ORDER
M. A. BAKSHI, J.M. :
These cross-appeals for asst. yr. 1986-87, one by the assessed and one by the Revenue, are disposed of by this consolidated order. We shall first deal with the appeal of the assessed.
ITA No. 1352/Del/1990
2. assessed is a company manufacturing vacuum flasks. The first three grounds of appeal are relating to taxation of cash compensatory support of Rs. 10,16,118, Rs. 19,300 duty draw back and Rs. 2,22,213 sale of import entitlements on export. These grounds are dismissed as not pressed.
3. Fourth ground of appeal is relating to disallowance of Rs. 39,355 under s. 37(2A) on account of entertainment expenses. Connected with this ground is Ground No. 5 which relates to disallowance of Rs. 4,234 on account of presents given to foreign buyers. The learned counsel for the assessed submitted that for asst. yr. 1984-85 in ITA Nos. 4185 and 5255/Del/88 the expenditure on the purchase of presentation articles for foreign buyers has been allowed as a legitimate business expenditure and not being an expenditure of entertainment nature. For asst. yr. 1985-86 also in ITA Nos. 3064 and 3099/Del/89 the claim of the assessed has been allowed. We, for the sake of consistency, respectfully following the decision of the Tribunal in assessed’s own case, delete the addition of Rs. 4,234 out of the disallowance of Rs. 39,355.
4. With regard to the remaining disallowance, learned counsel contended that in earlier years, assessed’s claim that part of the entertainment expenses are to be allowed as pertaining to the employees participation has been accepted by the Tribunal in asst. yrs. 1984-85 and 1985-86 (supra) to the extent of 35% of the expenditure. We respectfully following the aforementioned decision of the Tribunal in assessed’s own case allow a deduction of 35% of the total expenditure on entertainment as attributable to employees participation. The Assessing Officer is accordingly directed to recalculate the disallowance under s. 37(2A) in the light of above directions.
5. Sixth ground of appeal is relating to disallowance of Rs. 40,346 being foreign travel expenses of Mrs. R. Sahai w/o Mr. R. Sahai. Mr. R. Sahai is a senior business executive of the company. He had gone abroad for business promotion. assessed had allowed Mr. Sahai to take his wife along with him. The expenditure incurred by the assessed-company on the foreign traveling of Mrs. Sahai has not been allowed as a deduction on the ground that the expenditure was for non-business purposes. The CIT(A) has confirmed the disallowance by following his predecessor’s order in assessed’s own case for asst. yr. 1983-84. It has been brought to our notice that the issue is covered by the decision of the Tribunal for asst. yr. 1984-85 (supra) in assessed’s own case in its favor. We respectfully following the decision of the Tribunal in assessed’s own case for asst. yr. 1984-85, delete the disallowance of Rs. 40,346.
ITA No. 802/Del/1990 :
6. We now take up the Departmental appeal.
7. First ground of appeal is relating to the computation of disallowance under s. 40A(5) relating to cash payments like HRA, reimbursement of medical expenses and club’s subscription. assessed’s claim that cash allowance paid by the assessed are not to be considered as perquisites has been accepted by the CIT(A). The learned counsel for the assessed contended that the cash allowances paid to the employees/directions are to be treated as part of the salary and not perquisites as held by the Delhi High Court in the case of Installment Supply P. Ltd. vs. CIT (1984) 41 CTR (Del) 334 : (1984) 149 ITR 457 (Del) as also in assessed’s own case by the Tribunal for asst. yrs. 1984-85 and 1985-86 (supra).
8. The Delhi High Court in the case of CIT vs. Shri Ram Refrigerators Ind. Ltd. (1993) 110 CTR (Del) 60 : (1992) 197 ITR 431 (Del) has reiterated the principles laid down in the case of Installment Supply Pvt. Ltd. (supra) that the cash allowance paid to the employees/directors are to be treated as part of the salary and not perquisites for the purposes of disallowance under s. 40A(5). The Assessing Officer is accordingly directed to work out the disallowance, if any, in accordance with the decisions of the Hon’ble Delhi High Court referred to above.
