TMI Blog1993 (9) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) has erred in not exempting profit earned on the sale of import entitlement amounting to Rs. 23,30,465." The assessee is an exporter of cycles and its parts. During the relevant accounting period, it made exports worth Rs. 5,13,17,334. In connection with exports made, the assessee earned an income of Rs. 23,30,465, which the assessee excluded from taxable income on the ground that it was a capital receipt not liable to tax. It was noted by the ld. IAC that in the past also, the assessee had taken such stand. However, such receipt was said to have been treated as revenue and subjected to tax. It was also mentioned by the ld Assessing Officer that there were judicial pronouncements which had held that amounts received by way of import entitlements were obtained directly in accordance with business and the value of the sale constituted profits and gains of business of the assessee within the meaning of section 28(iv). Thus the addition of the above amount was made in the assessable income, with the following observations :--- "In view of the ITAT's decisions dated 28-1-1987 in the case of the assessee-company for the assessment year 1983-84, and High Court's decisions cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, which is under consideration of the Parliament and will have operation from retrospective effect. The law will be settled on the issue only after the passing of the Finance Bill. We thus consider it in the interest of justice and fair play, that this issue be remitted back to the file of the ld. CIT (Appeals) for having a second look after the Finance Bill is passed and the provision under the Finance Bill takes the shape of statute. The ld. first appellate authority will decide the issue afresh, after taking into consideration all the facts, circumstances, findings and the statute at the relevant time. We direct accordingly. 7. The second ground raised by the assessee is to the following effect :--- "That the ld. CIT (Appeals) has erred in sustaining an addition of Rs. 7,400 by applying the provisions of section 40A(3) of the IT Act, ignoring the fact that the amounts were covered by the exceptions mentioned in rule 6DD(j) of the Income-tax Rules." It was noted during assessment proceedings by the ld. IAC(A) that the assessee had made payments in cash on 21-2-1983 to M/s Ludhiana Sales Corporation of Rs. 3,650 and another payment of Rs. 3,750 on 15-1-1983 to M/s Bawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the paperbook also do not prove anything in favour of the assessee. We are thus satisfied that the assessee has not been able to make out a case where cash payments were at all justified or necessary. There is, therefore, clear contravention of the section and the conditions under rule are not satisfied. We thus see no justification to interfere and the finding under challenge is, therefore, confirmed. 11. In ground No. 3, the assessee challenges only confirmation of the disallowance of sales tax. The other items mentioned in the ground are rejected, since not pressed. It was noted by the ld. IAC(A), after perusal of the balance-sheet, that an amount of Rs. 24,53,232 collected by the assessee on account of sales tax was not deposited with the Govt. The amount in fact was being shown under the head 'Current liability'. The Assessing Officer noted that according to the ratio in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC), sales-tax collected was part of trading receipts and thus part of gross profit. It was submitted before the ld. IAC(A) on behalf of the assessee that the ratio in the case supra was laid down by the Hon. Supreme Court in a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant is as follows : "That the ld. CIT (Appeals) has erred in confirming the disallowance of Rs. 2,500 which was by way of advertisement in souvenir and contribution to employees of Punjab National Bank." The ld. IAC, while examining the 'Advertisement Expenses Account', noted that the assessee had debited for advertisement in the Souvenirs issued by some social organisations :--- Rs. (a) Yangya Smaj, New Delhi, 28-2-1983 500 (b) Inner Wheel Club, Delhi, 3-3-1983 500 (c) Jos Cabral (p, Lai - Goa), 3-3-1984 500 (d) PNB Employees, Miller Ganj, 26-3-1983 1000 ---- 2500 ---- Total amount was of the order of Rs. 2,500. According to the ld. Assessing Officer, the assessee failed to prove that the expenditure was incurred for advertisement purposes and thus the same was treated as donation and disallowed. 16. This issue was also contested before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had agitated against disallowance of Rs. 74,354 only. The disallowance was made by the ld. IAC(A) because the expenditure was considered in the nature of entertainment. On the other hand, according to assessee, the expenditure partly related to holding of Conferences with the dealers and part of the expenditure was said to have been paid to the Diner Club. It was argued before the ld. CIT (Appeals) that the issue at hand had been dealt with by the Tribunal in the preceding assessment year, i.e., 1983-84, and substantial relief was said to have been allowed, i.e. 50% of the Diner Club expenses. On behalf of the revenue, the ld. IAC appeared before the ld CIT (Appeals) and argued that in the earlier year the decision in the case of CIT v. Khem Chand Bahadur Chand [1981] 131 ITR 336 (Punj. Har.)