ORDER–Assessment made without considering applicability of s. 43B.
Ratio & Held:
Assessment order made by assessing officer without considering applicability of section 43B in relation to outstanding amount of royalty is not erroneous and prejudicial to interests of revenue.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
Revision under s. 263–ERRONEOUS AND PREJUDICIAL ORDER–Assessment order without considering applicability of s. 43B.
Ratio & Held:
Assessment order made by assessing officer without considering applicability of section 43B in relation to outstanding amount of royalty is not erroneous and prejudicial to interests of revenue.
Application : Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
B.M. Kothari, Accountant Member
1. The assessee’s appeals relate to assessment years 1985-86 and 1986-87. The revenue’s appeal relates to assessment year 1986-87 only.
2. We will first deal with assessee’s appeal for assessment year 1985-86. This appeal is directed against the order under Section 263 passed by the Commissioner of Income-tax, Baroda on 8-3-1990.
3. The assessee is a wholly-owned corporation of the Government of Gujarat and is engaged in the business of purchase and sale of minor forest products such as Timru leaves, Mahuda flowers, etc. in the specified forest divisions. The assessee acquired certain rights from the Government of Gujarat for exploitation of minor forest produce from the forests leased to it for which it has to pay royalty to the Government in accordance with the relevant provisions of law relating to payment of such royalty.
4. The Commissioner of Income-tax observed that the balance-sheet of the assessee-company as at the close of the relevant previous year for assessment year 1985-86 disclosed an outstanding liability of royalty amounting to Rs. 25,76,250. After giving a show-cause notice to the assessee and after considering the reply submitted on behalf of the assessee, the learned CIT came to the conclusion that royalty payable by the assessee is in the nature of duty and is hit by Section 43B. The assessment order made by the ITO without considering the applicability of Section 43B in relation to such outstanding amount of royalty is erroneous and prejudicial to the interest of revenue. The assessment order was, therefore, set aside with a direction that the same should be made de novo after giving opportunity to the assessee.
5. The assessee has submitted the present appeal against the said order in which as many as 10 grounds have been raised. The pith and substance of all these grounds is that the revisional proceedings initiated under Section 263 is patently wrong and the provisions of Section 43B are not at all applicable in relation to outstanding liability of royalty payable to the Government of Gujarat. Such amount of royalty was payable for grant of exclusive right to exploit the forests. The royalty payment is charged at specific rates on the quantity of minor forest produce exploited by the assessee and the State Government sends bill in respect thereof according to the quantity of forest produce collected by the assessee. Such amount of royalty payable, therefore, is in the nature of purchase price and cannot be termed as tax or duty contemplated in Section 43B.
6. The learned counsel for the assessee submitted that State Government is charging sales tax on the amount of royalty in each bill which amply proves that the amount of such royalty payable to the State Government by the assessee is regarded as a sale price in the hands of the State Government and is liable to tax. It would necessarily follow that in the hands of the assessee, the amount of royalty would be in the nature of payment of purchase price which will be clearly outside the purview of Section 43B. He submitted that the expression “tax” in Section 43B has a different meaning as compared to the expression “tax” used in the judgment of the Hon’ble Supreme Court in the case of India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690 where the question involved for consideration was the legislative powers of the State under the Constitution of India with reference to the respective entries contained in Schedule-VII. He also submitted that the payment which is made by the assessee for any facility or service granted by the State cannot be regarded as tax but it would be in the nature of fee which was outside the scope of Section 43B in the years under consideration. It was submitted that this matter is squarely covered in favour of the assessee by the decision of the ITAT in the case of IAC v. Dalmia Cement (B) Ltd. [1991] 37 ITD 335 (Delhi). We also derived support from the decision of ITAT, Jabalpur Bench in the case of Ismail and Sons v. ITO [1992] 40 ITD 178 and a decision of ITAT, Ahmedabad reported in 16, Ahmedabad C.A.’s Journal at page 308. He further drew our attention to a judgment of Hon’ble Gujarat High Court in the case of Tata Chemicals Ltd. v. State of Gujarat [1988] 1 GLR 589. It was held in the said case that royalty is payment by way of compensation to the lessor proportionate to the quantity of mineral removed or consumed from the demised area within a point of time. It cannot, therefore, be equated to tax. Our attention was also invited towards copy of the letter dated 5-3-1990 submitted to the CIT, Baroda in response to show-cause notice under Section 263. The learned counsel, on the strength of the aforesaid decisions submitted that the order passed by the CIT should be set aside and the original assessment order should be restored.
