The assessees appeals and the cross-appeals filed by the Revenue arise out of the separate orders dt. 7th Dec., 1989 passed by the learned CIT(A), Bhopal, for the asst. yrs. 1986-87, 1987-88 and 1988-89, respectively. For the sake of convenience, all these appeals are disposed of by this common order.
2. ITA No. 198/Ind/90 - Ground No. 1 in this appeal for the asst. yr.
1986-87 relates to denial of claim of investment allowance on cost of filter plant of Rs. 8,74,060. The brief facts as culled from the assessment order are that the assessee-company was incorporated under the Companies Act, 1956 on 12th Oct., 1984. The assessee-company took over the assets and liabilities of a firm styled as Reliable Cigarette Industries w.e.f. 1st Nov., 1984. The partners of the firm are the Managing Director and Directors of the company. The assessee-company manufactures cigarettes for ITC, Calcutta, and the company receives only conversion charges "job work". All the raw materials including processed tobacco are supplied to the company by M/s. ITC Ltd. The entire process of the conversion is being done as per the specification given by the ITC Ltd. The assessee is entitled to only conversion charges including the slides charges. For the asst. yr. 1986-87 (relevant accounting period ended on 31st Dec., 1985) the assessee filed return showing loss of Rs. 56,904 on 31st March, 1987. A revised return was subsequently filed on 29th Nov., 1988 declaring loss of Rs. 7,05,905. The reason for the revised return was stated to be that in the original return the assessee did not claim investment allowance under S. 32A. In the revised return the assessee claimed investment allowance. The claim of investment allowance of the assessee on filter attachment machine valued at Rs. 8,74,060 has been negatived by the Assessing Officer with the following observations : "Even the investment allowance claimed on filter attachment machine valued at Rs. 8,71,060 which was installed in the month of May, 1985 is also not allowable as the same should have been first put to use in the immediately succeeding previous year from the year of acquisition of the machinery, i.e. asst. yr. 1985-86 as the said machinery was purchased on 15th May, 1983 and first put to use in the month of May, 1985." When the matter came up for consideration before the CIT(A), he concurred with the views of the Assessing Officer and held thus - "The evidence before me shows that the machinery was purchased in May, 1983. As per the provisions of the Act, investment allowance is admissible in the previous year in which the machinery or plant was acquired or in the immediately succeeding pervious year if put to use.
The machinery was acquired in 1983. The investment allowance could be claimed at the most in the immediately succeeding previous year. In, my view, the claim is not admissible to the appellant as the machinery was put to use in May, 1985. The rejection of the claim of this ground itself is upheld." 3. Being aggrieved with the above decision of the CIT(A), the assessee is in appeal before the Tribunal.
4. The learned counsel for the assessee submitted that M/s. Reliable Cigarette Industries, Mandideep, a partnership firm, started the cigarette factory w.e.f. 1st May, 1984. It manufactured only non-filtered cigarettes. Its business continued upto 31st Oct., 1984.
The assessee-company took over the assets and liabilities of the above firm w.e.f. 1st Nov., 1984 and the first year of the assessees business is asst. yr. 1986-87 of which the accounting period is from 1st Nov., 1984 to 31st Dec., 1985. He submitted that the filtration plant was a new machinery which was purchased by the erstwhile firm in May, 1983.
No depreciation was claimed in respect of this machinery by the said firm as the machinery was not used for the purposes of business. It was first put to use in the month of May, 1985, i.e. during the accounting period relevant to the asst. yr. 1986-87. In the immediately preceding year the machinery was under installation. The learned counsel invited our attention to certificate dt. 25th Jan., 1989 of Production Engineer, In-charge, a copy of which appears at page 17 of the compilation. He has certified that the cigarette filter assembling machine (Haum Max III) was put to use first time in the month of May, 1985. This fact is duly supported by the summary of RG-1 register, a copy of which appears at pages 18-19 of the compilation. Referring to the provisions contained in S. 32A(1) of the Act, the learned counsel for the assessee submitted that the investment allowance is admissible in the previous year in which the machinery or plant was installed or in the immediately succeeding previous year if the machinery or plant is first put to use. On the basis of the evidence on record to the effect that the filtration unit started production of filter cigarettes w.e.f. May, 1985 which falls in the previous year relevant to the asst.
yr. 1986-87, he argued that the claim of the assessee for investment allowance is admissible in the asst. yr. 1986-87 under the law.