(FB) and Mysodet (P.) Ltd. v. CIT [1987] 163 ITR 848 (Kar.) was not highlighted. It was pointed out on behalf of the department that the Hon'ble Karnataka High Court had held that entertainment expenditure engulfed the expenditure incurred for providing accommodation in hotels to the dealers and representatives. The ld. CIT (Appeals), after considering the facts and the case law on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted and the assessee gets a relief of Rs. 1,500. 23. Ground No. 7 raised before us is as under : "That the ld CIT (Appeals) has erred in holding that the amount spent on Insurance of cars and salary paid to the drivers are to be included while working out the disallowance under section 37(3A) of the IT Act. The CIT (Appeals) has further erred in directing that the sum of Rs. 77,243 spent on gifts given to dealers under the Scheme should be included while working out the disallowance under section 37(3A) of the IT Act." The present ground has got two limbs. First is against holding by the ld CIT (Appeals) that the amount spent on insurance of cars and salary paid to drivers was not includible while working out disallowance under section 37(3A). While working out disallowance under section 37(3A), the ld IAC(A) included Rs. 16,202 on account of Insurance on cars and another sum of Rs. 65,920 on account of salary paid to drivers. A perusal of section 37(3A) reveals that the items of expenditure specified in said sub-section are subject to sub-section (3B). Under section 37(3B), the expenditure referred to in sub-section (3A) is including running and maintenance of cars also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly disallowed." 26. When this issue was brought before the ld. CIT (Appeals), she deleted the addition but observed further that the amount should be added by computing disallowance under section 37(3A). The assessee's present grievance before us is against that disallowance. 27. Submissions have been heard and record carefully perused. The disallowance by the ld IAC(A) was made for want of proof and details. The relief was allowed by the ld CIT (Appeals), considering the expenditure in the nature of sale promotion expenses. The nature of expenditure in sale promotion is neither in dispute nor it is the assessee's case either. So it is established that the expenditure was of that nature. According to sub-section (3B) of section 37, as was in vogue at the relevant time, disallowance to be made under sub-section (3A), items mentioned in sub-section (3B) were to be considered and sale promotion specifically existed in item (a) of sub-section (3B). So the nature of expenditure being like that and there being existence of that expenditure in item one of sub-section (3B), the ld CIT (Appeals), in our view, was perfectly justified to direct the addition of this amount while calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this ground of the assessee, we see no merit and thus reject the same. 31. Ground No. 9 raised before us on behalf of the assessee is as under : "That the ld CIT (Appeals) has erred in not allowing investment allowance on total amount on electric installations." On scrutiny of the assessee's claim for investment allowance, it was noticed by the ld IAC(Appeals) that it had claimed investment allowance on electric installation amounting to Rs. 14,293 in unit No. 1, electric installation amounting to Rs. 1,75,489 in unit No. 2 and one AC worth Rs. 13,896 installed in the office. It was noted by the ld IAC (Appeals) that most of the items related to lamps, rods, light fittings, sodium vapour fittings, switches, wires etc. All these electric fittings are made in the building which the assessee-company had constructed during the year under consideration. It was noted that no expenditure on electric fittings had been debited by the assessee-company in the building account. According to the ld Assessing Officer, since electric fittings were not such as will run plant and machinery installed by the assessee-company but were meant for providing light in the building newly constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stage when depreciation has already been allowed and enjoyed by them. For the reasons of the ld CIT (Appeals), we see no justification to interfere and, therefore see no merit in the ground raised. 35. Ground No. 10 raised before us is as under : "That the ld CIT (Appeals) has erred in confirming the addition of Rs. 3 lakhs on account of sale of scrap wrongly holding that the same has taken place outside the books in spite of clarification having been filed in respect of this addition." The assessee effected total sales of scrap during the year under consideration at Rs. 38,13,979 as against sales of Rs. 43,80,405 in the immediately preceding year. The ld. IAC required the assessee to file quantitative details of scrap as and when generated. It was stated on behalf of the assessee vide letter dated 7-10-1986 that no quantitative record of the scrap was maintained except that the quantities at the time of sale were recorded in the bills issued. The assessee was also required to intimate whether the closing stock of scrap was physically identified/verified at the close of the accounting year and valued. Vide another letter dated 30-4-1987, it was informed that the value of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as compared to the last year. Thus, by and large, agreeing with the reasons for addition, the ld IAC's action on the point was confirmed by the ld CIT (Appeals). 