ORDER
S.R. Chauhan, J.M.
1. ITA No. 233/Jp/96 is an appeal by assessee for asst. yr. 1992-93 and is directed against the order of CIT(A), Udaipur dt. 28th Nov., 1995.
2. We have heard the arguments of both the sides and also perused the records including written submission of both the sides.
3. The assessee appellant has raised as many as 15 grounds of appeal before the Tribunal. However, ground Nos. 2 and 3 have not been pressed by the learned authorised representative of assessee during arguments and so the same are dismissed accordingly.
4. Ground No. 1 disputes the disallowance of Rs. 1,77,16,044 representing payments/contribution by assessee-employer to various welfare measures for their employees/staff under Section 40A(9). The AO made the above disallowance observing that the tax audit report showed assessee’s contribution to various staff welfare funds, sport clubs, schools, co-operative stores, etc. totalling to the above-mentioned amount as not allowable under Section 40A(9). The AO made the above disallowance as similar payment/contributions by assessee-employer, made in asst. yr. 1990-91 were also disallowed by him. The learned authorised representative of assessee has contended that the issue is covered in assessee’s favour by the Jaipur Tribunal’s order dt. 24th Feb., 1998, in ITA No. 1128/Jp/1994 for asst. yr. 1990-91, in assessee’s own case, whereby the Tribunal held the said expenditure as allowable. As against this the learned Departmental Representative of Revenue has not raised any material argument
before us. Considering the facts and circumstances of the case, the facts being identical, find the issue squarely covered by the above-mentioned order of the Jaipur Tribunal rendered in, assessee’s own case for asst. yr. 1990-91, wherein, the Tribunal has, in para 4 of its order, held these payments incurred for staff welfare activities, being pursuant to arguments (sic-agreements) with the staff union, and connected with the smooth running of assessee’s business, the assessee having no direct or indirect control over the utilisation of these funds and that a breach worked out under Industrial Disputes Act would have rendered the assessee punishable, to be allowable and in turn deleted the additions. We, therefore, follow the aforesaid decision of the Tribunal and accordingly delete this addition.
5. Ground No. 4 disputes the disallowance of Rs. 9,32,570 on account of depreciation on guest-house. The assessee had already offered for disallowance a sum of Rs. 39,94,958 under Section 37(4). The AO noted that there was a difference in the method of claiming depreciation in the books of account and for income-tax purpose. The assessee explained before AO that depreciation offered for disallowance was roughly 1/3rd of the assessee’s claim for depreciation in computation, but the AO estimated the depreciation allowance at Rs. 15 lacs and further disallowed, a sum of Rs. 9,32,570 in addition to Rs. 5,67,430 already ruled by assessee. The CIT(A) confirmed the disallowance as the ground in respect thereof was not pressed before him. The learned authorised representative of assessee has relied on State Bank of Bikaner & Jaipur v. Dy. CIT (1999) 65 TTJ (Jp) 480 : (2000) 74 ITD 298 (Jp). It has been contended in the written submission of assessee that the ground is purely a legal ground inasmuch as there was no warrant to disallow depreciation under Section 37(4) on guest-house which was allowable under Section 37. It has been contended that expenses on guest-house under specific heads of rent, repairs, depreciation, etc. are otherwise allowable as deduction. As against the above the learned Departmental Representative of Revenue has contended in his written submission, that his arguments on this issue are the same as raised by him earlier on similar issue in appeal No. 448/Jp/99 for asst. yr. 1996-97 being ground No. 4 therein. His contentions have been that when the assessee itself is offering depreciation not allowable on guest-house, then how the assessee, is at the same time, contesting the same issue. He has contended that in any case, there should be parity of any treatment on this issue in this appeal with that in the aforesaid appeal for asst. yr. 1996-97.
