Judgment:
ORDER
C. L. BOKOLIA, A.M. :
All these appeals are related to each other and also based on common grounds of appeal and identical facts. All these appeals are, thereforee, being decided by this common order for the sake of convenience.
2. The assessed and the Department also preferred appeal against the order of the CIT(A) taking various grounds of appeal which are being discussed and decided as under :
3. After hearing the rival parties and examining the relevant documents, reliance upon which was placed by both the parties, the grounds of appeal are being decided as under :
ITA No. 3898/(Del)/1990; asst. yr. 1987-88 :
4. The first ground of appeal taken by the assessed is in regard to disallowance of medical reimbursement expenses, group personal accident insurance premium, hospitalisation insurance scheme premium and telephone expenses. The learned Authorised Representative argues that reimbursement of medical reimbursement expenses and group personal accident insurance premium and hospitalisation expenses are not in the nature of perquisites. This ground of appeal stands covered by the Tribunal order for the asst. yr. 1986-87 in the case of the assessed itself. After examining the facts of this ground of appeal, it is held that the expenses in question are wholly and exclusively incurred for business purposes and are fully allowable. Following the decision of the ITAT for the asst. yr. 1986-87 in ITA Nos. 2977/Del/1990 and 3019/Del/1990 dt. 15th May, 1995 the additions are deleted.
5. The next ground of appeal is in regard to addition of 25 per cent of telephone expenses under s. 40A(5), disallowances of servants wages, salary, bonus, etc. This ground of appeal also stands covered by the Tribunal order for the asst. yr. 1986-87. Following the decision of the Tribunal for earlier assessment year in the case of the appellant itself these additions are also directed to be deleted.
6. The next ground of appeal is in regard to confirming the addition of Rs. 2,96,839 being incentive awards payment by the assessed to the employees and staff working in the factory and in Delhi office for achieving higher sales. The CIT(A) has confirmed this disallowance. The claim of the appellant is that the expenditure in question was incurred wholly and exclusively for the purpose of the business of the appellant. This ground of appeal also stands covered by the Tribunal order in para. 5 for asst. yr. 1986-87 supra. After examining the facts of this ground of appeal, we feel that this ground of appeal stands covered by the Tribunals order in the case of the appellant for the earlier assessment year and hence the addition on this ground is deleted.
7. The next ground of appeal is in regard to disallowance of Rs. 1,76,368 for the excise duty during the period. This deduction was disallowed under s. 43B of the IT Act. This ground of appeal is not pressed by the learned Authorised Representative. This being so, the ground is treated as dismissed.
8. The next ground of appeal is against the disallowance of traveling expenses under r. 6D of the IT Rules amounting to Rs. 1,22,362 made by the AO resulting in an excess assessment of Rs. 19,162. This Tribunal has an occasion to examine this ground of appeal taken by the assessed for the asst. yr. 1986-87. Since the nature of the ground of appeal and the facts remain the same, the AO is directed to follow the decision of the Tribunal for the asst. yr. 1986-87 and allow necessary relief.
9. The next ground of appeal is in regard to disallowance of Rs. 1,953 on tips, etc. paid to Govt. servants Rs. 4,550 paid as challans, etc. for cars and Rs. 6,077 spent on gift cheques to various persons on occasions of wedding, etc. and Rs. 24,219 amount paid to Modi Tent House (on account of hire charges for coolers, fans, A. C. etc.). The expenditure on tips paid to Govt. servants, challans of cars and gift cheques were also discussed by the Tribunal while deciding the same for the asst. yr. 1986-87. After satisfying the allowability of each expenses, the Tribunal deleted these additions. We do not find any reason to deviate from the earlier decision and hence the AO is directed to follow the same. In regard to the amount paid to M/s. Moti Tent House amounting to Rs. 24,219 it is observed that the same was paid on account of hire charges for coolers, fans and A.Cs. etc. The CIT(A) has disallowed this claim on the ground that 'the appellant has not been able to furnish the details of the exact nature of services rendered by Modi Tent House for which the payments have been made.' As against this the learned Authorised Representative of the appellant submits that the expenses in question was incurred for hiring coolers, fans, air-conditioners for the building and office of the appellant company. It is also submitted that this type of expenditure is being incurred by the appellant year after year. After examining the facts of this ground of appeal, we are of the opinion that the expenditure claimed by the appellant on this account is allowable in nature. This addition is, thereforee, deleted.
10. The next ground of appeal is in regard to disallowance of car expenses on the ground that they are for the alleged personal use of the directors. The learned Authorised Representative, however, argues that the expenses were incurred wholly and exclusively for the purpose of the appellants business and no personal element involved in this case. It is also submitted that the Tribunal while deciding this ground for the asst. yr. 1986-87 in favor of the assessee, deleted the total addition on this account. After considering the facts of the grounds of appeal, we are of the opinion that there is no reason to deviate from the decision of the Tribunal for the immediately earlier assessment year. This addition is also deleted.