37. Hence the present ground before us. The ld. A.R. repeated the submissions made before the revenue authorities and argued further that no such addition was made in the past. He also invited our attention to pages 25 and 26 of the paperbook, where some figures of month-wise sale of scrap are filed. He also made mention of the ratio in the case of CIT v. Smt. Indermani Jatia [1970] 77 ITR 133 (All.) but on perusal, the relevance was not understood by us. On behalf of the revenue, confirmation of addition was supported. 38. Submissions have been heard and record carefully perused. It is an admitted position that the sale of scrap for the year under consideration is at a lower figure as compared to the last year. There is no dispute about the absence of details about quantity of material, the sale, opening and closing stocks. It is nobody's case that the scrap was not sold either. Thus it was for the assessee to prove its case before the revenue authorities, with reference to evidence. However, it is seen that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contested and it is seen to have been pointed out before the ld CIT (Appeals) that the ld Assessing Officer erred in not allowing deduction on foreign commission of Rs. 1,18,372, ignoring the CBDT circular on the point. It was pointed out that the claim was made under clause (iv) of section 35(i)(b). It was also argued that the circular of the CBDT perhaps had not been brought to the notice of the Hon'ble Madras High Court while deciding the case of CIT v. Southern Sea Food (P.) Ltd. [1983] 140 ITR 855. The assessee also placed reliance on some orders of the ITAT. It is seen to have been pointed out before the ld CIT (Appeals), on behalf of the assessee, that the circular made mention of by the assessee had been withdrawn and in fact a revised order had been issued on 5-6-1985. The ld CIT (Appeals), without any discussion and comments and in fact making mention of the case supra decided by the Hon'ble Madras High Court, confirmed the addition. The assessee's present ground before us is against that action of the ld CIT (Appeals). 41. Rival submissions have been heard and record carefully perused. To start with, there appears to be some confusion about the figures. The ld CIT (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment allowance of weighing bridge and weighing machine, which had earlier been allowed by the ld IAC keeping in view the finding of the Chandigarh Bench of the Tribunal in the case of Oswal Woollen Mills. On behalf of the assessee, written reply dated 9-2-1988 was brought on record pointing out the finding of the Amritsar Bench of the ITAT in the case of Tilak Raj Madan Mohan 18 TLR 499 and Punjab Bone Mills 18 TLR 271 respectively. The ld CIT (Appeals), making mention of the 'decision of the ITAT Chandigarh' held that weighing bridge and weighing machine were not entitled for investment allowance. Thereafter, the ld IAC (Appeals) was directed to withdraw the investment allowance allowed by him while framing the assessment. 44. The present ground before us is against that action. On behalf of the assessee, the ld AR repeated the submissions earlier made before the revenue authorities. He also placed reliance on the ratio in the case of CIT v. S. Warriam Singh Cold Stores [1989] 178 ITR 585 (Punj. Har.). Reliance by the ld. A.R. was also placed on the finding of the Amritsar Bench of the ITAT in the case of Tilak Raj Madan Mohan. On behalf of the revenue, the ld Sr. D.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a finding on merits for levy of interest under sections 139(8) and 215. The appellant denies levy of interest under both the sections." After having heard the rival submissions on the issue raised in the above ground, it is seen that the ld CIT (Appeals) directed the ld IAC to levy interest after recomputation of income as per the first appellate order. We confirm the same direction but modify it further that it should be done as per the present order. 47. The assessee also raised an additional ground to the following effect :--- "That the authorities below have erred in not exempting the cash subsidy (CCS) received by the appellant." "The details and figures of this ground are discussed in detailed letter filed by the assessee and so also in the order dated 9-2-1990 of this Bench, by which the assessee was permitted to raise the additional ground to be considered on merits. This ground came before the Bench in this manner. 48. After having heard the rival submissions and perusing the record, we restore this ground to the file of the ld first appellate authority to be decided in accordance with our observations on the assessee's ground No. 1 in respect of sale of import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43B of the Act to an amount of Rs. 24,53,232 collected by the assessee on account of sales-tax. I find that during the course of assessment proceedings, the Assessing Authority examined this issue from various angles as projected to him by the assessee. One of the points made out by the Assessing Authority was that sales-tax is a part of the trading receipts. This aspect of the matter was contested by the assessee before him on the ground that the observation in which this proposition was propounded by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. relied on by the Assessing Authority, was by way of obiter dicta and the judgment of the Supreme Court applicable to the facts of the case of the assessee was that of Kedarnath Jute Mfg. Co. Ltd. in which this question was specifically considered and if that is considered, the amount cannot be added. Another facet projected before the Assessing Authority was that a sum of Rs. 17,65,203 which remained unpaid in the