. Garg Co., (Rs. 1,500), Shri Manoj Sharma (Rs. 1,800) and Shri Girish Bhandari (Rs. 900) total Rs. 4,200 were excluded as per the directions of the IAC. 9. In appeal, the learned CIT(A) confirmed the disallowance following his own order for the asst. yr. 1978-79. 10. Before us, on behalf of the assessee reference was made to the details appearing at pages 40 to 48 of paper book which showed that Rs. 6,720 pertained to payment made to Shri S.K. Jain, Advocate, for income-tax case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as interest could not be recovered. The ITO found that the assessee's auditor had worked out interest for two years from 1st July, 1977 to 31st Dec., 1978 at Rs. 78,007 in para 5 of Annexure-5A to his report and that interest for the asst. yr. 1978-79 amounting to Rs. 37,593 had already been assessed on accrual basis in that year. Accordingly, the balance amount of Rs. 40,414 was assessed by the ITO in the assessment year in question as interest receivable. 15. In appeal, the addition was confirmed by the learned CIT(A). 16. Before us on behalf of the assessee it was submitted by Shri N.M. Ranka, the learned counsel for the assessee that interest was charged from M/s Deep Cinema only for 3 years and that from 1976 the assessee had stopped charging interest. It was also pointed out that the assessee's auditors had stated in their report (copy of pages 57A and 57B dt. 15th Oct., 1979) that the assessee had stopped charging interest on this advance to w.e.f. 1st Jan., 1977 and that the assessee had not been able to recover the principal amount as well as interest on this advance as stipulated. It is also pointed out that for the asst. yr. 1980-81 the learned CIT(A) had delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of accrued interest. The inclusion was deleted by the learned AAC. The deletion was upheld by the Appellate Tribunal and the Tribunal's order was upheld by the Madras High Court holding that though the assessee had adopted the mercantile system of accounting, no interest income could be assessed in its hands on accrual basis as it would be very unrealistic on the part of the assessee to take credit for a highly illusory interest. In the case of Kewalchand Bagri vs. CIT the assessee had advanced loan to his father and interest was charged on the same upto 1970 but from 1st Jan., 1971, he did not charge interest because his father's business had suffered a setback and he was unable to pay interest. However, the ITO taxed the interest amount as income whether received or not. In that case also the AAC deleted the addition and the Tribunal restored the addition but the High Court held that the issue had to be viewed in the context of commercial and business realities of the situation and, therefore, if the assessee did not receive any interest as the debtor was unable to pay any interest, it could not become his income in the real sense. The income was said to be hypothetical. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) read with s. 36(2). The Supreme Court also held that the concept of real income could not be so read as to defeat the object and provisions of the statutory enactment. The Supreme Court further held that even if in a given circumstance, the amount might be taken to the "Interest Suspense Account" for accounting purposes that would not affect its taxability as such. It was also held that where interest has accrued and the assessee has debited the account of the debtor, the difficulty of recovery would not make its accrual non-accrual. Bearing this clear decision of the Supreme Court in mind and since the system of accounting of the assessee has been shown in the assessment order as "mercantile" and neither any case was set up that the system of accounting was hybrid or that it could be hybrid with reference to one of the debtors and without asking the ITO for approval of the change in the system of accounting, the assessee could not say that it had adopted a different system of accounting in regard to M/s Deep Cinema. There is no evidence as to when such a change was adopted. There is no dispute that advances were given in 1973 @ 7.5% interest and, therefore, it was for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the same, we direct for the sake of clarity that the value of the closing stock of the preceding year should be taken as the opening stock for the assessment year in question. We hold accordingly. 24. The last point raised in the grounds of appeal by the assessee is that the learned CIT(A) erred in not adjudicating on the additional ground taken before him, which reads as under : "The ITO was not justified in scaling down the cost of shovel, purchased and installed by us, during the accounting year under consideration at a cost of Rs. 15,28,532 by the sum of Rs. 2,69,966 that we have received as "subsidy" under Central Investment Subsidy Scheme against this Shovel and then allowing investment allowance only in respect of the balance sum of Rs. 12,58,566." The case of the assessee was that the ITO was not justified in reducing the cost of shovel (Rs. 15,28,532) by the sum of Rs. 2,69,966 received as subsidy under the Central Investment Subsidy Scheme and allowing investment allowance with reference to the balance amount of Rs. 12,58,566. According to the assessee, the amount could not be reduced for the purposes of grant of depreciation and investment allowance. