Vildirect: IncomeTax-caselaws-1998-VIL-117-ITAT-MUM

1998-VIL-117-ITAT-MUM

Equivalent Citation: [1998] 61 TTJ 543 (ITAT [Mum])

Income Tax Appellate Tribunal MUMBAI

ITA No. 7512/Bom/1990

Date: 27.01.1998

VOLTAS LTD.

DEPUTY COMMISSIONER OF INCOME TAX

A. K. Kaushal, for the Appellant
Dinesh Vyas, P. C. Tripathi, for the Respondent

BENCH

VIMAL GANDHI (Vice President) and PRADEEP PARIKH (A.M.)

JUDGMENT

These cross-appeals are directed against the order of the learned CIT (A) dt. 27th July, 1990 for asst. yr. 1985-86. We find it convenient to dispose of the same by this combined order. The assessee's appeal is taken up first for disposal.

I. ITA No. 7512/Bom/90 (Assessee's Appeal)

2. The first ground relates to the taxability of sundry credit balances written back, aggregating to Rs. 8,16,000 and credited to P & L a/c. It is fairly conceded by the learned counsel for the assessee that the similar issue the decision of the Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons. Ltd. (1996) 136 CTR (SC) 444: (1996) 222 ITR 344(SC) is in favour of the Revenue. In view of the said decision, we do not interfere with the order of the CIT(A).

3. The next ground relating to unpaid statutory liabilities is not pressed and hence the same is rejected as such.

4. The next ground relates to the disallowance of the provisions made for trade guarantees. To meet the claims of its consumers during warranty period, the assessee makes provision in its accounts for such contingencies. For the year under consideration, and for the subsequent year following was the position in the accounts :

.	Asst. yr. 1985-86	Asst. yr. 1986-87
.	(Rs. in lacs)
Opening provision	.	209.15	.	237.00
Add : Provision during the year :	207.00	.	203.93	.
Less : Excess provision written back	44.83	162.17	55.73	148.20
.	.	371.32	.	385.20
Less : Expenses during the year :	.	.	.	.
(a) against opening balance	88.73	.	107.15	.
(b) during the year	45.59	134.32	49.00	156.15
.	.	237.00	.	229.05

Out of the net provision of Rs. 162.17 as shown above the AO allowed deduction of Rs. 45.59 lacs as current year's expenses and disallowed the balance of Rs. 116.58 lacs.

5. The CIT(A), however, observed that there was a wide gap between the provision made and actual expenses incurred. According to him the provisions was in excess by 26.21 per cent. As a result of this observation, the CIT(A) confirmed the action of the AO in not allowing the deduction of actual expenditure relatable to the old provision. However, out of the gross provision made during the year, be restricted the disallowance to Rs. 54.26 in the following manner :

.	Rs. in Lacs
Total provision made during the year	207.00
Less : Expenses incurred in asst. yr. 1986-87	107.15
.	99.85
Less : Expenditure already allowed by the AO	45.59
.	54.26

Thus, in nutshell, the above facts can be summarised a follows :

Deduction claimed by the assessee	Disallowance made by the AO	Disallowance retained by the CIT(A)
Rs. 162.17 lacs	Rs. 116.58 lacs	Rs. 54.26 lacs
(207-44.83)	(162.17-45.59)	(207.00-107.15-45.59)

6. The submission of the learned counsel was that this was the consistent approach adopted by the assessee from year to year, which had been accepted by the Department prior to asst. yr. 1984-85 and had again accepted after asst. yr. 1986-87. Besides relying on several decisions reported in IRC vs. Mitsubishi Motors New Zealand Ltd. (1996) 222 ITR 697(PC), ITO vs. Wanson (India) Ltd. (1983) 5 ITD 102(Pn), 47 ITD 1and Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1(SC), the learned counsel drew our attention to the Bombay Bench decision of the Tribunal in the assessee's own case for asst. yr. 1984-85.

7. The learned Departmental Representative opposed the claim of the assessee mainly on the ground that the liability of the assessee under the warranty arose only when there was a claim by the customer and not otherwise. The learned Departmental Representative reiterated the observations of the CIT(A) regarding the gap between the provision and actual expenditure, which, it was submitted, remained wide even after write back of excess provision. The decision of the Tribunal in the case of Wanson (India) (supra) was sought to be distinguished and it was urged that deduction should be allowed only when actual expenses were incurred.