6. We have considered the rival contentions, the relevant material on record as also the cited decisions. The ground was undeniably not pressed before the learned CIT(A), but the issue has been again agitated before us. In our considered opinion, the assessee, despite having not pressed the issue before the authorities below can still raise and agitate the same before the Tribunal and the assessee may not, justifiably be precluded from the same. In taking this view, we are supported by Vijay Kumar Jain v. CIT (1975) 99 ITR 349 (P&H) and J.K. Oil Mills Co. Ltd. v. CIT (1976) 105 ITR 53 (All), However, as the issue has not been decided by the learned CIT(A) on merits, and rather we consider it just and proper to restore this issue to the learned CIT(A) for deciding the same on merits. We order accordingly.
7. Ground No. 5 disputes the disallowance of Rs. 12,86,75,345 being assessee’s claim for interest on bonds. The learned authorised representative of assessee has contended that the AO has held that this expenditure has been held as capital expenditure in assessee’s books of accounts and has also provided for depreciation thereon. He has contended that it is admittedly interest allowable in respect of long-term borrowing taken for setting up a new plant with new technology at Chanderia known as Chanderia Zinc Smelter. He has contended that the AO made the disallowance holding that the expenses including interest on borrowed funds, which were used to bring an asset into existence, represented capital expenditure. He has contended that the learned CIT(A) has observed that the loan was raised for a new project, namely, Rampura Agucha Zinc-Lead Mines and Chanderia Lead-Zinc Smelter, and not for the company as a whole, that is, not for existing units of the assessee. He has contended that the interest on bonds paid in earlier years had been duly allowed to the assessee as per the decision of the Jaipur Bench of Tribunal reported in Hindustan Zinc Ltd. v. Dy. CIT (2000) 66 TTJ (Jp) 3 : (2000) 74 ITD 25 (Jp). He has contended that the Jaipur Tribunal has held therein that the business of the assessee was already in existence and so the borrowing was for installing additional capacity and it could not be construed as expenditure on a new business. He has thus contended that the issue is covered in assessee’s favour by (2000) 74 ITD 25 (Jp) (supra). He has also relied on Indian Cement Ltd v. CIT (1966) 60 ITR 52 (SC). As against this, the learned Departmental Representative of Revenue has contended, in his written statement, that the decision of Hon’ble Supreme Court in (1966) 60 ITR 52 (SC) (supra), relied upon by the learned authorised representative of assessee was duly considered by the authorities below and found the said decision as not applicable to the facts of this case. It has been contended that the issue involved in the case of India Cement Ltd (supra) was different whereas the issue involved in the instant case is that the assessee borrowed funds for a new plant set up with new technology at Chanderia and the assessee had also shown the amount in its books as capital expenditure for the reason that this amount of interest relates to funds borrowed for setting up new plant that is, at Chanderia and the interest is relatable to the period prior to commencement of production. He has contended that in the return, the assessee has claimed this amount as revenue expenditure on the ground that the loan was taken for expansion of business and not for setting up new business, but thus the assessee has taken a reverse stand for the purpose of income-tax assessment. It has been contended that the books of assessee have been audited by chartered accountant and the books once having been so audited and the amount approved as a capital expenditure, thereafter there is no case for treating the same as revenue expenditure. It has been contended that the decision of Hon’ble Supreme Court in the case of Challapalli Sugar Ltd. v. CIT (1975) 98 ITR 167 (SC) is a direct authority on this issue and the AO has relied on the same.
8. We have considered the rival contentions, the relevant material on record as also the relevant material on record. In assessee’s own case for asst. yr. 1991-92, Tribunal, Jaipur has already allowed similar interest in identical circumstances. Jaipur Tribunal has also considered (1975) 98 ITR 167 (SC) (supra) cited by learned Departmental Representative of
Revenue and relied upon by AO, and has held to be distinguishable on facts inasmuch as the cited case was in respect of a new business undertaking whereas the case of assessee was of a running business. Jaipur Tribunal has, in drawing its conclusion, followed Veecumsees v. CIT (1996) 220 ITR 185 (SC) : (1998) 86 Taxman 243 (SC). As such, the facts being identical, we find the issue covered by the aforesaid decision of Tribunal Jaipur and so we respectfully follow the aforesaid decision and accordingly delete this disallowance.
