1984-VIL-70-ITAT-DEL

Equivalent Citation: TTJ 022, 594,

Income Tax Appellate Tribunal DELHI

Date: 19.12.1984

INCOME TAX OFFICER.

Vs

SOYA PRODUCTION & RESEARCH ASSOCIATION.

BENCH

Member(s)  : V. P. ELHENCE., B. GUPTA.

JUDGMENT

The captioned appeals by the Revenue and the assessee and the Cross Objection No. 119 filed by the assessee relating to the asst. yr. 1979-80 may be conveniently consolidated and disposed of by a common order.

2. In the appeal by revenue the only one ground raised is against the order of the CIT(A) holding that a sum of Rs. 23,694 paid as incentive bonus to the officers of the assessee’s organisation was an allowable deduction. As is evident from the ground taken, the Revenue has filed this appeal mainly on the basis that a similar relief granted by the CIT(A) in the case of the assessee for the asst. yr. 1978-79 had not been accepted and a second appeal had been filed by the Department in that year.

3. We find from our own order in ITA No. 3604/Del/82 dt. 23rd Feb., 1984 that after considering the question of allowability of bonus paid in that year we had come to the conclusion that that was an allowable deduction from the income of the assessee. Since the facts are similar in this year and since we find that incentive bonus had been paid on grounds of commercial expediency, we shall upheld the order of the AAC and dismiss the Departmental appeal.

4. We shall now take up Appeal No. 1157/Del/83 filed by the assessee.

5. Objection is firstly raised against the disallowance of Rs. 6,000 being the rent for maintenance of a guest house at premises bearing No. 85-B, Civil Lines, Bareily where outstation sales representatives had been accommodated from time to time. It was contended before the CIT(A) and it is once again contended before us that if the guest house had not been maintained the assessee would have to bear expense on accommodating the outstation sales representatives in a hotel and therefore, the expenditure was allowable as having been laid out wholly and exclusively for the purposes of business. Shri S. K. Gupta, ld. authorised counsel of the assessee has relied on the decisions in the case of CIT vs. Aruna Sugars Ltd. vs. CIT (1980) 123 ITR 619 (Mad) and Saraswathi Industrial Syndicate Ltd. vs. CIT (1981) 24 CTR (P&H) 246 : (1982) 136 ITR 361 (P&H) in support of the above contention. On the other hand Shri K. K. Sharma, ld. Departmental Representative has supported the orders passed by the ITO and the CIT(A).

6. After considering the submissions by the ld. authorised counsel of the assessee and the ld. Departmental Representative it appears to us that the disallowance had been properly made. The decisions of the Hon’ble Madras and Punjab & Haryana High Court reported as CIT vs. Aruna Sugars Ltd. vs. CIT (1980) 123 ITR 619 (Mad) and Saraswathi Industrial Syndicate Ltd. vs. CIT (1981) 24 CTR (P&H) 246 : (1982) 136 ITR 361 (P&H) on which reliance has been placed would not, according to us, apply in favour of the case made on the side of the assessee on account of the fact that the law had been amended by insertion of sub-s. (4) of s. 37 of the IT Act w.e.f.1st April, 1970. The above mentioned two decisions of the Hon’ble High Courts had been given in the asst. yr. 1969-70 when the relevant provisions were contained of s. 37(3) of the IT Act and in r. 6C of the IT Rules. The provisions of r. 6C had been omitted as a consequence of insertion of s. 37(4) of the IT Act, 1961. The law having undergone a change and the fact having been admitted by the assessee that the accommodation had indeed been used as a guest house for various sales representatives of the assessee, the disallowance of Rs. 6000 has to be upheld. Ground No. 1 in the assessee’s appeal, therefore, fails.

7. In Ground No. 2 objection is taken to the disallowance of the following items aggregating at Rs. 60,762 claimed as bad debts:

It is contended by Shri Gupta, ld. authorised counsel of the assessee that all the conditions laid down in s. 36(2) having been satisfied the authorities below had no justification in not allowing the claim of bad debts of Rs. 60,762. On the other hand the learned Departmental Representative has supported the orders of the ITO and the CIT(A).

7.1. The amount of Rs. 1,334 written off in the accounts of Marwari General Stores had indeed become a bad debt. The assessee had sent two reminders to M/s Marwari General Stores and when there had been no response, a registered letter had been sent which had been returned as M/s Marwari General and Provisions Stores were not available at the given address. In these circumstances, when the debtor had become untraceable and when the conditions laid down in s. 36(2) of the Act had been satisfied, the CIT(A) had no justification in disallowing the sum of Rs. 1,334 claimed as bad debt.