preceding year and as such was not claimed may be allowed as deduction because it was treated as assessee's income in the preceding year. This aspect of the matter was considered by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fiscal statute or provision, there is a conflict of judicial opinion, one that favours the subject ought to be adopted. This becomes clear from the proposed order, para 44. This principle is now well-settled by the Supreme Court and for which no authority need be cited. Following this principle, it would be seen that in the authorities cited before us there is a judgment by a High Court on this issue and there are two judgments of the Tribunal. On the basis of this principle, the judgment of the High Court will be binding as it favours to the assessee and, therefore, this should have been followed. However, since some of the facets of the issue need clarification, the entire matter needs reconsideration by the Assessing Authority keeping in view these observations about the judgment of the A.P. High Court mentioned supra. This issue is, therefore, set aside for reconsideration and decision by the Assessing Authority. 6. Ground No. 7 which has been disposed of in the proposed order in fact contains two issues. The first is regarding the amount spent on insurance of cars and salary paid to drivers while working out the disallowance under section 37(3A) of the Act. The other facet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, during the course of assessment proceedings, this claim was revised to Rs. 91,77,586 vide letter dated 31-7-1987. After considering everything, the Assessing Authority allowed depreciation to the extent of Rs. 89,28,906. Thereafter the Assessing Authority considered the claim for extra shift allowance for various items. I shall not advert to items which are not in dispute before the Bench. The item which is in dispute is claim of extra shift allowance on pipeline fittings which are detailed in para 15 of the assessment and are as under :--- "M.S. Pipe, G.M. Valves, M.S. Flanges 2553 Insulation on various pipelines 10543 Insulation of E.S.P. Tank 5652 Pipeline fitting charges 252918 -do- 392274 Dismental of pipeline 7912 Insulation on various pipes 6664 Installation of Airline in S.K.L.engine by Steam Services, Delhi 392 Installation of pipe line support etc. in SKL Engine 7660 Installation of pipeline in Effluent plant 2449 G.M. Wheel Valves Flanges 32395 ------------------ 721412" ------------------ The Assessing Authority was of the opinion that extra shift allowance on these items is covered by the prohibition contained in item (6) below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the assessee. Now when I come to the Appendix, I find in Part I tabulated and categorised items of buildings, furniture and fittings. plant and machinery on which different rates of depreciation are provided. After the rates are provided for depreciation on plant and machinery, there is a narrative that the calculation of the extra shift allowance for double shift work and for triple shift work shall be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days during the previous year. Thereafter follows the illustration. After the illustration it is provided that extra shift allowance shall not be allowed in respect of item of machinery or plant which has been specifically excepted by inscription of the letters "N.E.S.A." (meaning "No Extra Shift Allowance"). Against it, in sub-item (ii) above and also in respect of the following items of machinery and plant to which the general rate of depreciation at 15% applies. In the list of these items at serial No. 6 is the entry which reads :--- "(6) Hydraulic works pipelines and sluices." A careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contained in para 15 of the impugned assessment order shows that pipeline fitting charges are more than Rs. 6 lacs. When it is seen in the context of cost of machinery, the things become clearer. When 'plant' includes even drawings and patterns as held by the Supreme Court in the case of CIT v. Elecon Engg. Co. Ltd. [1987] 166 ITR 66 there is no reason why such pipeline fittings and the cost on such fittings should not go into accounts under the head 'Plant and machinery' and why it should not be entitled to extra shift allowance. On the entirety of the facts and circumstances of the case, extra shift allowance is admissible to the assessee. It should be allowed. However, the Assessing Authority is directed to verify the claim, take into consideration what is stated above and they work out the admissibility in quantum. 12. Ground No. 10 is regarding the addition of Rs. 3 lacs on account of sale of scrap. The claim of the assessee is that it has been following a regular method of accounting with regard to sale of scrap in the mercantile system of accounting on the basis of which the books of account are maintained. To clarify it further, the claim of the assessee is that thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its acceptance by the Revenue in the earlier years. Therefore, there is no reason why it should be disturbed for the year under appeal unless there are circumstances justifying such a departure. However, merely because the quantum of sales for the year under appeal was less than the quantum of sales in the last year, in my considered opinion does not stand as a reason for rejection of this matter. Even for the lower sale, the assessee has given reasons. The reasons are acceptable. Therefore, the addition was without justification. It appears that the assessee in showing as and when and whatever scrap is sold in a particular accounting year in the relevant assessment year. For example, in the assessment year 1985-86, sale of scrap is Rs. 42,68,213. This is shown at page 26 of the paper book. There is no justification for the addition which is made on conjectures and surmises. Therefore, the suspension of the addition of Rs. 2 lacs to my mind is without justification. The entire addition should be deleted. 