9. Ground No. 5 disputes the disallowance of Rs. 1,42,529 representing prior period expenses. The learned authorised representative of assessee has contended that this issue may be set aside to CIT(A) for re-examination as the figures mentioned in the learned CIT(A)’s order come from nowhere, and seems to have been taken on some misunderstanding. In the written statement of learned Departmental Representative of Revenue, it has been contended that the AO has held the aforesaid amount as representing loss on sale of vehicle sold in the preceding year and so not admissible; and the AO has set aside the issue in respect of the balance amount. It has also been contended that though the learned Departmental Representative supports the orders of authorities below, yet due to ambiguity the setting aside of the order when the part has also been set aside by CIT(A), will not affect the interest of Revenue.
10. Considering the rival contentions as also the facts and circumstances of the case, together with the fact that some confusion/misunderstanding seems to have been there with the AO resulting in ambiguity regarding the figure, and also the fact that a part of the issue has also been set aside by learned CIT(A), we set aside this ground also to AO for examining and deciding the issue afresh after hearing the assessee.
11. Ground No. 7 disputes the disallowance of Rs. 1,58,77,000 under the head “Technology Alteration Expenses”. The learned authorised representative of assessee has contended that these expenses are incurred not for acquiring anything new but it only enables the assessee to carry on its business more efficiently. He has cited Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34 (SC) in his support, He has contended that the assessee could not furnish details to AO for the reason that its chartered accountant, work site and head office, etc. all being at different places, the collection of the same was time taking; but the details were furnished to CIT(A). He has contended that despite the new zinc smelter at Chanderia having been commissioned in September, 1991, the unit was not handed over formally by the contractors for commercial exploitation, the AO held that this expenditure was required to be capitalised and allowed depreciation. He has contended that the technology was found unsuitable and so the contract was eventually cancelled, and in turn the amount was paid as damages. He has contended that the authorities below failed to appreciate that the entire expenditure was incurred by a running business and not incurred for the establishment of a new business. It has been contended that the assessee was already in the business of lead and zinc mining for several years and Cominco was appointed to help and provide guidance in respect of lead refining plant. The expenditure was incurred by a growing concern in the course of its normal operation with a view to do
business more efficiently and more economically, and the same did not create any new profit-earning capacity and so it was entirely revenue in nature. He
has relied on :
1. CIT v. Indian Aluminium Corporation of India Ltd. (1973) 92 ITR 563 (Cal);
2. CIT v. India Carbon Ltd. (1996) 221 ITR 264 (Gau); and
3. Sayaji Industries Ltd. v. Dy. CIT (2000) 68 TTJ (Ahd) 851 : (1998) 100 Taxman 110 (Mgz) (And).
12. As against the above, the learned Departmental Representative of Revenue has contended that the citation referred to by learned authorised representative of assessee are distinguishable on facts. He has contended that in the instant case, the expenditure represents payment by way of damages relating to cancellation of contract for installation of plant for performance in respect of lead refining plant and the same cannot be treated as of revenue nature for the reason of the same having not been incurred in connection with carrying on of business and earning of income for the year under consideration.