7. The learned Sr. D.R. relied on the elaborate reasons mentioned in the order under Section 263 and also placed heavy reliance on the judgment of Hon’ble Supreme Court in the case of India Cement Ltd. (supra) in which it was held that royalty is a tax but cess on royalty is not a tax on land. It was pointed out by the learned Sr. D.R. that in view of such a clear decision holding royalty to be tax the provisions of Section 43B would be clearly applicable in relation to such amount of outstanding royalty. The order of the learned CIT deserves to be confirmed.
8. We have carefully considered the rival submissions made by the learned representatives and have also very carefully gone through the various judgments relied upon by the learned representatives of the parties. The Hon’ble Supreme Court in the case of India Cement Ltd. (supra) was dealing with the question as to whether levy of cess on royalty is within the competence of State Legislature and the said judgment did not relate to the interpretation of the scope and meaning of the expression “tax” or “duty” used in Section 43B of Income-tax Act, 1961.
8.1. The Hon’ble Supreme Court in the case of Om Prakash Agarwal v. Girl Raj Kishori [1987] 164 ITR 376 had brought out a distinction between “tax” and “fees”. It was observed that the primary meaning of taxation is raising money for purposes of Government by means of contributions from individual persons, a compulsory extraction of money by public authority for public purposes enforceable at law and not a payment for services rendered while a ‘fee’ is that which is correlated to the expenses incurred by the Government in rendering a service. Thus, the Hon’ble Supreme Court held that tax is an imposition made for public purposes without reference to any special benefit to taxpayer. But the essential character of ‘fee’ is that it should be correlated to the expenses incurred by the Government in rendering service or for allowing a specific benefit to taxpayer in consideration of such payment of fee.
8.2 The ITAT, Delhi in the case of Dalmia Cement (B) Ltd. (supra) considered a similar question relating to applicability of the provisions of Section 43B in relation to amount of royalty payable for quarrying limestone in certain areas. In para 76 of the said decision, the Tribunal took into consideration various judgments and thereafter observed as under in paras 78 to 80:
78. We accept Shri Hari Har Lal’s submission that the expression ‘tax’ as used in the Constitution, is in a wider sense and the same expression could be used in a narrower sense also. For instance, Article 265 of the Constitution says ‘no tax shall be levied or collected except by an authority of law’. Here the expression ‘tax’ is used in a broad sense. However, Article 277 uses the same word in a narrow sense. That Article reads as follows :
277. Any taxes, duties, cesses or fees, which immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, Municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law.
79. So the question still remains, in what sense the expression ‘tax’, had been used in Section 43B. It will be seen from Article 277 that other species of taxes are duties, cess or fees. Now in Section 43B, as it was originally enacted, the expression ‘terms and duties’ alone were included, cess or fees were not part of the section. Nevertheless, the department had been attempting to include market cess as a prohibited item under Section 43B. The Supreme Court in the case of Om Parkash Agarwal v. Giri Rag Kishori [1987] 164 ITR 376 had brought out a distinction between ‘tax’ and ‘fees’. Whereas tax is an imposition for public purposes without reference to special benefit to taxpayer, the essential Character of fee is that it should be correlated to expenses incurred by the Government in rendering services. The distinction between the taxes and fees were made use of by the Andhra Pradesh High Court in the case of Srikakollu Subba Rao and Co. v. Union of India [1988] 173 ITR 708 to hold that a market cess is not in the nature of either tax or duty. Thus, we have authority to hold that even if a cess would be tax in the larger sense, it is not tax in the narrower sense and it would not come under Section 43B.
80. The Legislature had realised this and they had amended the ambit of Section 43B by the Finance Act, 1988, w.e.f. 1-4-1989. The section, as now amended, includes tax, duty, cess or fee. They have not made this amendment retrospective. Therefore, we cannot ignore the obvious distinction between the tax in the narrower sense and cess and fees and hold that the levy of cess would come under Section 43B. We will, therefore, agree with the assessee’s counsel Shri Hari Har Lal and hold that the levy, although a tax for the purpose of Constitution for this accounting year, is not a tax within the meaning of Section 43B. The order of the CIT (Appeals) is reasonable.