8. We have considered the rival submissions and the material on record, of the several decisions relied upon by the learned counsel, his main stress was on the Wanson's case (supra) and obviously on the decision in the assessee's own case. However, it is worthwhile mentioning that Wanson's case was decided on the presumption that there would be only marginal differences between estimates and actuals. On the other hand, in the instant case, the main ground on which the CIT(A) sustained part of the disallowance was the wide gap he noticed between the provision and the actuals, which, it appears was not the plea before the Tribunal in the appeal relating to asst. yrs. 1984-85. Thus, the basis premise on which Wanson's case (supra) stands is diametrically opposite to the actual fact in this case. Nonetheless there are stronger reasons to uphold the claim of the assessee.

9. Firstly, the CIT(A) agrees in principle that provision can be allowed as a deduction provided, there is a marginal difference between the estimates and actuals as held in Wanson's case (supra). The CIT(A) also admits that the assessee has been scientifically working out the anticipated liabilities to be provided under mercantile system of accounting based on past experience and no adhocism is involved. When such is the situation, we fail to understand as to why deduction should not be allowed. In this background the so-called wide gap no longer remains wide which would merit disallowance even partly. Moreover, it is not disputed that the accounting method ensures that such excesses are made good in subsequent years and that too with scrupulous consistency.

10. Secondly, it does not appeal to us that in order to disallow the so-called excess provision, one has always to resort to the actual expenditure incurred in the succeeding year. In our opinion, by doing so the scientific estimation is converted into adhocism.

11. Thirdly, it has to be appreciated that the assessee deals in numerous consumer products on a national scale, in which case the principle of marginal difference cannot be applied as a thumb rule. In such cases it is always prudent to provide more cushion to absorb possible claims.

12. Thus, we follow the view taken by the Tribunal in the assessee's own case in asst. yr. 1984-85 and delete the disallowance of Rs. 54.26 lacs sustained by the CIT(A).

13. The next ground relates to the disallowance of Rs. 27,57,729 paid to employees as performance reward. It was observed by the AO that besides bonus provision of Rs. 127.43 lacs, the assessee also paid Rs. 27,57,729 as performance reward pursuant to a settlement with the union. Out of this sum, Rs. 13,80,495 had been paid to the employees and Rs. 13,77,234 had been paid to the employee's federation for welfare measures to be promoted by the federation. In the tax audit report, payment of Rs. 13,77,234 had been classified as expenditure liable for disallowance under s. 40A(8) (sic). The assessee had put up its claim for the allowance of the impugned expenditure under second proviso to s. 36(1)(ii) or alternative under s. 37(1). Since the impugned payment was in respect of accounting year 1982-83, during which year also 20 per cent bonus was paid, the AO considered this as excess payment over the limits prescribed by Payment of Bonus Act and negatived the claim under s. 36(1)(ii). As for the alternate plea of the assessee, the AO disallowed deduction of Rs. 13,80,495 under the first proviso to s. 36(1)(ii) and the balance amount of Rs. 13,77,234 paid to the employees' federation was disallowed under s. 40A(9) of the Act. The CIT(A) confirmed both the disallowances.

14. It was submitted by the learned counsel that the impugned payments were made on the basis of agreements, with employee federation. As per the agreement the performance reward was paid to the employees at the rate of Rs. 250 (total Rs. 13,80,495) and Rs. 13,77,234 was paid to the employees' federation directly at the rate of Rs. 200 per employee to be used for the welfare of the employees. In support of his plea the learned counsel relied on several decisions. However, his specific reference was to the decision in Sassoon J. David & Co. (P) Ltd. vs. CIT (1979) 10 CTR (SC) 383: (1979) 118 ITR 261(SC) and to the combined order of the Mumbai Bench of the Tribunal in the case of TELCO in ITA Nos. 6087/Bom/86 and 477/Bom/88 dt. 30th May, 1988. As regards the disallowance made under s. 40A(9), reliance was placed on the decision of the Hyderabad Bench of the Tribunal in Raasi Cement Ltd. vs. ITO (1993) 47 TTJ (Hyd) 254: (1993) 45 ITD 233(Hyd).

15. The learned Departmental Representative relied on the orders of the lower authorities and reiterated their stand regarding the provisions of s. 36(1)(ii). The disallowance made under s. 40A(9) was also stated to be justified on the ground that the said payment was not subjected to deduction of tax at source.