11. The next ground of appeal is against the disallowance of Rs. 1,700 out of repair and maintenance expenses on the ground that it relates to earlier years. In this connection, the learned Authorised Representative submits that the bill of this amount was received during the accounting period relevant to this assessment year and also paid during this period and hence the claim was rightly made.
11.1 After hearing the learned Authorised Representative, we are of the opinion that the liability of the expenditure crystallised during this period and also paid within the period under appeal and hence clearly allowable in nature. This addition is, thereforee, deleted.
12. The next ground of appeal is against the disallowance of Rs. 2,85,000 out of building repair and maintenance expenses as capital expenditure. The facts of this ground of appeal are that the appellant spent expenses on repairs of drains, roads, main gate, back boundary walls and waterproofing of canteen workshop, boiler room and gate office roof. It is also submitted that the total area of the building is 1.25 lacs sq. ft. which was constructed in 1970. For asst. yr. 1985-86 the CIT(A) allowed the expenditure as revenue in nature. In this year, however, part of the total expenditure was disallowed on the ground that the same is capital in nature and results in enduring benefit to the appellant. On the other hand, the learned Authorised Representative of the assessed argues that no new asset has come into existence and the amount spent is purely repair in nature. Water-proofing was done on the roof of canteen, workshop, boiler and main gate, which became essential for the smooth running and functioning of these properties.
12.1 We have examined the facts of this ground of appeal and are of the opinion that keeping in view the vastness of the property and the year of construction repairing is a must for this property. In the total property is considered and repair work done, the expenditure works up to Rs. 2 per sq. ft. Keeping in view the fact that no new asset has come into existence, expenditure incurred by the appellant cannot be termed as capital in nature. The disallowance is, thereforee, held as unreasonable and hence deleted.
13. The next ground of appeal is in regard to disallowance of traveling expenses of Mr. and Mrs. Ingham. This ground of appeal was also the subject-matter of appeal for the immediately earlier assessment year before the Tribunal. The Tribunal after examining this ground of appeal in detail held that the expenditure on traveling of Mrs. Ingham is not for business purposes and that part of the addition was sustained. Following the decision of the Tribunal, the disallowance of Mrs. Ingham amounting to Rs. 1,14,148 is sustained and the balance of Rs. 40,686 is deleted.
14. The last ground of appeal is in regard to disallowance of Rs. 3,63 on account of payments to clubs. This ground was also discussed by the Tribunal while deciding the appeal for the asst. yrs. 1982-83 and 1986-87. Following the decision of the Tribunal in earlier years, the addition on this account is held as unjustified and hence deleted.
ITA No. 3865/Del/1990; asst. yr. 1987-88 :
15. This appeal is preferred by the Revenue against the order of the CIT(A).
16. The first ground of appeal is in regard to deletion of addition by the CIT(A) of the value of HRA paid to employees, wages provided to employees, expenditure on residential telephone Rs. 40,689, on account of reimbursement of medical expenses Rs. 11,706, group personal insurance for the employees Rs. 90,908, disallowed under s. 40A(5) of the IT Act. While deciding this ground of appeal, the CIT(A) has totally relied upon the order of the Tribunal for asst. yr. 1986-87 in the case of the appellant itself. After examining the facts of this ground of appeal, and hearing the arguments of the learned Departmental Representative, we decline to interfere with the order passed by the CIT(A) on this account.
17. The next ground of appeal is in regard to deletion of the addition of Rs. 1,04,132 made on account of claim for deduction under s. 36(1)(ii). The CIT(A) has deleted this addition following the order of the Tribunal for the earlier assessment years. After examining the facts of this ground of appeal, we feel that the order of the CIT(A) on this account is reasonable and hence no interference is being made on this account.
18. The next ground of appeal is against the deletion of the expenses of traveling incurred for Mr. Ingham. The CIT(A) has deleted the addition of the traveling expenditure incurred for Mr. Ingham following the directions of the Tribunal for the earlier assessment years. Since the traveling expenditure of Mr. Ingham has been held as relating to business activities of the appellant, we decline to interfere on this account.
19. The next ground of appeal is against deletion of addition of Rs. 15,000 under s. 40A(12).
While deleting this addition the CIT(A) has discussed this ground in para 11 of his order and examined the issue in question in details. He has held that only Rs. 65,000 paid for work done other than preparation of return was only covered under the provisions of s. 40A(12), as against Rs. 80,000 made by the AO. He accordingly allowed relief of Rs. 15,000. The action of the CIT(A) is held as reasonable and justified and no interference is being made on this account.
20. The last ground of appeal is in regard to deletion of the addition of Rs. 59,740 made on account of disallowance out of guest-house expenditure. This ground of appeal has been discussed by the CIT(A) in para 15 of his order. The assessed worked out the total expenditure on guest house at Rs. 93,220 and recovered Rs. 47,960. After deducting the receipts total expenditure works out to Rs. 45,260 which was returned by the assessed itself. Another Rs. 11,975 was added by the auditors on account of depreciation of the guest-house itself. It was, however, observed that no depreciation was claimed by the appellant on guest-house assets. The disallowance was, thereforee, restricted to Rs. 45,260 only. The further disallowance of Rs. 59,740 by the AO was, thereforee, held as unjustified by the CIT(A) and hence deleted. The action of the CIT(A) on this account is held as reasonable and justified. No interference being made on this account.