8.3 We concur with the aforesaid reasonings and conclusions derived by the Tribunal in the aforesaid case.
Respectfully following the same, we hold that the provisions of Section 43B, as far as the year under consideration is concerned, will not at all be applicable in relation to the amount of royalty payable by the assessee to the Government of Gujarat. The further reason for taking such a view is that the Government of Gujarat is charging such royalty with reference to the quantity of minor forest produce collected by the assessee from time to time and is further recovering sales tax at the rate of 4% on the amount of royalty. The State Government thus regards the amount of royalty chargeable at the prescribed rates as sale in their hands. It would, therefore, necessarily follow that such payment of royalty in the hands of the assessee would be in the nature of price paid for acquiring rights for obtaining and collecting minor forest produce from the specified area as per the allotment made by the State Government. On this ground also the amount of royalty cannot be treated as ‘tax’ or ‘duty’ within the meaning of Section 43B. We may clarify that the law in this regard was amended w.e.f. 1-4-1989 by the Finance Act, 1988 when the word “cess or fee” were further inserted in the relevant clause of Section 43B. The question as to whether such payment of royalty would be covered by the expression “cess or fee” is left open as we are not required to decide this point in relation to the present appeal which relates to assessment year 1985-86. Such amendment made w.e.f. 1-4-1989 will be applicable only from assessment year 1989-90 and cannot be made applicable in relation to prior years. We, therefore, cancel the order under Section 263 passed by the CIT. It will, however, be necessary to direct the Assessing Officer to verify whether deduction in respect of the said amount of royalty has been allowed in the subsequent year as and when the amount of royalty was paid on payment basis. If that has been allowed in the subsequent year the assessee will have to simultaneously agree for withdrawal of that deduction in the subsequent year. The Assessing Officer is directed to ensure that no double deduction in respect of the same amount is allowed in more than one year. With these observations, the order of the CIT under Section 263 for the assessment year 1985-86 is set aside and the original assessment order of the ITO is restored.
9. We will now consider assessee’s appeal for assessment year 1986-87. The assessee has raised three grounds in this appeal and raised an additional ground along with an application dated 16th April, 1993. We will first take up the additional ground of appeal which reads as under:
The additional royalty of Rs. 2,71,855 fixed by the Resolution of the Gujarat Government dated 2-1-1985 ought to be allowed in the assessment year 1986-87.
The learned counsel was fair enough to admit that such an additional ground, after being entertained, will have to be decided against the assessee on merits. The assessee has raised this additional ground merely to keep the matter alive as the department is contesting the allowability of the said amount of additional royalty, which has been allowed in assessment year 1985-86, in R.A. No. 946/Ahd./92.
10. After considering the submissions made by the learned representatives the said additional ground is entertained. But on merits, the same is decided against that assessee, in case the deduction allowed by the Tribunal in respect of such a claim made by the assessee in assessment year 1985-86 is ultimately reversed by the Hon’ble High Court on the ground of appropriate year of its allowability as being 1986-87 instead of 1985-86, the assessee would be entitled to agitate this point once again in assessment year 1986-87.
11. The first ground in the appeal relates to the finding given by the CIT(A) holding that for the purpose of allowing deficiency under Section 80J(3) of the Income-tax Act, only the profits and gains of the industrial undertaking are to be considered and not the profits and gains earned by the assessee from other activities. It was submitted in the said ground that the CIT(A) ought to have allowed the deficiency under Section 80J(3) against profits earned by the assessee from other units as well as profits earned by it in trading activity.
12. The ITO observed that the assessee has claimed deduction in respect of the carried forward amount of deficiency under Section 80J amounting to Rs. 7,94,628. The deficiency under Section 80J was in respect of the undertaking known as ‘Vanil Udyog’. The printed annual report of the company showed that Vanil Udyog made a loss of Rs. 1,00,000 during the relevant accounting year. The assessee relied upon the decision of ITAT in the case of Indo French Time Industries Ltd. v. ITO [IT Appeal No. 4829 (Bom.) of 1983, dated 25-7-1985] to support its contention for allowing the said deficiency under Section 80J. The ITO rejected the assessee’s claim by holding that before the assessee can claim set off in respect of such carried forward amount of deficiency under Section 80J, the assessee should have derived profits from the said new industrial undertaking. The benefit of carry forward and set off of the deficiency under Section 80J(3) is confined to profits derived from the industrial undertaking and cannot operate in respect of any profits derived by the assessee from any trade or business other than that industrial undertaking. He also relied on various decisions which have been referred to at page 2 of the assessment order.