16. We have considered the rival contentions and the material on record. The agreements entered into between the management and employees' federation indicate that the impugned payment is a performance reward payable to the workers over and above the bonus payable at 20 per cent calculated on the basis of the Payment of Bonus Act. The agreements also clarify that the performance reward is being paid in expectation of the employees' continued constructive co-operation for improved performance. It is thus clear that the impugned payment is outside the purview of the Bonus Act. In such an event, the only point to be considered would be whether the expenditure was incurred wholly and exclusively for the purpose of business. As mentioned earlier, the payment is for performance achieved and also for anticipated performance. We do not see any thing to indicate that the payment is not exclusively for the purposes of business. Though the payment is not directly linked with any production or sales target, it is for the very much sought-after co-operation ensuring industrial peace which culminates into better performance. Hence, in our view, it is not proper on the part of the CIT(A) to say that "payment of Rs. 250 to all employees irrespective of their production targets or their performance would certainly take it outside the purview of its being production incentive''".

17. Under such circumstances, the interpretation of s. 36(1)(ii) and the two provisions as sought to be canvassed by the authorities below is not justified. The decision of the Kerala High Court in CIT vs. P. Alikunju M.A. Nazir Cashew Industries (1987) 62 CTR (Kar) 206: (1987) 166 ITR 611(Ker) is a pointer in this direction, we reproduce below the observations of the Court appearing at p. 615 :

"We do not agree with the argument urged on behalf of the Revenue that the deduction is not permissible in respect of an employee covered by the Bonus Act if what is paid as bonus, or as commission, is in excess of otherwise than what is payable under that Act, even if the payment of the excess amount, whether as bonus or commission, is justifiable when considered with reference to cls. (a) to (c) of the second proviso. In our view, the two provisos must be read together to correctly understand the permissible deduction in terms of cl. (ii) of sub-s. (1) of s. 36. The object of that clause is to encourage the management to pay bonus not only to the extent to which it is statutorily bound to pay to the employee, but also in excess of that limit, provided the payment is justifiable as a reasonable payment. To say that the second proviso to cl. (ii) of s. 36(1) of the Act has no application in respect of employees covered under the Bonus Act, and that bonus or commission paid to them in excess of, or otherwise than what is statutorily required (although reasonable when considered with reference to cls. (a) to (c) of the second proviso) is not deductible under s. 36, is to put an artificial construction upon a beneficial provision."

Considering the above decision, it is also not proper for the CIT(A) to say that "It is merely an addition to the bonus paid along with the bonus in an ad hoc pro rata fashion because the workers insisted and the management agreed for higher payment due to higher profitability." Thus we do not have any hesitation to hold that the impugned payment was not a bonus under the Payment of Bonus Act.

18. The CIT(A) has also sought to refute the claim of the assessee on the ground that it has not fulfilled the three conditions mentioned in s. 36(1)(ii). In this connection, the decision of the Supreme Court in Shahzada Nand & Sons. vs. CIT 1977 CTR (SC) 246: (1977) 108 ITR 358(SC) is relevant and we reproduce the observations of the Hon'ble Court made at p. 365 :

"Turning to the provisions of s. 36, sub-s. (1), cl. (ii), we find that the proviso to that clause lays down three factors for the purpose of determining the reasonableness of the commission paid to an employee. The question whether the amount of commission is a reasonable amount or not has to be determined with reference to these three factors. Sometimes these three factors are loosely described as conditions but they are not really conditions on the fulfilment of which alone the amount of commission paid to an employee can be regarded as reasonable. They are merely factors to be taken into account by the Revenue authorities in determining the reasonableness of the amount of commission. It may be that one of these factors yields a negative response. To take an example, there may be no general practice in similar business or profession to give commission to an employee, but, yet having regard to the other circumstances, the amount of commission paid to the employee may be regarded as reasonable. What the proviso requires is merely that the reasonableness of the amount of commission shall be determined with reference to the three factors. But it is well-settled that these factors are to be considered from the point of view of a normal, prudent businessman."

(Underlined, italicised in print, supplied)

19. In conclusion, therefore, we hold that the impugned payment is not a bonus but an incentive for anticipated co-operation and performance. Even if it is regarded as bonus, it would not be hit by the first proviso to s. 36(1)(ii) but will be governed by the second proviso to the said section and there is nothing to show that the payment is in violation of the conditions laid down in cls. (a) to (c) of the second proviso to s. 36(1)(ii) of the Act.

