ORDER
S. Bandyopadhyay, Accountant Member
1. For the sake of convenience, these two appeals, filed by the assessee as well as the Department against the same order of the CIT(A) for the same year, have been consolidated and a common order is being passed.
2. Assessee’s appeal [ITA No. 1110 (Bang.)/89]:
In the ground No. 1, the assessee contends that the liability of Rs. 3,34,72,000 towards Leave Travel Concession encashment as claimed by it should have been allowed. This was the first year of making such a claim. In fact, although the scheme of allowing the employees of the assessee-company, the leave travel concession benefits on actual undertaking of travels during leave was already in force, the assessee announced a scheme for encashment of the abovementioned concession in lieu of actually availing of the said facility, with effect from 5-9-1983. In accordance with this Scheme, if an employee of the assessee so prefer, he could instead of availing of the benefit of leave travel concession, encash the same by foregoing his right to avail of the benefit as such. In that case, the employee would be entitled to 75% of the eligible fare up to a distance of 1500 kms. each way. According to the assessee, the intention behind allowing this scheme was to discourage the employees to actually avail of the leave which would affect the production of the assessee-company. The encashment facility was in respect of the Leave Travel Concession available to the employees in terms of blocks of four years each. That means that during each such block, the employees could avail of the encashment facility in lieu of the actual Leave Travel Concession for that block period. So far as the present year under appeal is concerned, the block in question comprised of the four calendar years from 1982 to 1985. Since the scheme was launched in September 1983, it covered out of the abovementioned block, the period from September 1983 to December 1985. It was stated by the representative of the assessee before the Assessing Officer that the liability was claimed by the assessee in this year by computing the same on the basis of the provisions of the scheme and in respect of such employees who had not availed and/or encashed the LTC benefit for the above block years as on the last date of the accounting year corresponding to this assessment year, i.e., 31 -3-1983. It is the version of the assessee in this connection that after launching of the scheme, assessee was clear about the minimum liability to be incurred by it towards LTC/LTC Encashment Scheme. It is the contention of the assessee that since each employee would avail of either of the two schemes and since the liability under the LTC Encashment Scheme would, in every case, be lower than the liability under the actual LTC Scheme, the assessee-company had taken into account the liability in respect of each of the abovementioned employees (who had not till the end of the relevant previous year, availed of either of the schemes) in accordance with the provisions of LTC Encashment Scheme. The assessee claims that this minimum liability was required to be incurred by the assessee during the abovementioned block of four years, i.e., till the end of December 1985. It is contended by the assessee in this regard that on launching of the LTC encashment scheme, the assessee actually became liable to incur the above-mentioned minimum expenditure and hence, the entire expense in this regard should be considered as having fallen due. In this connection, the learned representative of the assessee had stated before the Assessing Officer and also before us that in case any employee would avail of the LTC/LTC encashment scheme in any of the future years covered by the abovenrentioned block, the expenditure on that account would be offered for tax in the relevant assessment year. The position in this regard was tried to be clarified on account of the fact that the entire liability claimed by the assessee under this ground was not at all charged to the profit and loss account or any other account but was merely claimed as a liability accruing, in the statement showing the computation of income. The learned counsel for the assessee argued before us that actually the period taken into consideration by the assessee on this account stretched about two years after the close of the relevant accounting year and hence, it cannot be said that the assessee was taking into consideration the liability pertaining to an indefinite span of future period. It was furthermore argued that any extra liability to be incurred by the assessee in case some of the employees would prefer to avail of the actual LTC scheme, would be taken due care of by debiting the corresponding extra liability to the P&L account and claiming the same separately in the respective year. In support of its claim that the assessee actually incurred this amount of minimum liability towards LTC/LTC encashment scheme, during this year itself, reliance was placed by the learned counsel for the assessee on the following decisions :
(i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC),
(ii) Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 at page 67 (SC) and
(iii) New Victoria Mills Ltd. v. CIT [1966] 61 ITR 395 (All).