13. In this regard, the reliance by the learned Counsel for the assessee on the judgment of the Calcutta High Court in the case of CIT v. Hazaribagh Coal Syndicate (P.) Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated sale of scrap made by the Assessing Authority be confirmed upto Rs. 2,00,000 as held by the Judicial Member or the entire amount should be deleted as held by the Accountant Member? THIRD MEMBER ORDER This is an appeal which has come up for hearing before the Chandigarh Bench. After hearing the parties, the learned Members constituting the Bench could not agree on the following points : "1. Whether, on the facts and in the circumstances of the case, the law available on the date of hearing should be considered as the law applicable to the issue of exigibility of import entitlement and CCS before the Tribunal in appeal as held by the Accountant Member or this issue be sent back to the first appellate authority to be decided in accordance with the provisions contained in the proposal for amendment of law lying before the Parliament, if and as and when enacted, as held by the Judicial Member? 2. Whether, on the facts and in the circumstances of the case, the addition on account of sales-tax amounting to Rs. 24,53,232 collected by the assessee should be confirmed in view of the provisions of section 43B of the Income-tax Act, 1961 as held by the Judicial Member or this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital receipt, the other two items were in the nature of revenue receipts and are liable to tax. By referring to the Special Bench decision, it appears the Sr. Departmental Representative argued before the Tribunal that this amount was liable to be rejected. The Sr. Departmental Representative also brought to the notice of the Bench that the Finance Bill which was introduced in the Parliament by then contained a proposed amendment to bring to tax with retrospective effect not only the sale proceeds of import entitlements and the amounts received on duty draw back, but also the CCS. Reliance was placed upon this proposed amendment also in support of the view that this import entitlement was liable to tax and the claim of the assessee deserves to be rejected. The Judicial Member, while holding that the particular ground required straightway to be rejected following the earlier orders, particularly the order of the Special Bench of the Income-tax Appellate Tribunal, did not do so. However, in view of the impending Legislation proposing to bring to tax these amounts, he preferred to set aside in the interest of justice and fair play the order of the Commissioner of Income-tax and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 31-5-1990, i.e., by the time learned Accountant Member recorded his dissenting opinion, the law was that the CCS became taxable as revenue receipt with retrospective effect from 1-4-1967. Therefore, according to his opinion, had he to apply the law on the date of hearing, he should have applied the law as amended with retrospective effect and held that the CCS also was liable to tax as revenue receipt. Viewed in this light, I am of the opinion that the proper order in this case ought to have been to set aside the assessment on this point and direct the first appellate authority to look into this matter and decide it in the light of amended law. 6. The learned counsel for the assessee before me urged that on identical issue in the case of Kelvinator of India Ltd. v. IAC [1989] 29 ITD 469 (Delhi), the Bench held that notwithstanding a proposal in the Finance Bill pending consideration before the Parliament, the law as available on the date of hearing should have been applied. This observation though made in that case and that case was decided on the basis of that observation, still that observation is in my opinion be inapplicable to the facts of this case because as in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst appellate authority also to decide the issue in any manner other than in accordance with law as amended by the Finance Act of 1990 with retrospective effect from 1-4-1967. 8. The facts relating to the second point of difference of opinion are little confused but from what I gathered from reading the orders of my learned Brothers and after considering the arguments addressed to me, the facts may be stated thus : The IAC (Asst.) noticed from the balance sheet of the assessee that an amount of Rs. 24,53,232 was collected by the assessee as sales tax but not deposited with the Government and this amount was shown under the head 'current liability' the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. held that the sales tax collected by an assessee is a part of the trading receipts. Applying the ratio of the above Supreme Court decision, the IAC (Asst.) treated the sum of Rs. 24,53,232 as part of the trading receipts although it was shown in the balance sheet as a current liability. Simultaneously applying the provisions of section 43B of the IT Act which were then in force, he did not allow any deduction on account of the liability for payment of sales tax to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee had filed an appeal before the Income-tax Appellate Tribunal against the treatment given to it in the earlier years and, therefore, the matter was undecided hebulous and subjudice. 