1. These appeals have been filed by the assessee and the Revenue for the asst. yr. 1988-89 and ITA No. 2765 of 1992 are being disposed of by this common order.
2. The assessee claimed 100 per cent. depreciation in respect of the gas cylinders mounted on the vehicles. According to the AO these items cannot be called as "Gas cylinders including valves and regulator" for the purpose of allowing 100 per cent. depreciation. However, 33.33 per cent. depreciation was allowed.
2.2 The learned counsel on behalf of the assessee submitted that the assessee is eligible for depreciation at the rate of 100 per cent. as per provision of sub-cl. (v) of cl. 3 under head III of Appendix I of the IT Rules, 1962. It is submitted that the gas cylinders are mounted on the vehicles which do not form part of the vehicle. The cylinder is separate from the vehicle which contains gas. The gas is supplied to the different parties. It has been submitted that in similar circumstances the Tribunal Ahmedabad Bench allowed 100 per cent.
depreciation in gas cylinder in the case of M/s Mysore Ammonia Supply Corpn. reported in ITA No. 1131/4/89. Similar view has been taken by the Tribunal cases reported in South Eastern Roadways Ltd. vs. ITO (1992) 43 TTJ (Bang) 278 : (1992) 40 ITD 349 (Bang) and Dy. CIT vs.
Sodium Metal (P) Ltd. (1996) 55 TTJ (Ahd) 643. In the case of South Eastern Roadways Ltd. vs. ITO, the Tribunal held as under : "The assessee had been granted licence by the Chief Controller of Explosives to transport compressed ammonia gas in the container mounted on the vehicle. The container was nothing but a big cylinder suitable for being mounted on the chassis of the truck. It had all the attributes of a cylinder. Straingent conditions were imposed by explosives department having regard to the dangerous quality of the substance transported. It had special valves and regulators. To our mind it is clear that the container mounted on the chassis of the truck was a gas cylinder and fell within the description given in Appendix I, Part I, Item (iii) (ii) or (4). Therefore, depreciation at 100 per cent. was allowable on this container and the connected valves and regulators. The ITO shall ascertain the value of cylinder mounted on the vehicles, valves and regulators and allow depreciation as held above".
2.3 On the other hand, learned Departmental Representative supported the order passed by the authorities below on this issue and submitted that the gas cylinder is a part of the vehicle. Hence, the authorities below have rightly disallowed the claim of the assessee.
2.4 We have heard both the sides and perused the materials on record, also the decisions cited on behalf of the assessee. It appears that the authorities below were of the view that the assessee is not entitled to 100 per cent. depreciation on the gas cylinder because it is a part of the vehicle. It appears that similar issue has been considered by the Tribunal in the cases referred by the assessee and the Tribunal came to the conclusion that the assessee is entitled to depreciation at the rate of 100 per cent. Accordingly, following the order of the Tribunal, we are of the view that the assessee is entitled to succeed on this issue.
3.1 The AO disallowed the payment of interest of Rs. 1,46,822 by invoking the provisions of s. 40A(2). According to the AO the assessee paid interest at the rate of 18 per cent. to four parties and 20 per cent. to M/s Vadilal Finance Co. (P) Ltd. which rate of interest paid by the assessee was higher in comparison to market rate. Hence the AO restricted the reasonable rate of interest at 15 per cent. and disallowed Rs. 1,46,822.
3.2 When the issue came up before the first appellate authority, the CIT(A) reduced the amount of disallowance to Rs. 14,635 and allowed the relief of Rs. 1,32,187.
3.3 The learned counsel has submitted before us that the first appellate authority should have allowed the entire claim of interest to the assessee. It was submitted that the first appellate authority was not correct in holding that 20 per cent. paid to Vadilal Finance Co.
(P) Ltd. was excessive. Hence, it was restricted to 18 per cent.
because in similar circumstances 20 per cent. was allowed by CIT(A) in the case of Bollard Oil Field (P) Ltd. in appeal No. CIT(A) V/DC/(A) I/12/92-93. A copy of the order of CIT(A) was filed before us.
3.4 On the other hand, Departmental Representative supported the order passed by the authorities below and submitted that the first appellate authority has already taken a lenient view on this issue and the finding should not be disturbed.
3.5 After hearing both the sides, we find that the claim of the assessee has been substantially allowed by the CIT(A) except 2 per cent. interest disallowed with regard to interest payment to Vadilal Finance Co. Ltd. at the rate of 20 per cent. It is true that first appellate authority in the case of Bollard Oil Field (P) Ltd. has allowed 20 per cent. interest payment to the same finance company limited for the asst. yr. 1989-90, but the present case before us is for the asst. yr. 1988-89. Therefore, considering the circumstances of the case we are not inclined to disturb the findings of the CIT(A) on this issue for the present assessment year.