13. We have considered the rival contentions, relevant material on record as also the cited decisions. In (1973) 92 ITR 563 (Cal) (supra) the Hon’ble Calcutta High Court has held that as a result of expenditure an improved method was introduced in the running of existing plant, and it had not resulted in an advantage of permanent nature, and was therefore, not capital expenditure. In CIT v. Mohd. Ishaque, Mohd. Gulam (1994) 210 ITR 817 (MP), petrol engine was replaced by diesel engine in the jeep and intention was to reduce expenditure and augment profits of business. No new asset was brought into existence nor an advantage of enduring nature was derived. Expenditure incurred was held as of revenue nature. Somewhat similar is CIT v. General Fibre Dealers Ltd. (1993) 69 Taxman 611 (Cal). In 100 Taxman 611 (sic) the assessee-company, which was manufacturer of food products, drugs and pharmaceutical, etc. paid fees to a consultant for acquiring technical know-how for establishing a plant to manufacture vitamin-C but project could not be taken up because of Government’s policy on pricing and final product was not economically feasible, fees already paid became irrecoverable, resulting in business loss, and the same was held allowable as revenue expenditure. In the instant case the assessee did not furnish the details of expenditure being called upon by the AO. The expenses were incurred in connection with assessee’s zinc smelter at a new place called Chanderia, which though stated to have been commissioned in Sept., 1991, still the unit had not been handed over formally by contractors for commercial exploitation. The AO therefore, held that when the production of Chanderia unit was not established, the expenditure incurred for making alteration in its technology was also required to be capitalised. The learned CIT(A) has observed that the contract was given to Cominco for software, hardware, installation of plant, performance etc. in respect (sic) the contract was cancelled and the amount was paid as damages. He has also observed that the payment made on account of contract was ‘admittedly’ capital in nature, so the payments made to get ride of its contractual liability has also to be capital in nature. He also noted that all other payments made to Cominco Canada (contractor) have been capitalised. Besides
the payments made to the new company to whom contract was given after cancelling contract with Cominco were also capitalised. In the circumstances he held this expenditure of Rs. 158.77 lacs as of capital nature. However, the perusal of record reveals that the assessee’s zinc smelter plant at a new place Chanderia is a new unit of assessee’s existing business. Had the Chanderia Zinc Smelter plant been a new business, the position would have been different and the conclusion drawn by learned CIT(A) could have been viewed supportively, but the position being that it is a new unit of existing business of assessee, and no new asset having been acquired by assessee as a result of payment of damage for cancellation of contract, the said expenditure cannot appropriately be treated as capital expenditure but has to be treated as revenue expenditure. We may, in this regard, refer to a decision of Hon’ble Gujarat High Court in CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj) with advantage. Besides, in the instant case the assessee has shown loss of Rs. 49 crores and the AO has allowed depreciation @ 12.5 per cent. The deduction of entire amount has been allowed by way of depreciation over a period of 8 years. The rate of tax in the case of a company is uniform. Therefore, allowing this expenditure as of revenue nature in this asst. yr. 1992-93 will result in no loss or gain to either side. In this regard CIT v. Nagri Mills Co. (1958) 33 ITR 681 (Bom) may be referred supportively. We, therefore, set aside the orders of the authorities below on this count and direct the AO to allow this expenditure as of revenue nature, after verifying the details of expenses, which the assessee will furnish before AO.
14. Ground No. 8 disputes the disallowance of Rs. 6,33,878 (i. Rs. 1,49,296 + (ii) Rs. 2,25,355 + (iii) Rs. 2,59,227) treating the same as capital expenditure, though claimed by assessee as expenses on repairs and maintenance, and so revenue expenditure. Ground No. 9 disputes the disallowance of Rs. 7,15,708 (Rs. 4,44,545 + Rs. 2,71,163) being expenditure on alteration and installation of new wash basin in the residential quarters of the workers/staff. The learned authorised representative of assessee has contended that the first two items of expenditure in ground No. 8 have been incurred on construction of platforms which are required for loading and unloading of zinc ingots/moulders which are quite bulky and heavy. He has contended that the construction of Pakka platforms only enabled the assessee to carry on business more conveniently and efficiently. He has contended that by incurring this expenditure, no new asset, nor any advantage of enduring nature was created. He has contended that these platforms are not of long life.
15. As regards Rs. 2,59,227 incurred on water cooler, the learned authorised representative of assessee has contended that the assessee purchased the water coolers and gave them to the workers for their quarters where they live. Similarly regarding the expenditure of Rs. 7,15,708 he has contended that the same was incurred on wash basins provided in the residential quarters of the workers. He has also contended that even otherwise the cost of each wash basin was less than Rs. 5,000. He has contended that this helps the workers to have good health life and that these are given for the workers welfare as per agreement with the workers. He has contended that the assessee has to keep peace so as to maintain smooth relations with the workers. He has relied upon CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC).