9. Aggrieved by this treatment, the assessee preferred an appeal before the Commissioner of Income-tax. The Commissioner of Income-tax on appeal without much of discussion in any case on the relevant point confirmed the disallowance. When the matter came in appeal before the Tribunal, the contention urged on behalf of the assessee before it was that on the strength of the decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao Co. section 43B was inapplicable and, therefore, the entire amount added as part of the trading receipts of the assessee should be allowed as a deduction, following the ruling of the Supreme Court in the case of Kedar Nath Jute Mfg. Co. In other words, his submissions were more or less the same as before the authorities below only thing the support for that was taken from the decision of the Andhra Pradesh High Court. The learned Judicial Member held that the provision of law meaning thereby section 43B being mandatory in nature, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Supreme Court in the case of CIT v. National Taj Traders [1980] 121 ITR 535 submitted that the Explanation added to section 43B w.e.f. 1-4-1988 should be considered as declaratory of the existing legal position and that the principle that a fiscal statute should be construed strictly is applicable only to the taxing provisions such as a charging provision or a provision imposing penalty and not to those parts of the statute which contain machinery provisions and, therefore, applying this principle the view taken by the learned Judicial Member must be approved of as a correct legal position. 11. Let me now notice the facts in the case of Ahmedabad Bench. The assessee there was maintaining accounts on mercantile basis. They had separate sales tax accounts in which the sales tax collected from the parties were credited and the sales tax paid to the Government was debited and the balance amount was taken directly to the balance sheet. The amount so carried forward in the balance sheet pertained to the payments to be made to the last quarter of the accounting year and under the provisions of the Gujarat Sales tax Act, the said amounts were payable to the Government on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of judgment of jurisdictional High Court, when there were conflicting decisions of the High Courts, the Tribunal would be free to follow that view which to its mind appears to be more rational and in any case in favour of the assessee. Dealing with the Special Bench case, the Bench held that a Special Bench does not overrule the decision of a Division Bench and both of them have got the same pursuasive value as was held in the case of Export House v. ITO [1985] 13 ITD 687 (Asr.)(TM) to which I was a party as Third Member. It also found that the Special Bench in the case of Rishi Roop Chemical Co. (P.) Ltd. had only followed the decision of the jurisdictional High Court namely the Delhi High Court which was binding on it by expressly stating so in its order and further observing that it had no jurisdiction to take a contrary view. By then the decision of the Patna High Court was not available. It also noticed that in the memorandum explaining the provisions in the Finance Act of 1989 by which the controversial Explanation 2 was inserted, it was expressly mentioned that the said proviso was inserted to remove the doubts in respect of the sales-tax liability for the last quarter. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee various gifts given to various dealers. When this amount was claimed as a deduction, the IAC (Asst.) found that: (a) there was no record to prove as to for what consideration the gifts were given and secondly there was no record of the names and addresses of the dealers, the dates of their visits to the factory and the sales made to them. He, therefore, held that the expenditure on gifts could not be held to be wholly and exclusively laid out for the purpose of assessee's business within the meaning of section 37(1). He also held as an alternative that the expenditure in question was in the nature of entertainment and was covered by section 37(2) of the IT Act read with Explanation 2. By relying upon the Explanation 2, he held it to be entertainment expenditure. Thus both under sections 37(1) and 37(2), he disallowed the claim of the assessee. 13. The Commissioner of Income-tax on appeal noticed that this expenditure on gifts consisted of amounts spent on purchasing shirts, shirt pieces, pants, safari suits, shawls, IV sets, sweaters, mixies, Tea sets etc. These were essential for the purpose of promoting business and its turnover and that the Income-tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that was framed for my opinion, it was pointed out whether the observations of the CIT quoted above should be confirmed as held by the Judicial Member or those observations should be deleted as held by the Accountant Member. It will be noticed that the Accountant Member did not suggest deletion of those observations though impliedly it might have meant that those observations should be deleted. Unless those observations are deleted, full effect to the order of the Tribunal for the earlier years on this point could not be given. Though the difference of opinion was not very amply worded as seen from the orders of my learned Brothers, the point on which they differed was: Whether according to the observation of the CIT quoted above, the amount in question should be considered for the purposes of section 37(3A) or not. While the Judicial Member says it should be included, the Accountant Member categorically says 'No' and having pointed out the contradiction in the directions, directly deleted its disallowance, following the order of the Tribunal. 