20. Also, in our considered opinion, it would not make any difference if part payment is made to the federation with a stipulation that the amount shall be utilised for the welfare of the employees. As long as the contribution is genuine in absence of any claim on the part of the Department that the federation will not utilise the amount for the benefit of the employees, the deduction is allowable. For this view we derive support from the decision in 45 ITD 233.

21. Thus, to sum up, we hold that the CIT(A) was not at all justified in upholding the disallowance of Rs. 27,57,729 paid to the employees as performance reward. We direct the allowance thereof. It may not be out of place to mention that in arriving at this conclusion, we have been amply guided by the decision of the Tribunal in Telco's case cited supra.

22. The next issue relates to the disallowance of Rs. 4,97,953 as capital expenditure incurred in connection with the issue of convertible debentures. During the year the assessee issued partly convertible debentures of Rs. 400 each, 1/4th of which was convertible into shares on expiry of two years. The total expenses incurred on this issue amounted to Rs. 19,91,812. Since 1/4th value of the debentures was to be converted into shares, the AO treated 1/4th of the total expenditure as capital in nature and disallowed a sum of Rs. 4,97,953. The CIT(A) confirmed the disallowance.

23. After hearing the parties we are of the view that the disallowance is not justified. By incurring the expenditure, presently the assessee has raised a loan and not capital. In the case of Brooke Bond India Ltd. vs. CIT in (1997) 140 CTR (SC) 598: (1997) 225 ITR 798(SC), the Supreme Court held the expenses to be capital in nature as the same were incurred in connection with additional issue of shares. Though the part conversion of the debentures into shares is a certainty, the event is to take place after two years. By disallowing proportionate expenses in the present year for an increase in capital which is to take place after two years, would amount to disallowance of part expenses incurred on the raising of the loan in the current year. This is not fair. Accordingly, we delete the disallowance.

24. The next ground relating to the disallowance of Rs. 1,80,52,997 as bad debt/business loss is not pressed and hence the same is rejected as such.

25. The seventh ground relates to considering Rs. 1,74,027 being rent, rates and taxes in respect of guest houses and Rs. 92,779 being depreciation of fixed assets used in such guest houses as part of disallowable expenditure under s. 37(4). In the tax audit report, the expenses on guest house has been quantified as follows :

..	Rs.
Maintenance expenses	3,15,306
Rent, rates & taxes	1,74,027
Repairs &Insurance	2,75,995
Depreciation	92,779
..	8,58,107
Less : Recoveries	2,63,053
.	5,95,054

Out of the above, the assessee had treated as sum of Rs. 1,20,490 as disallowance under s. 37(4) and 37(5). Since the assessee had treated the amount of rent, rates and taxes and repairs and insurance as being out of the purview of s. 37(4) and 37(5), the AO included it for disallowance and accordingly the entire sum of Rs. 5,95,054 ws disallowed. The CIT(A) confirmed the same.

26. In this regard the learned counsel has relied on the order of the Tribunal in its own case for asst. yr. 1984-85 and also on several other decisions of various High Courts. The learned Departmental Representative has relied on two decisions of the Bombay High Court in CIT vs. Ocean Carriers (P) Ltd. (1995) 123 CTR (Bom) 200: (1995) 211 ITR 357(Bom) and Raja Bahadur Motilal Poona Mills Ltd. vs. CIT (1996) 130 CTR (Bom) 348: (1995) 212 ITR 175(Bom). After due consideration, we are of the view that the decisions relied upon by the learned Departmental Representative are not relevant for the issue before us. In those cases the issue was whether a particular accommodation was a guest house or not for the purpose of s. 37(4). In the present case we are concerned as to whether particular expenses, admittedly incurred on guest house, are allowable or not. The issue is squarely covered in assessee's favour by the Tribunal's order dt. 12th Feb., 1997 in ITA Nos. 5582 & 5908/Bom/89 for asst. yr. 1984-85. We follow the same and uphold the claim of the assessee.

