9911796707
TMI Blog1987 (1) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... , Jamshedpur with all its assets and liabilities. Soon after taking over this business from Hindustan Tools & Dies, Laxmi Mansion, the assessee launched a scheme of expansion and diversification of the manufacturing job which was done by the existing business. The assessee made purchases of plant and machinery amounting to ₹ 1,96,208 for the assessment year 1975-76. ₹ 2,10,355 for the assessment year 1976-77, ₹ 5,03,053 for the assessment year 1977-78 and ₹ 63,229 for the assessment year 1978-79. The machinery and plant which he had obtained from Hindustan Tools & Dies, Laxmi Mansion, was valued at ₹ 5,21,411. According to the assessee he had pumped into the business quite a substantial amount of fund to make these purchases which he installed in a shed obtained from Hindustan Tools & Dies, Laxmi Mansion, which was lying vacant and unused. As a result of installation of new plants and machineries of such value as given above, he was able to produce several new articles which had not been produced so far. These were high speed steel single point, tools and tool bits, high speed steel milling cutters and high speed steel reamers and tungsten carbide tipp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for his rejection was that he refused to accept that the assessee had set up 'a separate, independent and distinct, trading and industrial undertaking' for diversification of expansion of scheme because according to him the business was done by the newly added machinery and plant which had merged with the business taken over by the company. According to him it was an old existing business which was reformed which had been responsible for diversification and expansion. It was not a new industrial undertaking which was separate from the old industrial unit. It was for these two reasons, the ITO turned down his claim for all the years. 3. The assessee having felt aggrieved by the refusal of the ITO to allow him the benefit of deduction provided under section 80J, appealed to the Commissioner (Appeals). The Commissioner (Appeals) went into the facts and made a fresh appraisal of the facts. According to him, the ITO was not justified in refusing the claim of the assessee on the two grounds on which he had relied. He did not agree with the ITO that the assessee had not set up a separate and independent industrial unit. According to him, the assessee had set up a new industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals) upheld the finding of the ITO for disallowing the benefit under section 80J for the assessment years 1974-75 and 1975-76 but he upheld the claim of the assessee for the assessment years 1976-77 to 1978-79. Therefore, both the revenue and the assessee felt aggrieved. The assessee for upholding the finding of the ITO for the assessment years 1974-75 and 1975-76 and the revenue for upholding the claim of the assessee for the assessment years 1976-77 to 1978-79. 4. Before us, the learned counsel for the assessee and the departmental representative raised the same plea and counter plea which were raised before the lower authorities. According to the departmental representative the assessee had not been able to establish that he set up an independent, distinct industrial unit. The new machinery and plant which were installed got merged in the existing business and lost their identity. Besides, the departmental representative stretched down the addition of working out the deduction in the case where composite accounts were maintained. According to him, it was not possible to work out the profit derived from the newly established unit - correctly. A further submission wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking had to be accepted. . . . " (p. 183) Similar view was taken by their Lordships in CIT v. Rohtas Industries Ltd. [1979] 120 ITR.110 (Cal.) and the Karnataka High Court in International Instruments (P.) Ltd. v. CIT [1980] 123 ITR 11. Their Lordships of the Supreme Court had endorsed the same view in Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195. Their Lordships observed: "We may observe that we are not required to consider in these appeals how profit will be actually calculated in order to determine the quantum of exemption of six per cent of the profits on the capital employed. If difficulties are insurmountable and, therefore, profit cannot be ascertained, that will be a different question in the course of practical application of the section. That kind of a possible difficulty should not weigh in the true construction of section 15C. . . ." (p. 207) In the light of the aforesaid observations, it cannot be held that the true profits earned by the new unit cannot be worked out approximately to enable the assessee to claim deduction under section 80J. Revenue should not take an approach which insists for mathematical precision in bringing out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. It is apparent that new unit set up by the assessee had a new team of workers engaged in the manufacturing concern. In the new business, the assessee had poured more capital which was by any test applied sub-stantialy. The new unit was economically a viable unit. That it was connected with the old business in some way would not deprive the assessee of the benefit of the deduction under section 80J. In this connection, a plea was raised by the departmental representative on the basis of the Supreme Court decision that the assessee was not entitled to claim the benefit because he had not contributed his own capital. In this connection we have to hold that the plea advanced by the revenue was misconceived. It was not the case of the ITO when he