15. The CIT though abruptly at the end of her order added this controversial sentence that the said expenditure should be computed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal for the immediately assessment year on this point, the observations by the CIT are totally in accord with those observations. It looked to me as if this part of the order of the Tribunal has not been properly appreciated by the learned Accountant Member. The learned Judicial Member, though did not refer to this order of the Tribunal, has independently come to the conclusion that this expenditure being in the nature of sales promotion should be considered under the provision made for its disallowance under section 37(3A). 16. Now neither the CIT nor the IAC nor the Members have examined whether this expenditure was really in the nature of sales promotion, although there were observations to this effect in the order of the Tribunal for the earlier year. Even that section would come into operation only when the total expenditure exceeds at the relevant time Rs. 1 lakh but the expenditure here is less than Rs. 1 lakh, unless it was clubbed with some other expenditure of the same nature against which or about which there was no dispute. In any case, this matter I hope would be looked into by the Bench when the matter goes before it. 17. Reliance was placed on a decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot allowing extra shift allowance is confirmed." The learned Judicial Member held that the prohibition for the allowance of extra shift allowance on pipeline was so clear that the situation did not warrant any doubt or confusion. But the learned Accountant Member took a different view. According to him, item at Sl. No. 6 in the entry of the depreciation schedule should be read applying the principles of ejusdem generis and so read the word pipeline used therein would mean hydraulic pipeline and not pipelines installed anywhere by any factory for any purpose. He then referred to item 8 of the depreciation schedule where also the expression pipelines was used which was part of a building contractors machinery where the restriction of no extra shift allowance was mentioned meaning thereby that the expression pipeline used in item 6 after the words hydraulic works cannot embrace the pipelines installed anywhere or everywhere for any purpose. He then gave details of the expenditure incurred on pipelines and showed that these pipelines were forming part of the general machinery and not pipelines in the sense in which the hydraulic pipelines were used. These pipelines were used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es disclosed, required the assessee to file quantitative details of the scrap. In response to his enquiry, the assessee stated that no quantitative record of the scrap was maintained, except that the quantities were shown in the sale bills as and when issued. In response to another enquiry, the assessee stated that the closing stock of scrap could not be taken into account, stating at the same time that the closing stock was never taken in the past also into account for the very simple reason that it was not possible to put a value upon it. Not satisfied with these replies and having regard to the fall in the sales of scrap, the IAC (Asst.) made on an ad hoc basis an addition of Rs. 3 lacs. In particular, the IAC (Asst.) mentioned that cash memo No. 6901 to 7000 and 7376 to 7600 were not accounted for and that it showed that there was suppression or a possibility for suppression of sales of scrap. 21. On appeal, the CIT confirmed the addition failing to give as per the assessee due consideration to the fact that the sale of scrap was to be in terms of value and not in terms of quantity. By definition scrap could have no value and it is not possible to weigh also for a variety of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etically it is possible to expect a stock record for the scrap generated, on the practical side, it may not be possible to accurately maintain. This aspect should not have been missed and therefore, should not have been insisted upon to verify the accuracy of the accounts. The previous practice should have been followed. In none of the previous years, any addition was made on account of sales of the scrap even though it was varying from year to year. The mere variation in the sales cannot, therefore, be a reason to suppose that a lower amount of sales is a result of manipulation of accounts. Perhaps realising the situation, the IAC (Asst.) must have insisted upon verification of the sale bills and found according to him that certain sale bills were not accounted for. But on verification they were found to be blank. Those sale bills were produced before me in the Court and I also found them to be blank. Even though those sale bills were blank and they were produced before the IAC (Asst.), still he preferred to ignore that circumstance by pointing out that the assessee had failed to explain. I fail to understand what is there to explain. Sale Bills containing certain numbers were bla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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