5. The learned Departmental Representative, on the other hand, submitted that in the original return filed on 31st March, 1987, the assessee-company did not make any claim of investment allowance on the machinery in question and the claim subsequently made by the assessee in the revised return filed on 29th Nov., 1988 cannot be entertained in view of the decision of the Kerala High Court in the case of CIT vs. A.Yunus Kunju (1994) 206 ITR 704 (Ker). In his counter-arguments the learned counsel for the assessee submitted that the assessees claim cannot be negatived if it is lawfully admissible. In support, reliance was placed on the decision of the Gujarat High Court in the case of Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj).
6. We have considered the rival submissions of the parties and perused the orders of the authorities below as also the evidence placed on record. The claim of the assessee has been negatived mainly on the ground that machinery was acquired in the year 1983 and the claim could have been made at the most in the immediately succeeding year, i.e., previous year relevant to the asst. yr. 1985-86 and not in the previous year relevant to the asst. yr. 1986-87 when the machinery as first put to use. In our considered opinion, the rejection of the assessees claim is not on correct appreciation of the legal position. It is useful to reproduce the relevant section 32A(1) of the Act : "32A(1). In respect of a ship or an aircraft or machinery or plant specified in sub-s. (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to 25% of the actual cost of the ship, aircraft, machinery or plant to the assessee." It is obvious from the above that the claim of investment allowance in respect of machinery or plant is admissible in the previous year in which it was installed or in the immediately succeeding previous year in which the machinery or plant is first put to use. The date or year of purchase of the machinery or plant is not material at all for consideration of the claim of investment allowance. In the case of the assessee-company evidence has been brought on record that the machinery in question has been purchased in May, 1983. However, there is no direct evidence about the date of installation of the machinery. The assessees version is that though the machinery was purchased in May, 1983 by the erstwhile firm in the accounting year relevant to the asst.
yr. 1984-85, it was installed in the accounting year relevant to the asst. yr. 1985-86 but the firm did not claim depreciation on the said machinery as the same was not used for the purposes of business of that firm. This version of the assessee could not be controverted by the Revenue by bringing on record any material. In the absence of any adverse material brought on record by the Revenue, we see no reason to disbelieve the assessees version. There is no dispute that the machinery in question has been first put to use in the previous year relevant to the asst. yr. 1986-87. On appreciation of evidence brought on record by the assessee, the learned CIT(A) has himself observed in para 10.1 of his order that the production of filter cigarettes commenced from May, 1985. If that be so, the assessees claim of investment allowance in respect of the machinery in question is admissible in the asst. yr. 1986-87 as in the previous year relevant to this assessment year the machinery is first put to use.
7. We have perused the decision of the Kerala High Court in CIT vs. A.Yunus Kunju (supra) relied on by the learned Departmental Representative. In that case the assessee failed to furnish a return under S. 139(1) of the IT Act, 1961, for the accounting year 1977-78.
Notice dt. 10th Jan., 1979 under S. 139(2) calling upon the assessee to file the return was served on him on 25th Jan., 1979. The assessee did not comply with the notice for filing the return but instead filed a return on 17th July, 1980. Thereafter, within the period prescribed by S. 139(4)(b)(iii), he filed another return on 17th Nov., 1980. The ITO refused to consider the second return and completed the assessment on the basis of the first return filed by the assessee. On appeal to the CIT(A), the assessee contended that the second return filed by him was to be treated as a revised return and assessment had to be made on that basis. The Department contended that the second return filed by the assessee could not be treated as a raised return under S. 139(5) and that the assessment had to be made only on the basis of the first return filed on 17th July, 1980. The CIT(A) accepted the contention of the assessee. The Tribunal affirmed the order of the CIT(A). On these facts the High Court held that the second return filed by the assessee could not be treated as a revised return under S. 139(5) of the Act. In the case before us there is no such controversy about the validity or otherwise of the revised return filed by the assessee on 29th Nov., 1988 claiming investment allowance therein. In fact, the Revenue has considered the claim of the assessee-company and rejected its claim on different legal issue. Since the assessees claim made in the revised return has been duly considered by the Revenue, and, in our opinion, rightly so, we do not find any substance in the above argument of the learned Departmental Representative. If a claim is admissible under law and the prescribed conditions for allowability thereof are fulfilled, the claim cannot be rejected merely on the ground that the same has not been made in the original return. It is not in dispute that the assessee-company has made the claim of investment allowance by filing a revised return before the completion of the assessment and the said revised return has not been treated as invalid by the Assessing Officer/CIT(A). In taking this view, we are supported by the decision in the case of Chokshi Metal Refinery (supra) in which their Lordships of the Gujarat High Court have relied on the decision of the Supreme Court in Navnit Lal C. Javeri vs. K.K. Sen, AAC 8. We accordingly decide the ground No. 1 in favour of the assessee and direct the learned Assessing Officer to allow the assessees claim of investment allowance on the cost of filter plant at the rate admissible, provided other prescribed conditions are found to have been fulfilled.