27. The next ground pertains to the addition of Rs. 6.00 lacs made under s. 40A(5) of the Act. In its return of income, the assessee had made a disallowance of Rs. 5,50,000 on estimated basis under the said provision. In the tax audit report, the disallowance was worked out at Rs. 5,81,306. Before the AO, it was confirmed by the assessee that expenses on soft furnishing repairs and maintenance of premises owned/hired by the assessee-company, depreciation on company owned flats and depreciation on other assets provided to the employees have not been considered. The AO estimated such expenses and coupled with the expenses of Rs. 1,79,686 incurred on subscription to clubs to be of Rs. 8.00 lacs and disallowed the same. The CIT(A) considered the disallowance to be excessive and restricted it to Rs. 6.00 lacs.

28. It is fairly conceded by the learned counsel that the issue has been decided against the assessee by the Tribunal in asst. yr. 1984-85 following the decision of the jurisdictional High Court in Lubrizol India Ltd. vs. CIT (1991) 93 CTR (Bom) 237: (1991) 187 ITR 25(Bom). Accordingly, we decide this issue against the assessee.

29. The next ground relates to subjecting the expenses on repairs, insurance and taxes on motor cars for disallowance under s. 37(3A) and 37(3B)(ii). The learned counsel has relied on the order of the Tribunal for asst. yr. 1984-85, whereas the learned Departmental Representative has relied on the orders of the authorities below.

30. This issue also has been considered by the Tribunal in the assessee's case for asst. yr. 1984-85 in the order cited supra. We follow the earlier order of the Tribunal and for the reasons mentioned therein as well as for the reasons mentioned in ground No. 7 above, we decide the matter in favour of the assessee.

31. The tenth ground pertains to the disallowance made under s. 37(3B)(ii) in respect of salaries paid to appellant's car drivers amounting to Rs. 8,72,784. In this regard we follow the decision of the Tribunal in the case of Dy. CIT vs. Addison & Co. Ltd. in (1995) 53 ITD 514(Mad) and hold that the disallowance is uncalled for.

32. The next ground pertains to the disallowance of Rs. 1 lac made under r. 6D of the IT Rules, 1962 (the Rules). It was observed that with regard to the expenses incurred on travelling on other than to and fro fare, the disallowance was worked out on the basis of total trips undertaken by an employee during the year and not on the basis of per trip. The AO, therefore, in keeping with the stand of the Department, in absence of requisite details, estimated the disallowance of Rs. 1 lac for per trip basis over and above the disallowance of Rs. 4,07,813 as per tax audit report. The CIT(A) confirmed the disallowance.

33. It is fairly conceded by the learned counsel that the decision in CIT vs. Coromandal Fertilizer Ltd. (1996) 135 CTR (AP) 354: (1996) 220 ITR 298(AP) and that of the Bombay High Court in Acro India Ltd. (hitherto unreported) are against the assessee. Respectfully following the said decisions we dismiss the claim of the assessee and uphold the order of the CIT(A) on this issue.

34. The twelfth ground relates to the disallowance of Rs. 5,70,000 paid as technical know-how fees, holding the same to be capital expenditure. In terms of agreement dt. 10th March, 1981 with Research Cottrell Inc. USA, the assessee had received from the latter technical know-how, drawings, designs, etc. for manufacture of scrubbers with mint eliminator. The AO observed that as the agreement did not contain any restrictive clause on the manufacture of products after the expiry of the agreement, it gave an enduring advantage to the assessee and hence the sum of Rs. 5,70 lacs payable for the transfer of know how was capital expenditure. The deduction thereof was accordingly disallowed. The CIT(A) confirmed the addition. The learned counsel has relied on the order of the Tribunal dt. 24th Nov., 1976 in ITA Nos. 2917 & 2722/Bom/1974-75 in the assessee's own case, whereas the learned Departmental Representative has relied on the orders of the lower authorities.

35. We have duly considered the material on record and the order of the Tribunal cited supra. It is a fact that the assessee is engaged, inter alia, in the business of manufacturing pollution control equipments. In order to upgrade its technology in these products, it has been its continuous endeavour to get the requisite know-how. This was one such endeavour for which it entered into an agreement with Research Cottrell, USA. A similar agreement was entered into by the assessee with the same American company during asst. yr. 1971-72. As is evident from the order of the Tribunal cited supra, we do not find any material difference in the relevant clauses of the two agreements.