4. The next issue is disallowance of expenditure of Rs. 17,145 incurred by the assessee under s. 37(3). However, the CIT(A) restricted the disallowance to Rs. 10,545.
4.1 The learned counsel on behalf of the assessee has submitted that the cost of the article was more than Rs. 50 but there was no logo or its name. Hence, there was no advertisement value of the articles. The expenditure was incurred for business consideration. Hence, no part of the expenditure was to be disallowed under s. 37(3) of the IT Act. In support of his contention learned counsel placed reliance on the decision reported in CIT vs. S. L. M. Maneklal Industries Ltd. (1977) 107 ITR 133 (Guj) and 216 ITR 680 (sic).
4.2 The learned Departmental Representative, on the other hand, placed reliance on the orders passed by the authorities below and submitted that the disallowance has rightly been made by the AO. However, the CIT(A) has allowed some relief to the assessee. In such circumstances, the findings should not be disturbed again.
4.3 After hearing both the sides we find that the assessee had filed the details before the CIT(A). It was not disputed by the Department that the articles did not bear any logo of the assessee.
However, applying r. 6D, (sic-6B) the disallowance was restricted to Rs. 10,545 only. After hearing both the sides and in view of the decisions referred on behalf of the assessee, in our opinion, the assessee should succeed on this ground. Accordingly, in our opinion, no disallowance can be made applying r. 6D (sic-6B) of IT Rules.
5. The next ground is with regard to disallowance of Rs. 5,266 under s.
37(2) of the Act which was not proceeded by the assessee. Accordingly this ground is dismissed.
6. The next ground is with regard to disallowance of depreciation on tanker of Rs. 1,50,000 purchased from M/s Gufic (P) Ltd. According to the AO, the bill of the tanker is dt. 4th January, 1988 but it was delivered to the assessee on 4th November, 1986. Hence, the AO was of the opinion that the tanker was not put to use during the accounting year. However, when the issue came up before the first appellate authority, the CIT(A) was satisfied that in the invoice itself the delivery has been shown on 4th November, 1986. Therefore, there was no occasion to disbelieve that the tanker was not put to use during the accounting year. Accordingly the AO was directed to allow depreciation on the tanker treating it as a vehicle.
6.1 The learned counsel on behalf of the assessee has submitted that the assessee is entitled to 100 per cent. depreciation on the tanker for the reasons argued with regard to earlier ground.
6.2 We find that this issue to almost connected with the first issue, we discussed in our order.
6.3 It appears that the Revenue is also aggrieved and raised a ground in its appeal on this issue. According to the Revenue, CIT(A) should not have directed to allow depreciation on the tanker.
6.4 On perusal of the order passed by the CIT(A) we are satisfied that the assessee is entitled to depreciation because the CIT(A), after examining the findings on record, came to the finding that the tanker was put to use by the assessee during the accounting year. So far as the rate of depreciation is concerned this case is connected with the first issue. Hence, the AO shall consider the case while considering the rate of depreciation to be allowed with regard to the tankers mounted on vehicles.
7. The next issue is with regard to charging of interest under s. 217 of the Act. The CIT(A) held that this ground has become infructuous because after giving effect to the order, no interest will be chargeable. Accordingly this issue before us has become infructuous and dismissed.
8. The next ground is with regard to deduction under s. 80G of IT Act.
The AO has not given any finding on this issue. The CIT(A) held that possibly the AO has not given any discussion finding because the return of income was loss.
8.1 After hearing both the sides and on going through the order passed by the CIT(A), we direct the AO to allow relief to the assessee in case there is say positive income at the hands of the assessee.
1. In Revenue's appeal the first two grounds are inter-connected; one is with regard to allowability of the depreciation on enhanced value of assets and the other is deletion of the addition made under s. 28(iv) of the IT Act.
2. The partnership firm of M/s Vadilal Ammonia Company came into existence on 13th December, 1969, which was carrying on business in industrial gases. The appellant company M/s Vadilal Cases and Chemicals Ltd. joined as a partner in the firm w.e.f. 20th September, 1984, with 25 per cent. share. Again there was a change in the constitution of the firm on 7th September, 1989. However, the appellant continued to be a partner. On 2nd November, 1986, the partnership was dissolved pursuant to a deed of dissolution. In cl. (a) of the dissolution deed, it was mentioned that it was impracticable to divide, allot and distribute the business carried on by the assessee amongst its partners. Therefore, the present assessee i.e., M/s Vadilal Cases and Chemicals (P) Ltd. who is one of the partners, should take over the business as a going concern alongwith movables and immovable assets and also the liabilities. According to the condition of the dissolution deed, M/s Vadilal Cases & Chemicals (P) Ltd. would pay to the other partners the amounts due to them on dissolution of the partnership. The assets should be revalued to ascertain the market value by reputed chartered engineers. Pursuant to the said clauses in the agreement, the assets of the firm were revalued at Rs. 62,27,143 as against the written down value of Rs. 19,45,577. Accordingly, the AO was of the view that the difference between the enhanced valuation and the written down valuation should be treated as income at the hands of the assessee under s. 23(iv) of the IT Act and the assessee is entitled to claim depreciation on the written down value only and not on the enhanced value of the assets.