7.2. The sum of Rs. 4,634 written off in the account of Agragauri Agency of Purenea had been rightly disallowed by the CIT(A). The assessee had sent certain goods to this party in the year 1974 but these had been received back as the goods supplied were found to be short in quantity and unfit for human consumption. In other words, the assessee had suffered a loss in the year 1974 itself. Deduction, if any, could be claimed in the asst. yr. 1975-76 but not in the asst. yr. 1979-80 in respect of the above loss. In any case the sum of Rs. 4634 having not been taken into account for computing the income of the assessee of any previous year, it was not allowable as a deduction as a bad debt.

7.3. The rest of the debtors mentioned at S. No. 3, 4 & 5 above are made to be belonging to the same group. There were certain claims and counter claims between the assessee and the above mentioned three parties and ultimately the matter had been referred to an arbitrator. According to the CIT(A) the claim of bad debts in respect of these three parties was not allowable for two reasons. Firstly, he had found it was on account of the loss of stock-in-trade which took place in the year 1975. Secondly, the CIT(A) found that the arbitration award had not been made available to him in order to ascertain as to whether in fact the bad debts or loss was an allowable deduction in the asst. yr. 1979-80. The position has remained the same before us also. We have also not been shown a copy of the arbitration award which is said to be not available. The finding of fact given by the CIT(A) that the above mentioned three items were losses of stock-in-trade suffered in the year 1975 has also not been controverted by the ld. counsel for the appellant. In the circumstances the disallowance of Rs. 23,321, Rs. 13,878 and Rs. 17,595 written off in the accounts of the debtors at S. Nos. 3, 4 & 5 above had been properly made.

8. Ground No. 2 in the assessee’s appeal, therefore, stand allowed in part, and the assessment is reduced by Rs. 1334.

9. Objection is next taken in Ground No. 3 to the disallowance of Rs. 500 which was paid on account of the admission fee to Bareilly Club Ltd. It is submitted by the ld. counsel that Mr. Stanley, Sales Manager of the assessee had been asked to become a member of the club in the interest of the assessee’s business and the admission fee had been paid for that. Since the sum of Rs. 500 had been paid on account of the admission fee of Mr. Stanley, Sales Manager and since it appears to us to be an expenditure incurred for business expediency, we shall allow it. Ground No. 3 succeeds.

10. In Ground Nos. 4, 4.1 and 4.2 objection is taken to the finding of the CIT(A) by which depreciation had been denied on machinery of the value of Rs. 1,99,585. The reason why this disallowance was made was similar to the reasons which had been given by the ITAT in the assessee’s own case in the asst. yrs. 1975-76 to 1978-79. It had been found by the ITAT that to a certain extent the cost of machinery used in the assessee’s business had been met by some charitable organisation. Depreciation is allowable under the provisions of s. 32 r/w the provisions of s. 43(1). Since the machinery of the value of Rs. 1,99,585 did not fall within the definition of actual cost within the meaning of s. 43(1) of the IT Act, the CIT(A) was justified in disallowing the assessee’s claim. We uphold the order of the CIT(A) for the reasons given by us in ITA Nos. 3524 to 3527 decided on23rd Feb., 1984.

11. Grounds Nos. 5, 5.1 and 5.2 in the assessee’s petition of appeal have also to be rejected as investment allowance was admissible only on the actual cost of machinery and not on that portion of the cost which was met by others. It has been mentioned by the CIT(A) in his order that to the extent of Rs. 1,50,026 the cost of machinery had been directly met by this party. In these circumstances the assessee was not entitled to any investment allowance on the cost of machinery of Rs. 1,50,026 as per provisions contained in s. 32A r/w s. 43(1) of the IT Act, 1961. For this reason and for the reasons given by us in our order dt.23rd Feb., 1984referred to above, we reject the Grounds No. 5, 5.1 and 5.2 in the assessee’s petition of appeal.

12. Ground No. 6 is of general nature and needs no comments.

13. In the result the appeal filed by the assessee is allowed in part.

14. In Cross Objection No. 119 arising out of ITA No. 2107 the assessee has merely supported the order of the CIT(A) allowing the deduction of Rs. 23,694 paid as incentive bonus. For the reasons given while deciding ITA No. 2107 filed by the Revenue, the cross objection field by the assessee shall stand allowed.

15. In the result while the appeal by the Revenue is rejected the cross objection and the appeal by the assessee are respectively allowed and partly allowed.

 

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