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the total amount of Rs. 3,23,186, an amount of Rs. 2,46,183 related upto the asst. yr. 1979-80 and the balance amount of Rs. 77,003 to the assessment year in question. The ITO, therefore, disallowed the amount of Rs. 2,46,183 while accepting the assessee's claim to the extent of Rs. 77,003. 28. After hearing the learned Representatives on both the sides, we find that the amount of Rs. 2,46,183 has been considered by us in ground No. 1 of the assessee's appeal for the asst. yr. 1979-80 and we have already held that an amount of Rs. 1,89,776.50 was allowable for that assessment year. So far as the assessment year in question is concerned, the amount of Rs. 77,003 was rightly allowed by the ITO. The learned CIT(A) was, therefore, not justified in allowing the amount of Rs. 1,88,276 again in the assessment year in question. This ground is, therefore, accepted. 29. The next ground relates to the deletion of the addition of Rs. 41,425 by way of interest. The facts relevant to this claim are the same as in ground No. 5 in the assessee's appeal (ITA No. 516/Jp/1987 for the asst. yr. 1979-80). The addition was made by the ITO but it was deleted by the learned CIT(A) looking to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been paid at the rate stipulated in the agreement, and the Tribunal having accepted the assessee's claims in the past as referred to above, we see no reason or justification for not following that decision, especially when no special facts have been pointed out. This ground, therefore, fails. 35. The next ground relates to the claim amounting to Rs. 75,541 on account of the expenditure on road repairs. Before the ITO it was submitted on behalf of the assessee that the claim was similar to the earlier years. However, the ITO noticed that in the preceding asst. yr. 1979-80, he had disallowed the claim amounting to Rs. 99,375 and, therefore, he disallowed this claim holding the expenditure to be of capital nature. 36. On the same basis, the learned CIT(A) accepted the assessee's claim in view of CIT(A) order dt. 19th March, 1987 for asst. yr. 1979-80. 37. The rival submissions have been heard and duly considered. We find that the expenditure was incurred on the repairs of a "Kacha" road. We also find that vide para 2 of its order dt. 13th March, 1990 in ITA Nos. 686 687/Jp/1987 for asst. yrs. 1978-79 and 1979-80, the Tribunal had upheld the assessee's claim by following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1978 Rs. 16,953.70 1979 Rs. 33,945.12 1980 Rs. 34,774.32 1981 Rs. 4,474.75 1982 Rs. 46,342.96 . Rs. 1,36,692.85 This claim was disallowed by the ITO who held that deduction was not available under s. 80G on donation in kind. 41. However, the learned CIT(A) accepted the assessee's claim holding that the claim rested on the fact that it was a staff welfare measure and that in view of the same, five beds had been reserved in the hospital for its workers. The claim was accordingly accepted. 42. The rival submissions have been heard and duly considered. We find from the copy of the letter dt. 28th Aug., 1977 of Shri Trilok Chandji, the then Minister of Rajasthan that an assurance was given that the labourers of the assessee's mines were to be given priority for medical treatment and admission if a new ward was constructed in the hospital. The letter dt. 23rd Feb., 1987 of the Chief Medical and Health Officer, Bhilwara, addressed to the assessee (copy at page 156) was to the effect that five beds were to be reserved for mine workers of the assessee who were to be given priority for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he direction of the learned CIT(A) to follow overall method for the purposes of disallowance of interest. This is similar to ground No. 1 under the Department's appeal for the asst. yr. 1980-81 which we have not accepted; we take the same view here also. 46. The second ground relates to the direction of the learned CIT(A) to the ITO not to reduce the cost of assets by the amount of subsidy for the purpose of grant of depreciation. Following our view as taken in ground No. 8 of the assessee's appeal for the asst. yr. 1979-80, we find no force in this ground. 47. The last ground relates to the non-affording of the opportunity to the ITO and directing the ITO to allow Rs. 6,000 as excise duty, Rs. 1,996 as cost of one piston and Rs. 4,476 as the cost of construction of indoor ward in the Civil Hospital at Jahajpur. It appears that these claims had been raised by the assessee for the asst. yr. 1983-84 and the ITO had disallowed them during that year saying that they related to the assessment year in question. The learned CIT(A), therefore, accepted the assessee's claim. 