36. The earlier agreement was to obtain technical advice, information and know-how necessary for fabricating, manufacturing and installing the equipment for cleaning industrial gas and air of dust, fumes and mist, etc. The present agreement is for the manufacture and sale of particulate scrubbers with mist eliminator. This may entail the manufacture of a new product not hitherto manufactured by the assessee. But in essence, the technological upgradation is in the same line of activity.

37. This, of course, as held by the Tribunal in the order cited supra, would not be a decisive factor to determine whether the impugned expenditure is of revenue or capital nature. The decisive factor, as observed by the Tribunal, would be whether there was a complete transfer of the know-how by the American company in favour of the assessee or whether it was for a limited period only. The present agreement, in our view, do not contemplate outright sale of the American company's know-how, technical data and information. It is stipulated in cl. 18.1 that the agreement shall remain in force for an initial period of 5 years from the date the licences (i.e. the assessee) commences commercial production of the licenced products or for a period of 8 years from the date of the agreement, whichever is earlier. As per the same clause the agreement is renewable for a further period of 5 years.

38. On almost similar grounds the Tribunal, in the earlier appeals, held the payment to be of revenue in nature. Following the earlier order, we do not see any reason to deviate. Accordingly, we allow the ground of the assessee and direct that the assessee be allowed deduction of Rs. 5,70,000.

39. The next ground relating to the allowance of expenditure incurred during construction period, amounting to Rs. 28.38 lacs, was not pressed at the time of the hearing and hence the same is rejected as such.

40. The next grievance is against the disallowance of a sum of Rs. 3.96 paid to Tata Research Development & Design Centre (TRDDC), Pune. One of the business in which the assessee is engaged is the business of marketing and distribution of pharmaceutical products. In the search of new products, the assessee funded two research products in the field of genetic engineering for which TRDDC was assigned the task and the impugned amount was reimbursed to it. The assessee claimed deduction thereof under s. 35(1)(i) of the Act. Since the assessee was, in this line of activity, marketing the products manufactured by others, and was not manufacturing its own products, the AO was of the view that the impugned sum cannot be said to have been laid out on scientific research related to the assessee's business. The deduction was accordingly disallowed. The CIT(A) concurred with the view of the AO and confirmed the disallowance.

41. The submission of the learned counsel was to the effect that it was enough if the expenditure was for assessee's business. It was not necessary that the assessee should be in manufacturing activity in order to be eligible to claim the deduction. Reliance was placed on the decision of the Bombay High Court in CIT vs. National Rayons Corpn. Ltd. (1982) 26 CTR (Bom) 234: (1983) 140 ITR 143(Bom). The learned Departmental Representative supported the orders of the lower authorities.

42. We do not see any logic in the stand taken by the Department. It is held by the Supreme Court in (1968) 69 ITR 692(SC) that "scientific research" means any activity for the extension of knowledge in the fields of natural or applied science. Sec. 43(4)(iii) further clarifies that scientific research related to business includes any scientific research which may lead to or facilitate an extension of that business. Thus, in the instant case, the assessee incurred the impugned expenditure to extend its pharmaceutical division. We do not see any reason why the same should not be allowed. We delete the disallowance sustained by the CIT(A).

43. The fifteenth ground relates to additional depreciation under s. 32(1)(iia) on certain equipments. The AO disallowed additional depreciation amounting to Rs. 1,66,813 on certain equipments installed in the offices and equipments in the nature of office equipments, and also on data processing machines. The CIT(A) confirmed the disallowance except for the additional depreciation on computer rooms and electrical work of computers. The learned counsel has relied on the earlier order of the Tribunal and the learned Departmental Representative has relied on the order of the lower authorities.

44. We have perused the order of the Tribunal in the assessee's case for asst. yr. 1984-85. In that year the Tribunal has rejected the claim of the assessee for additional depreciation, inter alia, on copiers, drafting machines and air-conditioning machineries which figure in this year's depreciation statement forming part of the assessment order. Following the earlier order, we, therefore, reject the claim of additional depreciation on the assets mentioned above. So far as additional depreciation on data processing machines is concerned, we allow the claim of the assessee following the decisions of the Tribunal in ITO vs. Ganges Printing Co. Ltd. (1986) 24 TTJ (Cal) 404: (1986) 15 ITD 212(Cal) and ITO vs. V.M. Salgookar & Bros. (P) Ltd. (1986) 18 ITD 440(Bang).