disallowed the claim of the assessee for deduction under section 80J. It was not the claim of the revenue when the matter was thrashed out by the Commissioner (Appeals). There is no finding recorded by any of the two authorities on this aspect. The revenue is not entitled to raise a new plea to make out altogether a new case at the second appellate stage on which neither authority had recorded any finding. The revenue has other remedies but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be allowed. In his view, the amount of ₹ 8,752 was not in accordance with the provisions of section 40A(7) of the Act. The Commissioner (Appeals) found that on the basis of actual payment only a sum of ₹ 2,582 was allowable. He has dealt with this issue in para 4 of his order where he held that the assessee was not entitled to seek a deduction on account of provision made. He had another objection also in this connection. He found that he had made the provision for gratuity payable for the years prior to the assessment year 1974-75. Therefore, he caused a disallowance of ₹ 6,170 which had been allowed by the ITO but which was not paid during the assessment year and also related to the liability for the prior assessment years. Similarly, he disallowed a sum of ₹ 25,960 out of ₹ 34,083 provided for gratuity during the assessment year 1975-76. In this year also, the Commissioner (Appeals) allowed on the basis of actual payment of gratuity made during the assessment year 1975-76. For the assessment year 1976-77 he disallowed a sum of ₹ 22,565 out of a total claim of ₹ 34,874 provided in the accounts for gratuity. He allowed ₹ 12,309 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been disallowed. The Commissioner (Appeals) had dealt with this issue in para 5 of his order. The ITO had disallowed one-fourth expenditure and one-fourth depreciation claimed on the vehicle on account of personal use of cars by the directors. The Commissioner (Appeals) restricted the disallowance to one-sixth of the expenditure and depreciation allowance claimed. It is represented by the learned counsel for the assessee that the director Shri Amrit Lal Chachra who was looking after the business of the company was having his own car No. BHT 362. Therefore, there could not arise any question of disallowance on the ground of personal user of the directors or their families. It was also pointed out that the directors are also partners in Amrit Stores/Hindustan Sales Agency in which already the ITO had disallowed one-fourth expenditure incurred on the maintenance and running of the car and depreciation for personal user of the directors. It was also pointed out that the Tribunal in the appeal for the assessment years 1969-70 to 1972-73 in the case of predecessor firm did not uphold any disallowance under these heads. Taking stock of these facts, we hold that no disallowance was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner (Appeals) and the ground of appeal raised by the revenue is incompetent and is liable only be dismissed. We do so. 14. There is another issue raised regarding the charging of interest of ₹ 4,794 under section 217 of the Act by the ITO. The Commissioner (Appeals) has dealt with this issue in para 20. Reading through his finding, it appears to us that the revenue has been misdirected both on facts and in law in raising the issue. Since, the estimate has been filed by the assessee, there could not be any justification for charging interest under section 217. Accordingly, the appeal of the revenue on this issue is dismissed. 15. In the appeal for the assessment year 1978-79, the revenue raised only additional issue regarding the assessment on rental income as business income. Following our findings for the assessment year 1977-78, we have no hesitation in upholding the finding of the Commissioner (Appeals) and dismissing the appeal of revenue. 16. In the result, the appeals of revenue for all the three years are dismissed. Per Shri B. Nath, Accountant Member - I do not agree with the decision of my learned brother on two issues, namely, on the issue of admiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court should have called for a supplementary statement of case from the Tribunal on the basis of investigation into facts which could have been directed to be undertaken by the taxing authorities. Since, in our view the question raised is an important one and the impugned judgment of the High Court could be regarded as in a sense as per curiam, i.e., by completely ignoring the relevant provision of law that had come on the statute book and were operative with retrospective effect, it is necessary that the matter should go back to the Tribunal." 2. As the decision of the High Court which has been made the basis for giving relief by my learned brother has been overruled by the Supreme Court and as according to the verdict of the Supreme Court, the assessee is not entitled to any further relief with regard to the expenses claimed as gratuity, I am of the opinion that the order of the Commissioner (Appeals) on this issue in all these years has to be upheld and the grounds of appeal relating thereto in the appeals of the assessee have to be rejected accordingly. 