ORDER
B.M. Kothari, A.M.
1. This appeal by the assessee is directed against order dt. 29th Oct., 1999 passed by the learned CIT(A) for asst. yr. 1989-90.
2. The first ground relates to disallowance of Rs. 1350, being the amount paid to photo vision. It was stated on behalf of the assessee that Rs. 1350 was spent on taking the photographs in respect of a new product for the purpose of printing in a magazine. The expenditure in question clearly appears to be an expenditure incurred for the purpose of assessee’s business. The AO is directed to allow the same.
3. The second ground relates to confirmation of disallowance of Rs. 2810 being the amount paid for purchase of wall clock. The learned counsel submitted that the wall clock was purchased from Naresh Kumar Mehta & Sons for office and plant but the AO has misunderstood as if those watches were presented to Naresh Kumar Mehta & Sons. Copy of bill of watches purchased by the assessee from Naresh Kumar Mehta & Sons have been submitted on pp. 3 and 4 of the paper book.
3.1 After considering the submissions made by the learned representatives of the parties and perusing the documents submitted in the compilation, I am of the view that the assessee is clearly entitled to grant of deduction in respect of Rs. 2810 spent for purchase of wall clock for use in office and plant etc. The AO is directed to allow the same.
4. The next ground relates to disallowance of Rs. 64,444 and Rs. 1,16,130 out of interest expenditure claimed by the assessee. The assessee claimed deduction in respect of interest payments of Rs. 64,444 made to members for the period from 1st July, 1985 to 30th June, 1986 and interest pertaining to period from 1st July, 1986 to 30th July, 1987 Rs. 1,16,130 in the year under consideration. This amount was included in the total amount of interest payments of Rs. 2,55,257. The AO inter alia disallowed aforesaid two amounts of interest payments pertaining to earlier years on the ground that the assessee-company is consistently following mercantile system of accounting and as such it ought to have provided and claimed these interest payments in the relevant previous years. The genuineness of the deposits on which such interest has been paid, has not been doubted. The learned CIT(A) confirmed the said disallowance.
5. The learned counsel drew my attention to copy of resolution dt. 30th Sept., 1986 passed by the appellant-company which is reproduced below:
Copy of resolution dt. 30th Sept, 1986
The following resolution is passed unanimously at the meeting of the board of directors held on 30th Sept., 1986 that “be resolved that the interest on deposit from directors & members will not be allowed till the period of losses and weak position of the company continues.”
5.1 The learned counsel submitted that in the past years to which the aforesaid amount of interest relates, the appellant-company was undergoing losses. The board of directors, therefore, resolved that the interest on deposits from directors and members will not be allowed till the period of loss. During the year under consideration, company started making profits and therefore, as per the understanding with the depositors, an entry for the interest due to the depositors from the date from which the payment was stopped, was passed and appropriate amount of tax on such interest credited in the accounts of various depositors, was duly deducted. The depositors in whose accounts such interest was credited during the year under consideration have shown such income in their respective income-tax returns. The learned counsel thus strongly urged that the deduction should be allowed in the year under consideration or in the alternative the AO should be directed to allow in the respective earlier years.
5.2 The learned senior Departmental Representative relied upon the reasons mentioned in the assessment order.
5.3 I have considered the submissions made by the learned representatives of the parties. The resolution passed by the directors of the appellant-company on 30th Sept., 1986 stating that the interest on deposits from directors and members will not be allowed till the period of loss, resulted in deferment of accrual of interest in the accounting year ended on 30th Sept., 1986 and 30th Sept., 1987. The assessment year under consideration i.e. asst. yr. 1989-90 was the transitional previous year covering the period from 1st July, 1987 to 31st March, 1989. The company provided for interest payable to directors and members on their respective deposits from the year under consideration, as the company started making profit from this year. The accounting entry made in respect of accrual of interest including the interest pertaining to two preceding years is in conformity with the aforesaid resolution passed by the board of directors. The interest payable to directors and members for the accounting year ended on 30th Sept., 1986 and 30th Sept., 1987 can therefore be treated as having accrued in the year under consideration in view of aforesaid resolution passed by the board of directors. Even otherwise the rate of tax in the case of companies was uniform in different years. The Hon’ble Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) has observed as under:
“We have often wondered why the IT authorities, in a matter such as this, where the deduction is obviously a permissible deduction under the IT Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the asst. yr. 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the asst. yr. 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of the character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.”
5.4 The allowability of interest expenditure in question is not in dispute but what has been disputed by the Revenue is only the year of its allowability. Even if interest would be allowed in the respective years and those years are years of loss, the interest expenditure allowed in those respective previous years will be eligible to be carried forward as business loss and will be entitled to be set off against current year’s profit, In view of the aforesaid facts and discussion and keeping in view the observations made by the Hon’ble Bombay High Court, I am of the considered opinion that the AO should be directed to delete the disallowance of interest of Rs. 64,444 and Rs. 1,16,130. The AO should allow deductions in respect of aforesaid two items of interest expenditure in the year under consideration.
6. The next ground relates to disallowance of Rs. 5,000 out of miscellaneous expenses. No arguments were addressed by the learned counsel for the assessee at the time of hearing. The learned CIT(A) has confirmed the disallowance out of miscellaneous expenses for want of complete details. Since the learned counsel did not address any argument in relation to this ground nor the details of miscellaneous expenses were furnished, I do not find any justification to interfere with the findings of the CIT(A) in relation to this ground.
7. The next ground relates to confirmation of disallowance of Rs. 6,000 out of travelling expenses. No arguments were addressed by the learned counsel at the time of hearing in relation to this ground nor the details of traveling expenses were shown to me at the time of hearing. The CIT(A) has confirmed this disallowance for want of complete details. In the absence of complete details, I do not find any justification to interfere with the findings of the CIT(A) in relation to this ground.
8. In the result, the appeal is partly allowed.