48. We have heard the rival submissions and considered them. So far as the excise duty is concerned, the only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in this ground. ITA No. 558/Jp/1989 filed by the assessee for the asst. yr. 1984-85: 52. The first ground relates to the disallowance of the following expenses in respect of Chainpura unit: (i) Depreciation Rs. 14,259 (ii) Power charges Rs. 10,348 (iii) Engine hire charges Rs. 30,000 . Rs. 54,607 This unit has been established in the asst. yr. 1975-76. During the assessment year, the entire business remained closed. Therefore, the ITO disallowed the entire claims. 53. Before the learned CIT(A) it was submitted on behalf of the assessee that there was no business on account of lack of demand. Reliance was also placed on the order dt. 23rd Sept., 1987 of the CIT(A) for the asst. yr. 1983-84 in this regard though he had disallowed depreciation. The learned CIT(A), however, noticed that the unit had remained closed not only for the assessment year in question, but also in the preceding assessment year. He took the view that it could not be said that the closure represented only a temporary lull. He also took the view that even during the period of temporary lull, power consumption and machinery hire were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) held that the claim related to 1982 and should not be allowed during the assessment year in question. 59. The rival submissions have been heard and duly considered. The details of ex gratia payment appear at pages 169 170 of the assessee's paper book. They were paid @ 11.67% of the salary to 23 persons as detailed in the list. The payments were made during the assessment year in question and there is no reason why such a disallowance could be made when it was in lieu of bonus which was being paid at a much higher rate for the earlier years. This will be dictated by reasons of business expediency. The claim is held to be allowable. 60. The next ground relates to the disallowance of Rs. 35,000 out of staff welfare expenses claimed at Rs. 1,60,541. The ITO found that at the head office an amount of Rs. 29,180 represented canteen bills and expenses incurred through Mr. Ratanchand and H.C. Jain, which was of the nature of entertainment. He also found that out of the total expenses of Rs. 1,11,700, relating to Bhilwara Branch, Rs. 58,524 were on account of tea, refreshment, etc. At the Mills, Ghewaria, Chainpura, Bhagwasa Dhivbhandar which were also of the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asha Golcha as also for medical bills of Houston, Brooklyn, daily expenses of both, local conveyance and gifts to hospital staff etc. Shri R.K. Golcha was the Managing Director and the incurring of the expenses had been authorised by the company so that his services were continued to be available. He had to undergo open heart surgery. It was thus as authorized expenditure for reasons of business and commercial expediency and the expenses were reimbursed by the company. Having regard to the facts they could not have been treated as personal expenses of Shri Golcha. Shri Golcha had approached the assessee for reimbursement and the expenditure was duly vouched. It is needless to mention that Shri Golcha also needed the attention of Smt. Asha Golcha. The consistent view taken by the High Courts is that the reimbursement of medical expenses of employees is not treatable as a perquisite. In case of Shri Karamchand Thapar expenditure incurred to fly the dead body of the company's Chairman had been held to be an allowable business expenditure which was considered incidental to business. We are, therefore, of the view that these expenses are allowable on facts, there being no decision to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the following heads: (i) Farm expenses Rs. 782 (ii) Penalties Rs. 630 (iii) Others Rs. 12,548 . Rs. 13,960 72. So far as the first two items are concerned, since they were not pressed at the time of the hearing of the appeal before us, they no longer survive for our consideration. 73. So far as the claim of Rs. 12,548 is concerned, we find that for the asst. yr. 1983-84 in respect of a similar claim, the assessee had accepted the disallowance to the extent of Rs. 5,000. In the absence of any fresh or further facts, we direct that the disallowance be kept back at the same figure of Rs. 5,000. We hold accordingly. 74. The last ground relating to the disallowance of Rs. 2,47,699 paid to the IT Department, not having been pressed before us at the time of the hearing of the appeal, no longer survives for our consideration. 73. In the result the assessee's appeals (ITA No. 516/Jp/1987 for asst. yr. 1979-80 and ITA No. 558/Jp/1989 for asst. yr. 1984-85) are partly allowed. Department's appeal (ITA No. 1171/Jp/1987 for asst. yr. 1980-81) is also partly allowed whereas the Department's appeal (ITA No. 1242/Jp/198 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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