9. Second ground of appeal is relating to computation of disallowance under s. 40A(5) in respect of car expenses. CIT(A) has directed to compute the perquisite value on account of reimbursement of car expenses as per r. 3C of the IT Rules by following the decision of the Tribunal in the case of Madan Mohan Lal ITA No. 597/461/Del/1984; asst. yr. 1978-79 and the decision of the Calcutta High Court in the case of CIT vs. Britania Industries Co. Ltd. (1981) 20 CTR (Cal) 272 : (1982) 135 ITR 35 (Cal).
10. The learned counsel for the assessed fairly conceded that the issue has got to be decided against the assessed in view of the decision of the Delhi High Court in the case of Shri Ram Refrigerators Ind. Ltd. (supra). In the aforementioned case their Lordships of the Delhi High Court have held that cash payments made by the assessed to an employee by way of car allowance or HRA may not be regarded as perquisites but can be regarded as payment of salary as given in s. 17 and can, therefore, be taken into account for calculating the excess amount to be disallowed under s. 40A(5) in the assessment of the assessed. The decision of the CIT(A) being contrary to the decision of the Delhi High Court referred to above is reversed and the Assessing Officer is directed to calculate the disallowance in accordance with the decision of the Hon’ble Delhi High Court referred to above.
11. The next ground of appeal is relating to disallowance of Rs. 7,296 under s. 40A(3) on account of cash payments paid to the employees. The CIT(A) has deleted this addition by holding that these payments were covered under r. 6DD(j). The payment of Rs. 4,350 had been made to Shri Sunil Bajaj, employee against three separate bills of Lucky Auto Repairs of Rs. 1,000, Rs. 1,500 and Rs. 1,850. There was, thus, no contravention in respect of these three payments made through the employee to whom payment of Rs. 4,350 was made in lump sum. The contravention of provisions of s. 40A(3) would have been if the payments were made to the Lucky Auto repairs in excess of Rs. 2,500 by cash. That is not so. In the case of payment of Rs. 2,918 to Sahai Automobiles, CIT(A) has held that the payment had been made in exceptional circumstances. This finding has not been controverter before us. We, therefore, decline to interfere.
12. Next ground of appeal is relating to addition of Rs. 15,000 having been deleted by the CIT(A) on account of expenses incurred for market survey of head light lenses. assessed had made a payment of Rs. 15,000 to M/s. Industrial Dev. Services (P) Ltd., New Delhi for market survey of head light lenses for automobiles proposed to be manufactured by the assessed-company as a step to utilise the idle capacity of its furnace. The Assessing Officer disallowed the expenditure by treating the same as capital expenditure. CIT(A) has allowed the deduction as revenue expenditure by holding that the manufacture of lenses was intended to be taken up so as to reduce the consumption of fuel in running the furnace. The CIT(A) has further held that the expenditure had been incurred to enable the assessed to find out the prospect and for augmenting the productivity of the profit making structure. The decision of the Gujarat High Court in the case of Sarabhai M. Chemicals Pvt. Ltd. vs. CIT (1981) 20 CTR (Guj) 68 : (1981) 127 ITR 74 (Guj) has been relied upon. The decision of the Chandigarh Bench of the Tribunal in the case of IAC vs. Vardhman Shipping & Gen. Mills Ltd. (1989) 34 TTJ (Chd) 493 : (1989) 45 Taxman (Tax Mazazine) 52 has also been followed. We do not find any infirmity in the order of the CIT(A). We, therefore, decline to interfere.
13. Next ground of appeal is relating to allowance of depreciation on moulds at 40% as against 30% allowed by the Assessing Officer. The issue is covered by the decision of the Tribunal in assessed’s own case for asst. yr. 1985-86 (supra). The Tribunal for asst. yr. 1985-86 has confirmed the finding of the CIT(A) that the plastic moulds were used by the assessed for manufacturing plastic cover of vacuum glasses in exactly the same manner as manufacturing is carried by any other plastic factory. It was accordingly held that depreciation on moulds was permissible at the rate of 40% under item (III)(a)(2) of Appendix I of IT Rules. The decision of the Karnataka High Court in the case of CIT vs. Amco Batteries Ltd. (1993) 203 ITR 614 (Kar) has been relied upon in support of the view.
14. We respectfully following the decision of the Tribunal in assessed’s own case for asst. yr. 1985-86, uphold the view of the CIT(A) that depreciation on moulds is permissible at 40%.
15. In the result, the appeal of the assessed as well as that of the Revenue are partly allowed.