2.1 The first appellate authority after considering the facts and circumstances of the case came to the conclusion that there was no fraud, collusion and inflation on the part of the assessee to show a higher valuation for the purpose of getting higher depreciation. The addition under s. 28(iv) made by the AO was also cancelled against which the Revenue is in appeal before us.
2.2 The learned Departmental Representative supported the order passed by the AO and submitted that with a view to got higher depreciation, the assessee had shown the enhanced cost of the assets which should not have been considered by the CIT(A). It was submitted that the assessee did not revalue the land for the simple reason that those revaluation could not fetch higher depreciation. Therefore, the AO has rightly considered the difference between the two valuation as income of the assessee under s. 28(iv) of the Act. Reliance was placed on the decision reported in Kangundi Industrial Works (P) Ltd. vs. CIT (1965) 57 ITR 540 (AP). On the other hand, the learned counsel on behalf of the assessee heavily relied on the order passed by the CIT(A) and brought to our attention the different paragraph and finding recorded by the CIT(A). It has been submitted that according to the different clauses of the deed of dissolution, one partner was to carry on the business as a running concern and the market value of the assets should be computed through an expert valuer which has been done. It was submitted on behalf of the assessee that first appellate authority considered all the aspects and came to the finding that there was no fraud, collusion or ulterior motive present in this case. Therefore, the receipt being the difference between the written down value and the market value fixed by the chartered engineer should not be treated as taxable income under s. 28(iv) of the IT Act. The learned counsel on behalf of the assessee placed reliance on the following decisions : Kalooram Govindram vs. CIT (1965) 57 ITR 335 (SC), Ginner & Pressers (P) Ltd. vs. CIT (1978) 113 ITR 616 (Bom), R. B. Bansilal Abirchand Spinning & Weaving Mills vs. CIT (1970) 75 ITR 260 (Bom), CIT vs.
Sekar Offset Press (1995) 214 ITR 516 (Mad), Ashok Theatres vs. ITO (1984) 10 ITD (Del) 552, Dy. CIT vs. Metalizing Equipments Co. (P) Ltd. (1996) 54 TTJ (JP) 620, Arenetch Medical Enterprises (P) Ltd. vs. ITO (1994) 48 TTJ (Bang) 658, Lekhraj Narinder Kumar vs. ITO (1986) 25 TTJ (Chd) 85, 43 TTJ 141 (sic) and 50 TTJ 44 (sic) and also placed reliance on the decision of ITAT, Ahmedabad Bench in the case of Shri Rajesh Kumar R. Gandhi ITA No. 1379/A/89, and ITA No. 8/A/82 in the case of Virendra R. Gandhi wherein in similar circumstances, the Tribunal confirmed the finding recorded by the first appellate authority in favour of the assessee.
2.3 We have heard both the sides and have also perused the materials available on record. It appears that the first appellate authority has discussed the issue elaborately after examining the different decisions of Supreme Court and other High Courts. It has been held that assets which were revalued by the assessee was the capital assets of the firm.
Hence, the difference in valuation cannot be taxed under s. 28(iv) of IT Act. For coming to the conclusion, the first appellate authority relied on the decision of Supreme Court reported in ALA Firm vs. CIT (1991) 189 ITR 285 (SC) and also decision of Gujarat High Court reported as CIT vs. Keshavlal Chandulal (1966) 59 ITR 120 (Guj).
It appears that similar view has been taken by the Tribunal, Ahmedabad Bench, copy of which was also filed by the assessee. The first appellate authority distinguished on the case reported in CIT vs.
Keshavlal Chandulal (1966) 59 ITR 120 (Guj) (supra) which was relied by the AO. In such circumstances, in our opinion, the finding recorded by the first appellate authority requires no interference. The objection of the Revenue is that as to why the land was not revalued has also been dealt with by the CIT(A) in his order. Accordingly, we are of the view that the finding recorded by the first appellate authority on the aforesaid two issues did not require any interference.
3. The next issue is with regard to allowance of depreciation on gufic tanker at the normal rate. In the assessee's appeal, we have already held that the AO was rightly directed to allow depreciation on the said tank after being satisfied that it was put to use during the accounting year. If it is found that the tanker is of the similar type in which we have allowed 100 per cent. depreciation similar rate of depreciation will be allowed for this tanker also. Accordingly, this ground of appeal is dismissed.