TMI Blog1988 (12) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO. (3) CIT(A) erred in allowing Rs. 28,999 as professional fees correctly disallowed by the ITO. (4) CIT(A) erred in allowing set off of loss of Rs. 8,66,511. 3. Brief facts are that the company, in the assessment year 1980-81, was engaged in the manufacture of transformers and was supplying the same to various electricity boards. It had also given a warranty and undertaken the repair of manufacturing defects found out during the use of transformers by the electricity boards. With a view to enforce the warranty, the assessee had given a bank guarantee of the cost of 5% for this after-sales service and, consequently, had to incur certain expenditure for this after-sales service. Consequently, it made a provision in the balance-sheet to the extent of 1 % of the price of transformers which was likely to be incurred for the repair of the defective transformers found during their use by the electricity boards. It also claimed provision for repairs of Rs. 1,64,372 which it had incurred for repair of certain transformers, although in the assessment year 1981-82, but as the accounts for 1980-81 had not been closed, the said provision of the actual expenditure incurred in the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, but the facts in that case were a little different. In that case, the assessee had been making such provision for several previous years and its experience showed that the provision actually amounted to the amount required for actual expenditure and it was only in this assessment year in question that the said provision was disallowed by the ITO and, consequently, it was held by the Tribunal that although the liability was a contingent liability, yet on the basis of the experience in the earlier years, the estimate of provision was found to be normally correct. 9. In the present case, however, the facts are absolutely different, i.e., the assessee had not been making provision for such expenditure in the earlier years and, for the first time, had claimed deduction for the provision in this year and which was not allowed by the ITO. In fact, in the present case, it is the decision of the Supreme Court in the case of Indian Molasses Co. (P.) Ltd. which applies with greater force in which their Lordships had held that for an amount to qualify for business expenditure, it should be towards liability actually existing at the time but not putting aside of money which might become e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich certain receipts were not allowed to be deleted as income of the assessee on the ground that subsequently they might be required to return it to STC even though when finally in the subsequent years they had to return those receipts to the STC. The Allahabad High Court did not allow deletion of the said receipts from the income on the principle of contingency that in that assessment year, it had not crystallised or finalised though the amount had to be returned to the STC and unless it is crystallised or finalised, the said amount could not be allowed to be deducted merely on the basis of contingency. We, therefore, decide this issue in favour of the revenue and set aside the order of the CIT(A) on that score. 10. Another issue in this appeal pertains to disallowance of provision for repairs of Rs. 1,64,370 which had been reduced to Rs. 1,15,808 by the CIT(A). Admittedly, certain transformers were supplied by the assessee to the M.P. Electricity Board during the concerned financial year and the assessee was compelled to incur an estimated expenditure of Rs. 1,64,370 to get the same repaired on the basis of the guaranted and warranty furnished by the assessee and the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue stood covered against the revenue by the decision of the Special Bench of the Tribunal in the case of Geoffrey Manners Co. Ltd. v. ITO [1983] 3 SOT 40 (Bom.). In the said decision, the Special Bench had held that while computing the ceiling on salary and perquisites paid to the director employees, it is sec. 40(c) and not sec. 40A(5) which shall be applicable. In the present case the facts being identical, we do not find any reason to disagree with the finding of the Special Bench of the Tribunal on this issue. Therefore, respectfully following the same, we hold that the CIT(A) was right in applying provisions of sec. 40(c) and not sec. 40A(5) in the case of director employees while computing the ceiling on salary and perquisites. We, therefore, decide this issue in favour of the assessee and against the revenue. 14. In this appeal, the next issue pertains to the allowance of Rs. 28,999 as professional fees as revenue expenditure given to advocates in pursuing the proceedings for amalgamation of the two companies in the Hon'ble High Court, which was disallowed by the ITO. The departmental representative argued that by amalgamation of the two companies, there was an incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as a revenue expenditure. In the present case, when the amalgamated company was running at a loss and it was in the business interest of the assessee that it should continue to manufacture capacitors, which were important part in the manufacture of transformers by the assessee, that the assessee, moved by that interest in view, applied to the High Court for the amalgamation of the two companies and it is the details of expenses which related to charges for drafting the petitions to the High Court, notice charges, advertisement charges, valuation and other fees etc. which are nothing but a routine expenditure to achieve the object of amalgamation which was in the ultimate business interest of the assessee company. The CIT(A) had also relied on the decision of the Tribunal (Bombay Bench 'A') in the case of A.N. Co. Ltd. [IT Appeal No. 1406 (Bom.) of 1980] for assessment year 1976-77, reported in the Bombay Chartered Accountants Journal August 1981 issue p. 547, in which it was held that when the amalgamation of two companies was effected for running the business of the assessee company more economically, efficiently and for rationalisation of its administration, the legal fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax authorities were correct in law in refusing to allow carry forward the sum of unabsorbed depreciation. The same principle was also upheld by the Hon'ble Privy Council in the case of Indian Iron Steel Co. Ltd. v. CIT [1943] 11 ITR 328. In that case, the Hon'ble Privy Council held that where a business was transferred, the unabsorbed depreciation allowance and other losses of the previous owner could not be assigned to the successor so as to enable him to carry them forward and to set them off against his own profits. The decision of the Delhi Bench of the Tribunal in the case of Bharat Heavy Electricals Ltd. v. ITO [1983] 5 ITD 361 relied on by the assessee, does not help much the assessee. The facts in that case were a little different. In that case, both the amalgamated companies were Government of India Undertakings and their amalgamation had been approved by the Government in public interest u/s. 396 of the Companies Act on the basis of special powers vested in it. Consequently, it was held that the Central Government was aware of the fact that the loss of the HEL, whether on account of business or unabsorbed depreciation, should be as a part of the loss of the Full effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistry of Industry, by their order dt. 11th October, 1982, stated that the amalgamation did not satisfy the conditions enumerated in s. 72A(1). It clearly goes to suggest that the Central Government had not approved the amalgamation for the purpose of carrying forward of unabsorbed loss and depreciation of the amalgamated company. 21. In the Income-tax Act, 1961, besides sec. 72A, there is no other specific provision under which such loss could be allowed to be carried forward or unabsorbed depreciation to be carried forward. s. 32 or s. 72 provides carrying forward of the loss and unabsorbed depreciation only in cases when the assessee is the same. The person who incurs the loss alone has a right to carry forward the same and the successor in the business cannot claim to carry forward the loss incurred by the predecessor in the business. As the assessee here, after the amalgamation, has changed, carry forward of the loss or unabsorbed depreciation of the amalgamated company cannot be allowed a set off against the profits of the assessee company in which the amalgamated company has merged. We are, therefore, of the opinion that the order passed by the CIT(A) on that score was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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