13. The CIT(A) rejected the assessee’s contention and confirmed the view taken by the Assessing Officer. Before us, the learned counsel for the assessee relied upon the decision of ITAT, Bombay in the case of Indo French Time Industries Ltd. (supra), a copy of which was placed in the paper book at pages 11 to 19. He also relied upon the decision of ITAT, Ahmedabad reported in ITO v. Gujarat Bright Bar Industries (P.) Ltd. [1984] 19 TTJ (Ahd.) 406 and a decision reported in Ganpati Cotton Co. v. ITO. The learned counsel on the strength of these decisions submitted that the benefit of carry forward and set off in respect of the deficiency as per Section 80J(3) should be allowed.
14. The learned Sr. D.R. submitted that a plain reading of Section 80J(3) clearly reveals that deduction in respect of profits and gains from newly established industrial undertaking is allowable only if the gross total income of an assessee includes any profits and gains derived from such an industrial undertaking. Provisions of Section 80J(3) clearly provides that the deficiency of the earlier years to the extent it has not been absorbed, shall be carried forward and set off against the profits and gains referred to in Sub-section (1) of Section 80J. This clearly means that the deficiency can be carried forward and set off only against the profits and gains of the newly established industrial undertaking and is not eligible for being set off against other profits of the assessee. He supported the order of the CIT(A) and relied upon the elaborate reasons mentioned in the assessment order as well as in the order of the CIT(A).
15. We have very carefully considered the rival submissions and have also gone through all the decisions cited by both of them. The Tribunal in the case of Indo French Time Industries Ltd. (supra), after taking into consideration the various decisions, came to the conclusion that the only difference between old Section 15(c) of the Income-tax Act, 1922 and Section 80J(3), is that in Section 80J(3), the Legislature has allowed the carry forward of the deficiency allowable under Section 80J. But so far as the profits from the old unit to adjust against the benefits of new unit is concerned, there is no difference. The Hon’ble Supreme Court in the case of Rqjapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 held that it is well settled that the words “no profits or gains chargeable for that year” are not confined to profits and gains derived from the business whose income is computed under Section 10 but refer to the totality of the profits and gains computed under the various heads and chargeable to tax. The Bombay Tribunal, after taking into consideration the said judgment, gave a finding that there is no basic difference between the provisions of Section 15(c) of the old Act and Section 84 (now Section 80J) of the new Act. The Tribunal accordingly allowed the claim of the assessee and held that the assessee is entitled to Section 80J deduction from the total income earned in the previous year relevant to the assessment year. On the other hand, the Assessing Officer relied on the decisions reported in Ashok Motors Ltd. v. CIT [1961] 41 ITR 397 (Mad.), CIT v. Standard Motor Products of India Ltd. [1962] 46 ITR 814 (Mad.) and Chembra Peak Estates Ltd. v. CIT[1972] 85 ITR 401 (Ker.) He came to the conclusion that it is only the profits of the “new industrial undertaking” that would be eligible for deduction under Section 80J. Since the new industrial undertaking known as Vanil Udyog has made a loss, the assessee’s claim for deduction under Section 80J cannot be accepted. In our view, the Sr. D.R. has rightly pointed out that a plain reading of the relevant provisions of Section 80J(1), read with Sub-section (3) clearly reveals that before an assessee is held to be eligible for deduction under the said provisions, there should be profits which can be termed as derived from the said new industrial undertaking. The deduction is confined to profits derived from such industrial undertaking and cannot operate in respect of any profit derived by the assessee from income of the old unit or any trade or business other than that industrial undertaking. It would be worthwhile to add that Section 15(c) of the 1922 Act did not have any provision for carry forward and set off of the deficiency. Similarly, setion 84 also did not contain any provision for carry forward and set off of the deficiency. Section 80J(3) provides for the carry forward and set off of the deficiency in relation to any assessment year falling within the “tax holiday” period against the assessable profits of a subsequent assessment year. The assessable profits against which the deficiency can be set off are only those profits which is derived from the eligible new industrial undertaking. Where there is a loss in such eligible unit or the entire profits of the new industrial undertaking are wiped out as a result of set off of certain other deductions relating to prior years, there remains nothing against which one can set off the deficiency carried forward under Section 80J(3) relating to earlier years. Such a view is clearly fortified by the decision of Hon’ble Kerala High Court in the case of CIT v. Kerala Balers Ltd. [1988] 169 ITR 364. We are, therefore, of the considered opinion that the CIT(A) has rightly rejected this ground of appeal raised by the assessee. Ground No. 1 in assessee’s appeal for assessment year 1986-87 is accordingly rejected.