9. Ground No. 2 relates to 1/5th disallowance out of motor car expenses and depreciation for personal use of the vehicles by the directors. A similar issue came up for consideration before this Bench in the case of M/s. D&H Secheron Electrodes Pvt. Ltd., Indore, in ITA No. 323/I/93 decided on March, 1994 for the asst. yr. 1983-84 and the Tribunal held that no such disallowance can be made in the hands of the company. If the vehicles are used by the directors, the same can be treated as perquisites in the hands of the respective directors. Following the order (supra), the disallowances are deleted.
10. Ground No. 3 has not been pressed. Ground No. 4.1 has also been withdrawn for the reason that while giving appeal effect to the learned CIT(A)s order the Assessing Officer has allowed relief to the assessee.
Ground Nos. 4.2 and 4.3 have also not been pressed.
12. ITA No. 199/Ind/90 - Ground No. 1 relates to 1/5th disallowance out of motor car expenses and depreciation for personal use of vehicle by the directors. This issue is covered in favour of the assessee vide our order in ITA No. 198/Ind/90 for the asst. yr. 1986-87.
15. ITA No. 200/Ind/90 - Ground No. 1 relates to the claim of investment allowance deposit under S. 32AB. In its revised return the assessee claimed deduction of Rs. 51,700 under S. 32AB in respect of purchase of a slide manufacturing machine. The Assessing Officer negatived the assessees claim on the ground that the amount had not been utilised by the assessee during the previous year for the purchase of the new machinery. He noted that out of the total amount of Rs. 51,700 an amount of Rs. 41,700 remained payable to the supplier as on 31st Dec., 1987, the last day of the accounting period relevant to the asst. yr. 1988-89. As the full amount had not been utilized for the purchase of machinery, the Assessing Officer held that the assessee was not entitled for deduction under S. 32AB as claimed. In first appeal, it was argued before the learned CIT(A) that the claim should be restricted to the amount of Rs. 10,000 utilised for the purchase of plant and machinery. As the utilisation of a sum of Rs. 10,000 for the purchase of new plant and machinery was not in dispute, the CIT(A) directed the Assessing Officer to allow the claim on the amount of Rs. 10,000 provided other conditions were fulfiled. Being dissatisfied, the assessee is in further appeal to the Tribunal.
16. The learned counsel for the assessee invited our attention to the copy of account of the supplier in the books of the assessee (copy at page 25 of the compilation) which showed that the advance payment of Rs. 10,000 was made on 4th April, 1987. A copy of the audit report under S. 32AB(5) of the IT Act has also been filed which appears at pages 27-29 of the compilation. He argued that there is no provision in S. 32AB which provides that full payment should have been made in the previous year towards purchase of the machinery. He, therefore, submitted that the full claim of Rs. 51,700 should have been allowed by the CIT(A) and the claim should not have been restricted to Rs. 10,000 only. The learned Departmental Representative, on the other hand, submitted that in the original return neither the claim was made nor the audit report as required under S. 32AB(5) accompanied the original return. He, therefore, submitted that the Assessing Officer was correct in rejecting the assessees claim and the learned CIT(A) erred in allowing the claim to the extent of Rs. 10,000 under S. 32AB. The learned counsel for the assessee in his counter arguments submitted that the claim was made in the revised return which was also accompanied by the audit report. The claim was made before completion of the assessment and, therefore, the assessee was entitled to benefit of deduction.
17. We have considered the rival contentions. Under S. 32AB an assessee is entitled to a deduction of an amount upto 20% of the profits of business or profession, if the said amount is either deposited with the development bank within the period upto six months from the end of the previous year or before furnishing the return, whichever is earlier, or utilised any amount during the previous year for the purchase of a new ship, new aircraft or new machinery or plant. The language of sub-s.