16. As against the above the learned Departmental Representative of Revenue has contended that the assessee has acquired new assets by incurring the expenditure of Rs. 6,33,878 as detailed in the assessment order, and so the expenditure is of capital nature. He has supported the orders of authorities below.
17. We have considered the rival contentions was material on record as also the cited decisions. In (1971) 82 ITR 44 (SC) (supra), the assessee was running hotel and the expenditure was incurred on installing sanitary and pipeline fittings in one of its branches. As such the said fittings were held to fall within the definition of plant as given in Section 10(5) of IT Act, 1922, so that development rebate under Section 10(2)(vib) was allowable thereon. In our view the citation being in respect of a hotel building and on allowability of development rebate is distinguishable from the case in hand on facts, inasmuch as wash basins having been provided in the residential quarters of the workers do not fall within ‘plant’ and so 10 per cent depreciation thereon is not allowable. As regards the nature of expenditure incurred on construction of new concrete (Pakka) platforms and on water coolers provided to workers for their residential quarters as also on the wash basin installed in the staff quarters, the said expenditure falls within capital expenditure and not in revenue expenditure as has rightly been held by the learned CIT(A). We find no infirmity in the learned CIT(A)’s impugned order on this count and so we decline to interfere with the same.
18. We have considered the rival contentions, we hold the same view in respect of this expenditure incurred on wash basins as we have held above in respect of water cooler in ground No. 8. Accordingly we find no fault with the impugned order of learned CIT(A) and so we decline to interfere with the same.
19. Ground No. 10 disputes the disallowance of Rs. 5,00,862 on account of entertainment expenses. The learned authorised representative of assessee has contended that the initial adding back of Rs. 5,00,862 was done on a misinterpretation of law. He has also contended that all entertainment expenditure was incurred on staff and guests and that the expenditure on staff does not fall within the term ‘entertainment’ as per Expln. 2 to Section 37(2A) of the Act. He has relied on CIT v. Expo Machinery Ltd. (1991) 190 ITR 576 (Del). He has contended that the Tribunal is normally estimating l/3rd of expenditure as having been incurred on staff. As against this the learned Departmental Representative of Revenue has relied on the orders of authorities below.
20. …….(sic) all the facts and circumstances of the case, as also the legal position we restrict the disallowance to 2/3rd of the assessee’s claim of Rs. 5,00,862, so that 1/3rd of the claim will stand allowed as being expenditure incurred on staff on their work/duty.
21. Ground No. 11 comprises two parts :
(i) Allowance of bad and doubtful debts (Rs. 6.02 lacs) written off; and
(ii) deletion of additional tax (Rs. 3,66,538) levied by AO.
The learned authorised representative of assessee has contended that the learned CIT(A) refused to admit and consider these issues raised by way of another
additional ground before him observing that these do not arise from the assessment order. The learned authorised representative of assessee has contended that the baddebt written off could not be claimed by assessee before AO in computation of income due to inadvertence and the default was not deliberate. He has contended that every year the assessee is creating provision in its books of account but not claiming the same against its profits while filing returns. He has contended that let this matter go to AO and let him verify as to what is assessee’s way of accounting in this regard, He has contended that in asst. yr. 1990-91 the Tribunal has remitted similar issue to AO for verification of assessee’s contention. He has referred to para 5 of Tribunal’s order for asst. yr. 1990-91 in this regard. He has also contended that as regards the issue of additional tax under Section 143(1A), the same is consequential and is a legal ground. He has also contended that the CIT(A) has coordinate jurisdiction with AO, and that correction can be made at the level of CIT(A) if there was failure to arrive at correct income at assessment stage,
22. As against the above the learned Departmental Representative of Revenue has contended that the learned CIT(A) was not satisfied with the assessee’s explanation that the assessee’s omission for the claim of bad debt was not wilful or unreasonable and so he did not allow the assessee to contest this ground and thus he refused to consider the same. He has contended that the learned CIT(A) has not decided the issue on merits, so the Tribunal should not decide the issue on merits. He has also contended that if there be any case for reconsideration of the matter at all, then the CIT(A) is the proper authority to decide the same after exercising his powers under Section 250(5) of the IT Act.