16. In ground No. 2, the assessee has contended that the CIT(A) has erred in disallowing the assessee’s claim for grant of extra-shift allowance on(1) Tubewell & Water Supply facility, (2) Electric sub-station and (3) Well. These facilities are an integral part and adjunct of its plant. The assessee, therefore, claimed that extra shift allowance thereon is squarely allowable. It was brought to our notice by the learned counsel that almost a similar point arose for consideration in assessee’s appeal for assessment year 1985-86 and the Tribunal has given certain directions and has restored back the issue in relation to grant of extra shift allowance on certain other items. He also placed reliance on the decisions reported in CIT v. Tribeni Tissues Ltd. [1994] 206 ITR 92 (Cal.) and CIT v. Electro Metallurgical Works (P.) Ltd. [1994] 207 ITR 494 (Bom.), to support the claim for grant of extra shift allowance on tanks and reservoirs.
17. The learned D.R. supported the orders of the departmental authorities and placed reliance on decision reported in 123 ITR 920 (sic) to support his contention that no extra shift allowance can be granted on assets like electric sub-station.
18. After considering the submissions made by the learned representatives and after going through the order of the Tribunal in assessee’s own case for assessment year 1985-86 in ITA No. 999/Ahd/89 dated 21-5-1993. We are of the considered opinion that this issue should be restored back to the Assessing Officer for deciding the same afresh in the light of directions given by the Tribunal in para 8 of the order of assessment year 1985-86. The assessee will also be at liberty to bring to the notice of the Assessing Officer further decisions on this point and the Assessing Officer will also be at liberty to take into consideration any other material or subsequent decision for a proper decision on the point relating to allowability of extra shift allowance. The matter will be decided afresh after providing reasonable opportunity to the assessee.
19. The last ground of assessee’s appeal relates to disallowance made in respect of sales-tax reimbursed to the Government of Gujarat in respect of the sales-tax payable by that Government on royalty paid by the assessee to the State Government for obtaining minor forest produce (MFP). The Assessing Officer observed that sales-tax on royalty of Rs. 1,93,016 remained unpaid at the end of the year. He, therefore, added the same in view of Section 43B. The CIT(A) has observed that since the assessee has not shown as to whether the liability in question has been paid in the subsequent year by the due date of filing of the returns under Section 139(1), the assessee would not be entitled to any deduction in view of the decisions in the cases of Rajesh Tea Co. and K.S. Lokhandwala. He, therefore, confirmed the action of the Assessing Officer in disallowing the same.
20. The learned counsel for the assessee submitted that the provisions of Section 43B is not at all applicable as the assessee is merely reimbursing the amount of sales-tax on royalty. The amount of sales-tax is required to be deposited by the Government of Gujarat and not by the assessee. Therefore, the provisions of Section 43B are not applicable.
21. The learned Sr. D.R. submitted that whether sales-tax is paid directly by the assessee or through the State Government it would make no difference because the amount has been paid as sales-tax payable to Government. If assessee has failed to prove that the amount in question has been paid within the prescribed time, the disallowance has rightly been confirmed by the CIT(A) in view of clear provisions of Section 43B.
22. We have carefully considered the rival submissions made by the learned representatives. The forest department of the Government of Gujarat is charging royalty from the assessee with reference to the quantity of MFP collected by them. The said department is also charging sales-tax at the rate of 4% on the amount of royalty as is illustrated by a copy of invoice dated 31-3-1985 placed in the compilation at page 14. The amount of royalty charged by the forest department of the State is considered to be the sale price in their hands in view of the provisions of the sales-tax laws. The Commissioner of Sales-tax vide his letter dated 17-5-1979 gave an opinion to the assessee that the amount of royalty collected by the forest department for collection of various produces constitutes the sale price of movable goods and as such forest department is required to pay tax on its sale. In the said letter, it has been further advised that the assessee-corporation could issue Form No. 19 to the forest department in relation to collection of certain forest produces. The relevant provisions of the sales-tax law as clarified by the Commissioner of Sales-tax, Ahmedabad and the invoice raised by the forest department clearly reveals that so far as the assessee is concerned, the amount of sales-tax charged by the forest department, from the assessee along with the amount of royalty is a part of the purchase price in the hands of the assessee. The sales-tax is payable on the amount of royalty by the forest department and not by the assessee. In our view, the said sales-tax payable on royalty by the assessee to the forest department cannot be regarded as payment of tax or duty by the assessee. The provisions of Section 43B would, therefore, not be applicable in relation to the reimbursement of the sales-tax on the amount of royalty. The Assessing Officer is directed to cancel the said addition. Moreover, in case, the assessee has already got the deduction of this amount in the year of payment, the same will have to be simultaneously withdrawn in the year of payment. A perusal of the statement of total income submitted for assessment year 1985-86 indicates that the assessee claimed deduction under Section 43B in respect of certain expenditure pertaining to previous year and offered for tax in assessment year 1985-86 but claimed that on payment basis in assessment year 1986-87 under Section 43B. The Assessing Officer is, therefore, directed to ascertain that no double deduction is allowed in respect of the same amount. With these observations, the Assessing Officer is directed to grant aforesaid relief.