3. The other issue on which I have not been able to agree with my learned brother is on the issue of admissibil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. My learned brother has held that the relief under section 80J is admissible to the assessee for the assessment years 1975-76 to 1978-79. I do not agree with this conclusion basically as the assessee has utilised only borrowed capital in the new industrial undertaking. This argument was taken by the standing counsel in the course of hearing before us but my learned brother has not considered this argument as the authorities below have not mentioned about it in their orders. In my opinion, this important aspect of the matter which goes at the root of the matter cannot be ignored merely because the authorities below have not mentioned the same nor considered it. The disallowance of relief under section 80J as borrowed capital is based on the retrospective amendment of rule 19A of the Income-tax Rules, 1962 ('the Rules'). This amendment has been held to be valid in the leading and recent decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. Their Lordships of the Supreme Court have also held in the case of Heckett Engg. Co. ( supra) that where a newly introduced provision of law prohibits the deduction of a particular expense and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally conceded that new manufacturing unit worked only with borrowed capital. 6. Except for the two issues mentioned above I agree with my learned brother on the other issues on which he has given decision in his order. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Shri B. Nath, Accountant Member - We, the Members of Patna Bench having differed on the following issues, while deciding IT Appeal Nos. 566 to 570 (Pat.) of 1983 for the assessment years 1974-75 to 1978-79 and IT Appeal Nos. 713, 714 and 715 (Pat.) of 1983 for the assessment years 1976-77.to 1978-79 in the case of Hind Tools & Dies (P.) Ltd., refer the following questions to the President, Tribunal under section 255(4) of the Act: "1. Whether, on the facts of the case the assessee was entitled to benefit under section 80J for assessment years 1975-76 to 1978-79 and whether the plea of the revenue taken before the Income-tax Appellate Tribunal that the new unit worked with only borrowed capital could not be entertained for consideration in this connection? 2. Whether, on the facts of the case the Commissioner (Appeals) was correct in disallowing the claim of gratuity made by making provision, under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the questions as given below: "1. Whether, on the facts of the case the assessee was entitled to benefit under section 80J for assessment years 1975-76 to 1978-79 and whether the plea of the revenue taken before the Income-tax Appellate Tribunal that the new unit worked with only borrowed capital could not be entertained for consideration in this connection? 2. Whether, on the facts of the. case, the Commissioner (Appeals) was correct in disallowing the claim of gratuity made by making provision only, under section 40A(7)?" 2. After considering the facts and the questions of the Members, the questions for answers formulated as hereunder: "1. Whether, on the facts and in the circumstances of the case the assessee was entitled to benefit under section 80J for the assessment years 1975-76 to 1978-79? 2. Whether, on the facts and in the circumstances of the case, the assessee's claim could be computed after disallowing the borrowed capital? 3. Whether, on the facts and in the circumstances of the case, the ground for disallowance of borrowed capital could be raised for the first time before the Tribunal by the revenue? 4. Whether, on the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, no doubt, two loans of ₹ 5.65 lakhs and ₹ 5.75 lakhs in 1973 and 1971 but the loan of ₹ 5.75 lakhs was spent by the firm and not by the present assessee which is claiming relief under section 80J. The representative urged that the assessee also invested money out of capital on which relief could have been allowed. 6. The departmental representative, Shri N.P. Singh, very strongly supported the order of the Hon'ble Accountant Member and indicated that the assessee took loan of ₹ 11.40 lakhs whereas the assessee spent on the new unit at ₹ 11.78 lakhs. Therefore, almost all the investment was made out of borrowed fund and, therefore, the assessee was not entitled for any relief. 7. The first three questions are about the allowability of relief under section 80J. The assessee took up the expansion programme in 1974. The assessee obtained loan from Bihar State Financial Corpn. The project was financed partly by loan and partly out of capital of the assessee. The assessee constructed a shed and purchased new machines. The necessary labour as required under section 80J was employed. The objection taken by the ITO was not correct that the relief could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomatically comes into picture. The objection of the revenue is sustainable and can be raised regarding the disallowance of the borrowed fund if the project had been financed by the borrowed fund in view of Lohia Machines Ltd.'s case (supra). There was nothing wrong in the objection of the department and, consequently, the three questions are answered in the following manner: "1. On the facts and in the circumstances of the case the assessee was entitled to benefit under section 80J for the assessment years 1975-76 to 1978-79. 2. On the facts and in the circumstances of the, case the assessee's claim could be computed after disallowing the borrowed capital. 3. On the facts and in the circumstances of the case, the ground for disallowance of borrowed capital could be raised for the first time before the Tribunal by the Revenue." 10. The other difference of the Members is on the allowance of provision of gratuity. The assessee made a claim in the assessment year 1974-75 for gratuity of ₹ 34,033. The provision made by the assessee at ₹ 8,752 was disallowed. It appears that the actual payment was allowed. Similar provision was disallowed at ₹ 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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