ITA No. 4502 (Del)/1991; asst yr. 1987-88 :
21. This appeal is preferred by the appellant-assessee taking various grounds of appeal.
22. The first ground relates to disallowance of Rs. 5,92,746 (Rs. 9,58,280) minus Rs. 3,65,534) on account of royalty payable on the ground that the contract to pay royalty has not been renewed. This has resulted in an excess assessment of Rs. 5,92,746. The facts of this ground of appeal are that : The agreement for payment of royalty expired on 31st March, 1986. The assessee, thereforee, applied to the Govt. of India for seeking permission for payment of royalty. For the balance accounting period starting from 1st April, 1986 to 30th Sept., 1986. The permission of the Govt. of India came much after the finalisation of accounts. The assessee, however, made provision of this payment of royalty in the books of accounts and claimed the same while filing the return. Since the amount was not actually paid, and the adjustment was made only under the head provision, the AO disallowed the same. The receipt of approval of the Govt. at a later stage was not accepted by the CIT(A) and the disallowance confirmed.
22.1 We have examined the facts of this ground of appeal and are of the opinion that though provision of any type is not allowable expenditure, yet under the peculiar circumstances and the assessed has received approval of the Govt. for payment of royalty for the remaining period of the accounting period, the same should be considered as allowable. The AO is, thereforee, directed to allow the claim as per provision of the agreement approved by the Govt. of India.
23. The next ground of appeal is against the disallowance of Rs. 48,927 (1/4th of Rs. 1,95,705) being lunch for executives at mill and Delhi office (out of the total staff welfare expenses of Rs. 8,05,798 are arbitrary and treated the same as entertainment expenses. The learned Authorised Representative of the appellant argued that the expenditure in question was incurred for providing lunch and coffee to the executives in the office and factory premises of the assessee-company. Incurring expenditure on lunch or coffee on the executives cannot be termed as entertainment and hence disallowance of the same or part of such expenditure is unjustified and most unreasonable. We are in full agreement with the learned Authorised Representative that any part of expenditure incurred on the staff or executive cannot be termed as entertainment particularly when the same was incurred in the office or factory premises during normal working hours. This addition is, thereforee, held as unjustified and hence deleted.
24. The next ground of appeal is in regard to confirming the disallowance of Rs. 60,196 on account of lesser liability provided for in the accounts for repairs to factory building by the CIT(A). The claim of the assessed is that Rs. 60,196 being expenditure on repairs could not be provided in the books of accounts. The repairs were undertaken only after an estimate is obtained from the repairer. The assessed paid this amount in advance but while making final payments the balance only debited to the P&L; a/c and this part of the payment remained unaccounted for.
24.1 We have examined the facts of this ground of appeal. The AO has disallowed the claim of the assessed without fully examining the accounts of this amount. The AO is, thereforee, directed that he should examine with reference to the total expenditure whether this amount has already been considered by the assessed while claiming total expenditure and if the same has not been claimed, this would be fully allowable particularly when we have held the expenditure as revenue in nature. This ground of appeal is, thereforee, restored to the file of the AO for doing the needful.
25. The last ground of appeal is in regard to non-allowance of depreciation in full on additions to electric equipments, car and cycles comprising of items costing less than Rs. 5,000 which is said to have resulted in lower depreciation allowance of Rs. 13,972. All items are of capital in nature costing below Rs. 5,000 are to be allowed at the 100 per cent of the value in the year of acquisition itself. The claim of the appellant that the expenditure is on building, and purely on plant and machinery, the same should be allowed in toto. The argument of the learned Authorised Representative seems to be reasonable. The AO is, thereforee, directed to allow full depreciation on such items.
ITA No. 1367/Del/1992; asst. yr. 1988-89
26. The first ground of appeal taken by the assessed is against disallowance of Rs. 60,196 out of repair and maintenance expenses. This expenditure is claimed to have been incurred on water-proofing. It is also observed from the order of the AO as well as the CIT(A) that the genuineness of the expenditure in question has not been doubted at any stage. We have also heard and discussed this ground of appeal in the earlier assessment year and held that in the absence of creation of any new asset the expenditure is clearly revenue in nature and should, thereforee, be allowed. Following the decision of the Tribunal (supra) the amount in question is held to be allowable and hence the addition deleted.
27. The next ground of appeal is in regard to disallowance of 1/4th of the expenditure on lunch for the executives at the mill and Delhi office. In the immediately earlier assessment year we have discussed this ground in details and have held that this type of expenditure cannot be termed as entertainment in nature. The expenditure is clearly staff welfare in nature and should, thereforee, be allowed in full. The disallowance in this year is, thereforee, also deleted.
28. In the result, ITA No. 3898/Del/1990 is partly allowed, ITA No. 3865/Del/1990 is dismissed, ITA No. 4502/Del/1991 is allowed and ITA No. 1367(Del)/1992 is allowed.