23. Now we will consider revenue’s appeal for assessment year 1986-87. Ground No. 1 is as under:
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to allow depreciation on ‘Vanganga’ building for which only a banakhat was made.
It was the common contention of the representatives that this point is covered in favour of the assessee by the order of the Tribunal dated 7-9-1992 in ITA No. 924/Ahd/89 in revenue’s appeal for assessment year 1985-86. The Tribunal in that case has held that the CIT(A) was right in allowing depreciation on “Van Ganga building” for which only a banakhat was made. The Tribunal decided the said issue in favour of the assessee by relying on the decision in the case of Narendra Ceramics (P.) Ltd. v. ITO [1988] 24 ITD 135 (Ahd.). The SLP preferred by the department against the rejection of reference application under Section 256(2) was also rejected by the Hon’ble Supreme Court as reported in 195 ITR 128 (St.). Respectfully following the said earlier decision of the Tribunal, ground No. 1 taken by the revenue is rejected.
24. Ground No. 2 relates to deletion of the addition of unpaid sales-tax liability at the end of the year. The Assessing Officer made an addition of outstanding sales-tax liability of Rs. 4,87,350 in view of Section 43B. The CIT(A) observed that out of the said amount a sum of Rs. 4,71,123 has been paid within the statutory time in the accounting year. Following the ITATs decisions in the case of Rajesh Tea Co. [1991] 35 ITD 350 and ITO v. K.S. Lokhandwala [1989] 31 ITD 305 (Ahd.), he directed the AO to allow deduction of Rs. 4,71,123 out of the disallowance of Rs. 4,87,350. The aforesaid view taken by the CIT(A) is fully supported by the decisions of the Tribunal referred to in his order and is also supported by the decision of the Tribunal in the case of Chandulal Venichand v. ITO [1991] 38 ITD 138 (Ahd.) which has been confirmed by the Hon’ble Gujarat High Court as reported in CIT v. Chandulal Venichand [1994] 73 Taxman 349. The view taken by the CIT(A) is therefore, confirmed.
25. The next ground relates to directions given by the CIT(A) for allowing deduction of royalty payments not pertaining to this year. The Assessing Officer disallowed the total sum of Rs. 55,882 as expenses pertaining to earlier years. Such a disallowance was based on tax audit report. The said amount included expenses for royalty pertaining to the year 1983-84 amounting to Rs. 9,864.
26. The CIT(A) sustained an addition of Rs. 2,214 and granted relief of Rs. 53,608. The total amount of royalty provided during the financial year 1983-84 was Rs. 25,62,798.74. Actual payments made up to March 1985 was Rs. 25,72,662. There remained a balance of Rs. 9,863.83. The difference amount was adjusted at the close of the year in the month of September 1985. The short provision made in the preceding year was adjusted in the year under consideration, namely, assessment year 1986-87 when the actual payment of short provision was ascertained.
27. We have gone through the photocopy of the accounting entry submitted in the compilation. We have also considered the submissions made by the learned representatives. Considering the totality of the facts and circumstances, we are of the opinion that the amount in question has rightly been allowed by the learned CIT(A). The allowability of amount in question is not in dispute but only the year of its allowability could perhaps be disputed. Since the short provision was rightly debited in this year and the CIT(A) has rightly directed the Assessing Officer to allow deduction in respect of the same, there is no justification for any interference in this regard. The said ground is, therefore, rejected.
28. In the result, assessee’s appeal is treated as partly allowed and the department’s appeal for assessment year 1986-87 is dismissed.