45. Ground No. 16(a) relates to the levy of interest under s. 139(8) of the Act. The return of income was due on 30th June, 1985 but extension was sought upto 31st July, 1985 and the return was filed on the same day. The AO levied interest under s. 139(8). The CIT(A) confirmed the same. The learned counsel has relied on the earlier order of the Tribunal whereas the learned Departmental Representative has relied on the decision in CIT vs. Laxmi Rattan Cotton Mills Co. Ltd. (1974) 97 ITR 285(All).

46. On similar facts, the same issue was decided by the Tribunal in the assessee's case in ITA No. 9220/Bom/96 dt. 10th Sept., 1997. Following the decisions in CIT s. Kadri Mills (Coimbatore) Ltd. 1977 CTR (Mad) 51: (1977) 106 ITR 846(Mad), CIT vs. Brij Lal Lohia & Mahabir Prosad Khemka (1980) 18 CTR (Cal) 163: (1980) 124 ITR 485(Cal) and B.V. Aswathaiah & Bros. vs. ITO (1986) 52 CTR (Kar) 49: (1985) 155 ITR 422(Kar), the interest so levied was deleted. We follow the earlier order and cancel the interest for this year also.

47. Ground No. 16(b) relates to the levy of interest under s. 217(1A). In the course of assessment proceedings the AO levied interest under s. 217(1A) of the Act. The CIT(A) treated the same as consequential in nature and did not give any further directions. The learned counsel submitted that nil estimate was filed by the assessee and further relied on the decisions in Patel Aluminium (P) Ltd. vs. Miss K.M. Tawadia, ITO (1986) 51 CTR (Bom) 322: (1987) 165 ITR 99(Bom) and Director of Income-tax (Exemption) vs. Shree Sitaram Public Charitable Trust (1995) 124 CTR (Cal) 89: (1994) 207 ITR 1087(Cal). The learned Departmental Representative supported the order of the lower authorities.

48. We have perused the authorities cited by the learned counsel. The decision in (1987) 165 ITR 99(supra) pertains to levy of interest under s. 217(1)(a) of the Act, whereas in this case we are concerned with interest under s. 217(1A) of the Act. Hence, the said decision is not applicable here. Further, no facts have been placed before us as to whether the assessee was one who was required to send an estimate under s. 209A(4) or under s. 212(3A) and if so whether such estimate was filed or not. In absence of such details we are unable to appreciate whether the decision in (1987) 207 ITR 1087(Cal) (supra) is applicable to the assessee's case or not. We, therefore, reject this ground of the assessee, but at the same time direct the AO to grant consequential relief to the assessee, if so entitled, in accordance with law.

II. ITA No. 7687/Bom/90 (Department's Appeal)

49. The first ground relates to the CIT(A)'s direction to delete the addition made on account of provision for trade guarantees. This issue has already been dealt with by us in the assessee's appeal above. In it we have deleted the addition sustained by the CIT(A) and hence in this appeal the ground taken by the Department stands rejected.

50. The second ground is against not including the following expenses for disallowance under s. 37(3A) on account of advertisement, publicity and sales promotion :

.	Rs.
Printing & mailing	8,94,702
Commission	90,97,347
Conveyance	45,00,000

In our opinion, none of the above expenses relate to advertisement. The first item relates to printing and mailing of catalogues which, by it very nature, is in the form of information demanded by the customers. Commission is paid in respect of services rendered and Rs. 45 lacs pertain to the hiring of taxis, which the Tribunal, for the sake of consistency, allowed the claim of the assessee in asst. yr. 1984-85. On the same ground, the deletion of the said addition by the CIT(A) is upheld for this year also. Thus, the entire second ground stands rejected.

51. The third ground pertains to the allowability of additional depreciation on computer room at Madras and Mumbai and on electrical work of computer at Mumbai. In our opinion additional depreciation is allowed only on plant and machinery and as the above-mentioned items do not constitute plant & machinery, we disallow the claim of the assessee. On this issue, therefore, we restore the disallowance made by the AO and upheld that ground of the Revenue.

52. The last ground is against the direction to recompute the claim of Rs. 1,43,500 on account of technical know-how expenditure. This ground appears to be misconceived in so far as that we find no such direction given by the CIT(A) in his order. The ground is thus rejected as not arising out of the order appealed against.

53. In the result, the appeal of the assessee as well as of the Department are partly allowed.

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