TMI Blog1992 (1) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and investment allowance granted on the enhanced cost on account of capitalisation of bill discounting charges, etc. Thus the depreciation and investment allowance to the extent it was attributable to the element of bill discounting charges included in actual cost were withdrawn in view of the retrospective amendment of s. 43. The appellant company thereafter put forward a claim for deduction of interest on accrual basis in each of the subsequent years. Accordingly accrued interest of Rs. 1,00,900 pertaining to previous year relevant to asst. yr. 1984-85 was claimed by the assessee. The ITO allowed Rs. 26,000 only on the basis of actual payment of discount's charges made during the previous year. The ITO rejected the assessee's claim for grant of deduction of interest on accrual basis claim of Rs. 1,00,900. The assessee raised this ground in the appeal against the assessment order under s. 143(3) as well as against the order under s. 154 passed by the ITO on 25th March, 1987. 3. The CIT(A) in the appeal against the assessment order under s. 143(3) observed that since a separate appeal against the order under s. 154 has been preferred in relation to this ground, the said grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accrued interest now claimed as deduction has not been debited to P L A/c. and, therefore, it cannot be allowed even under mercantile system of accounting and not in any case by resort to proceedings under s. 154. Such grounds given by the CIT(A) are not valid. The deduction in respect of the entire amount of accrued interest ought to have been allowed as a deduction. 5. The learned Departmental Representative relied on the orders of the CIT(A) as well as the order passed by the assessing authority. He further submitted that Explanation 8 in s. 43 w.e.f. 1st April, 1974 only clarifies that the interest pertaining to the post-production period will not be included in the actual cost of such assets. It does not automatically lead to the conclusion that the entire amount of interest will be allowed as deduction as revenue expenditure. He supported both the orders of the CIT(A) for asst. yr. 1984-85. 6. We have carefully considered the rival submissions made by the learned representatives and have also gone through the relevant orders and other documents to which our attention was drawn during the course of hearing. The assessee has submitted a chart at page 4 of the paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 985-86 54,200 87,700 1986-87 88,900 67,500 1987-88 1,40,000 35,200 1988-89 80,500 2,500 . 3,98,700 3,98,700 Once the amount of interest in connection with the acquisition of an asset relatable to any period after such asset is first put to use is excluded from the actual cost of such asset by virtue of a retrospective amendment, it naturally follows that the amount of interest pertaining to that period will be allowable as a revenue expenditure. Such deduction will have to be allowed keeping in view the method of accounting adopted by the assessee. In the instant case the assessee had adopted mercantile system of accounting. Since the assessee had earlier capitalised the interest in the actual cost, the question of accounting for the amount of interest on accrual basis as an expenditure every year did not arise. The need for making such a claim arose only on account of deletion of that amount of aggregate interest from the cost of assets which resulted in withdrawal of depreciation and investment allowance, etc., in the prior years. We are, therefore, of the view that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 35,351. The ITO disallowed the sum of Rs. 35,351 out of interest on the ground that the assessee has not charged any interest from the two concerns viz. M/s Agro Engg. Works and M/s. Engineering Products Co., New Delhi on the ground that the assessee has diverted its borrowings for non-business purposes. The CIT(A) deleted the said disallowance in view of the reasons recorded in para 6 of the order passed by him. 8.1 The learned Departmental Representative contended that in view of the detailed reasons given in the assessment order the CIT(A) ought to have confirmed the said disallowance. 8.2 The learned counsel for the assessee submitted that the ITO has not appreciated the facts in correct perspective which were explained in letter dt. 27th Jan., 1986. The debit balance in the accounts of those concerns represented brought forward debit balance and business transactions of the relevant accounting year under assessment. There was credit balance at the beginning of the year and the closing balance has become a debit balance due to business transaction in the accounts of these two debtors. It is therefore, clear that the debit balance in the accounts of these two debtors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year and not with reference to the individual tour. 10.1 We have heard the learned representatives. In our view the ITO could not validly disallow any part of the travelling expenses by invoking the provisions of r. 6D in a manner which is clearly contrary to the decision of the Tribunal in the case of S.V. Ghatalia vs. ITO (1983) 37 CTR (Trib)(Bom) 68 : (1983) 4 ITD 583 (Bom) while passing the order under s. 154. Such a disallowance is clearly outside the scope of s. 154. The view taken by the CIT(A) is also fully supported by the decision of the Tribunal in the case of S.V. Ghatalia in which it has been held that the amount admissible under r. 6D should be computed by taking all tours made by that person during the previous year into consideration and the prescribed limits should not be applied to individual tour. We do not find any justification in interfering with the order passed by the CIT(A). 11. Now we will consider the Revenue's appeal for asst. yr. 1984- 85. Ground No. 1 relates to deletion of an addition of Rs. 1,12,753 out of bonus payments. It was the common contention of the learned representatives that this point is covered in favour of the assessee by the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution towards ESI and pension fund has been brought within the definition of income in s. 2(24)(x) w.e.f. asst. yr. 1988-89 which does not apply to the year under consideration viz. asst. yr. 1984-85. The payment in question has been made in the next year within the prescribed time. The CIT(A) has rightly deleted the said addition. 14. Ground No. 4 relates to deletion of an addition made under s. 40A(7) of Rs. 49,754. It was the common contention of the learned representatives that this point is covered in favour of the assessee by the decision of the Tribunal in the case of several associated firms. We are of the view that the CIT(A) has rightly deleted the said disallowance, as this is a case of actual payment of premium to LIC and cannot be regarded as a provision. The provisions of s. 40A(7) therefore, have no application to the facts of the present case. The view taken by the CIT(A) is fully supported by the decision of the Tribunal in the case of Gujarat Machine Tools. The reference application filed by the Revenue against the said order was also rejected by the Tribunal vide order dt. 9th Oct., 1986 in R.A. No. 742/Ahd/86. The view taken by the CIT(A) is therefore c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the profit of two units was submitted before the Departmental authorities in which each item of income and expenditure was apportioned on the basis of well accepted principles of commercial accounting. The CIT(A) had asked the ITO to support his report on such bifurcation of profits for the working of s. 80-I deduction. The ITO vide his report dt. 30th Dec., 1987 stated that without prejudice to the contention of the Department that the benefit under s. 80-I cannot be given where separate books of accounts are not maintained, the basis adopted by the company for bifurcation appears to be consistent with the principles of commercial accounting. The CIT(A) has therefore rightly directed the ITO to allow deduction under s. 80-I as per rules. He also submitted that the loss in old unit cannot disentitle the assessee to get the benefit of deduction under s. 80-I in respect of the profit derived by the new unit in view of the judgment of the Supreme Court reported in CIT vs.Canara Workshops Pvt. Ltd. (1986) 58 CTR (SC) 108 : 161 (1986) 161 ITR 320 (SC). He thus supported the order of the CIT(A) in relation to this ground. 17.3 We have considered the rival submissions made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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