23. We have considered the rival contentions. The issue of baddebt was raised in ground No. XXVIII and the issue of additional tax was raised in ground No. XVII before the learned CIT(A) but vide para 25 [paras 15 and 16 of CIT(A)’s order] and para 24 [P. 15 of CIT(A}’s order], the learned CIT(A) did not admit the aforesaid grounds of appeal observing that the same did not arise from the assessment order. In our considered opinion, the basic and fundamental principle being to tax the correct income of assessee, the assessee’s failure to claim bad debt in computation of income before AO ought not to have been treated in exercise of the discretion properly/judicially, as a basis for finally depriving the assessee its due relief when the assessee had raised the issue before the first appellate authority and the facts did not indicate any deliberate/conscious omission to make the claim but the omission being due to inadvertence, as specifically pleaded by assessee. Considering all the facts and circumstances of the case as also the fact that the issues were specifically raised before CIT(A), we remit/restore these two issues, as contained in ground No. 12 before us, the AO for considering the same and rendering decision thereon.
24. Ground No. 12 disputes the direction of the learned CIT(A) to AO for making the necessary adjustment of Rs. 11.98 lacs on account of profit on sale of fixed assets. The learned authorised representative of assessee has referred to para 29 of the learned CIT(A)’s order and contended that in view of the concept of block of assets, so long as the block survives, even if there was some profit arising on disposal of assets, as the same is not exigible to tax until the block of asset lapses. The learned Departmental Representative of Revenue
has contended that the learned CIT(A) has not decided the issue on merit and has simply directed the AO to decide the same afresh after examining the material on record, no interference therein is required in view of the decision of the Hon’ble jurisdictional High Court in the case of Prem Agencies v. CIT (1988) 173 ITR 110 (Raj). Considering the rival contentions, the facts and circumstances of the case as also the cited decision, we find no fault with the impugned order of learned CIT(A) on this count and we do not consider it proper to interfere therewith. We accordingly make no interference therein.
25. Ground No. 13 disputes the learned CIT(A)’s order in setting aside various additions/disallowance made by AO to be considered afresh. Both the sides have relied on their same arguments as made on ground No. 12, discussed above. Considering the rival contention and the facts and circumstances of the case we find no merit in the ground and so we decline to interfere with the same.
26. Ground No. 14 disputes the learned CIT(A)’s order in not deleting levy of (i) additional tax, (ii) interest under Section 234B and (iii) interest under Section 220(2) of the Act.
27. As regards the issue of additional tax, the learned authorised representative, of assessee has not raised any argument on it in this ground as the same has already been discussed in ground No. 11.
28. As regards the levy of interest under Section 234B, it may be advisable as also imperative to refer to the recent amendment made in the provision of Section 234A, 234B and 234C by the Finance Act, 2001 with retrospective effect. These amendments have been made to nullity the effect of various judgments. We, therefore, consider it just and proper to be set aside the orders of learned CIT(A) and AO on this count and restore the matter to AO for deciding the same afresh in accordance with law. Needless to observe that the AO will provide opportunity of being heard to the assessee before making the decision.
29. As regards the interest under Section 220(2), we find that no such ground was raised by assessee before CIT(A). Besides, such a ground is not maintainable in appeal against the assessment order before CIT(A) under Section 246. This part of the ground raised before us has, therefore, no merit, and is accordingly rejected.
30. Ground No. 15 is general.
31. In the result this appeal of assessee is allowed in part as indicated above.