(1) of S. 32AB is clear and unambiguous. It provides for deduction of any amount which has been utilised during the previous year for the purchase of new plant or machinery, etc. It is not in dispute that out of the total cost of the new plant and machinery at Rs. 51,700 the assessee utilised an amount of Rs. 10,000 only towards its purchase during the previous year relevant to the asst. yr. 1988-89. We, therefore, do not agree with the submission of the learned counsel for the assessee that the entire claim of Rs. 51,700 should have been allowed. As regards the contention of the learned Departmental Representative it may be stated that in the case of D.K. Jain vs. Dy.
CIT (1994) 48 TTJ (Del) 675 : (1994) 49 ITD 269 (Del) the Tribunal, Delhi D Bench has held that when provisions of sub-s. (5) of S. 32AB are read in the context of main provisions of S. 32AB, these are clearly directory and not mandatory and where the assessee has filed the audit report before completion of the assessment, the assessee was entitled to benefit of deduction under S. 32AB of the Act. In the case before us, the audit report has been filed along with the claim made in the revised return which has not been held to be invalid by the Revenue authorities. In this view of the matter, we do not find any substance in the arguments of the learned Departmental Representative. We, accordingly, reject ground No. 1 of the assessee.
18. Ground No. 2 relates to 1/5th disallowance out of motor car expenses and depreciation for personal use of the vehicles by the directors. This issue is covered in favour of the assessee in its appeals for the earlier years.
19. Ground No. 3 relates to disallowance of Rs. 1,830 being payment to diners club. According to the Assessing Officer the expenditure was not connected with the business of the assessee. He, therefore, made the impugned disallowance which has been upheld by the CIT(A). The learned counsel for the assessee submitted that the payment, in question, is an allowable expenditure as it is not in the nature of entertainment expenditure. The learned Departmental Representative, on the other hand, submitted that in the case of Dy. CIT vs. Jokoi India Ltd. (1994) 48 ITD 184 (Cal) the Calcutta A Bench of the Tribunal held that the expenditure on account of payment of club bills of the assessees executives was not allowable as business expenditure.
20. We have considered the rival submissions. In our considered opinion, club fees is allowable expenditure as membership of club provides the directors and the executives better contact with person in good position and serves the assessees business interests. The payment of diners club fee is, therefore, held to be an allowable expenditure following the decision in the case of Otis Elevators (India) vs. CIT (1992) 195 ITR 682 (Bom).
24. ITA No. 288/Ind/90 - The first grievance of the Revenue is that the learned CIT(A) has erred in directing the Assessing Officer to work out the disallowance under rule 6D by excluding taxi hire, culie hire and telephone expenses and restrict the disallowance to only expenses of stay. We have heard both the sides at length. We notice that in giving the above direction, the learned CIT(A) has allowed the decision of the Tribunal, Special Bench, in the case of Sundaram Finance Ltd. vs. IAC (1984) 18 TTJ (Mad) 348 (SB) : (1984) 7 ITD 845 (Mad)(SB). Since the decision of the CIT(A) is based on the Special Bench decision of the Tribunal, we find no infirmity in his order and uphold the same.
Accordingly, we reject this ground of the Revenue.
25. Ground No. 2 relates to the depreciation allowance on the building occupied by the Managing Director for his residence. On hearing both the sides, we notice that the direction of the CIT(A) to include the value of depreciation in the value of perquisites provided to the Managing Director and consider the same for disallowance under S. 40(c) is in favour of the Revenue and in its appeal the assessee has withdrawn similar ground. In this view of the matter, this ground of the Revenue is infructuous and is accordingly dismissed.
27. ITA No. 289/Ind/90 - Ground Nos. 1 and 2 are identical to the grounds taken in respect of the preceding assessment year. For the reasons discussed in ITA No. 288/Ind/90 both the grounds are rejected and the Revenues appeal is dismissed.
28. ITA No. 290/Ind/90 - The first two grounds are identical to the grounds taken in the preceding two assessment years by the Revenue.
Both these grounds are rejected on similar reasoning.
29. Ground No. 3 relates to the direction given by the learned CIT(A) to allow claim under S. 32AB on Rs. 10,000. This issue has been discussed in the assessees appeal in ITA No. 200/Ind/90 for the asst.
yr. 1988-89 in Ground No. 1. It has been held therein that the CIT(A) had rightly restricted the assessees claim under S. 32AB on Rs. 10,000.
In this view of the matter, this ground of the Revenue is also rejected.