The learned counsel for the assessee fairly admitted that there might be some stray cases where a few of the employees might ultimately choose not to avail either the LTC benefit or even the LTC encashment benefit for this particular block year. He, however, argued that looking to the general tendency of human beings to seek financial benefits in all circumstances within however the legal constraints, such cases where the respective employees would stand to lose certain financial benefits, would be either non-existent or at best few and far between.
3. In this connection, however, he relied on the decision of the Supreme Court in the case of CIT v. Gemini Cashew Sales Corporation [1967] 65 ITR 643 in which it has been held that the present value on commercial valuation of money to become due in future, under a definite obligation, will be a permissible outgoing or deduction in computing the taxable profits of a trader, even if in certain conditions the obligation may cease to exist because of forfeiture of the right.
4. The learned DR, on the other hand, strongly argued that the leave travel encashment liability cannot at all be considered as an ascertained liability. He stated that the actual liability to be incurred by the assessee during the entire block on account of the LTC facility and/or the LTC encashment facility was not at all ascertainable during this particular year and the amount of liability which has been taken into consideration by the assessee represents neither the minimum nor the maximum limits of such liability which might accrue in future. He has mentioned the cases where some of the employees might not avail of either of the two facilities. Similarly, he has also referred to certain conditions relating to availment of LTC facility in Central Government or Central Government undertakings like the assessee-company, in which an employee is not entitled to such facility if his spouse working in a similar organisation avails of such facility. He also states that in certain cases the employees might ultimately avail of the actual LTC benefits for a distance less than to which they are entitled to under the LTC encashment scheme. The possibility of a number of employees actually availing of the Scheme and thereby the company having to incur milch larger amounts of expenditure than considered herein, has also been mentioned by him. The learned DR, thus, strongly contended that the leave travel encashment liability being not an ascertained liability cannot be allowed as expenditure in this year. He has furthermore argued in this connection that when an option is available to the employees to choose between LTC Scheme and the LTC Encashment Schemes, it cannot be said that the liability in terms of LTC Encashment Scheme alone had become a definite and ascertained liability. He furthermore argued that there was no enforceable liability in the instant case inasmuch as the liability would become enforceable only on exercise of the option between the two competing schemes by the employees. In support of his contentions as above, he has relied on a large number of decisions as mentioned below:-
(i) CIT v. Bharat Earth Movers Ltd. [1995] 211 ITR 515 : 81 Taxman 537. (Kar.).
(ii) CIT v. Hindustan Aeronautics Ltd. [1988] 174 ITR 340 (Kar.),
(iii) Mysore Lamp Works Lid. v. CIT [1990] 185 ITR 96 (Kar.),
(iv) Rajasthan State Mines & Minerals Ltd. v. CIT [1994] 208 ITR 1010 : 74 Taxman 171. (Raj.),
(v) CIT v. Oriental Motor Car Co. (P.) Ltd [1980] 124 ITR 74 : 3 Taxman 567. (All.) and
(vi) CIT v. Indian Metal & Metallurgical Corporation [1964] 51 ITR 240 (Mad.).
5. In the case of Calcutta Co. Ltd. (supra), the assessee-company had bought lands and sold them in plots fit for building purposes undertaking to develop them by laying out roads, providing a drainage system and installing lights, etc. When the plots were sold, the purchasers paid only a portion of the purchase price and undertook to pay the balance in instalments. The assessee, in its turn, undertook to carry out the developments within six months but time was not of the essence of the contract. During the relevant accounting year, the assessee had received in cash only Rs. 29,392 towards sale price of lands but in accordance with the mercantile system of accounts adopted by it, it credited in its accounts the sum of Rs. 43,692 representing the full sale price of lands. At the same time, it also debited an estimated sum of Rs. 24,809 as expenditure for the developments it had undertaken to carry out even though no part of that amount was actually spent. The Supreme Court held in that case that inasmuch as the undertaking to carry out the developments within six months from the dates of the deeds of sale (which, in view of the fact that time was not the essence of the contract, meant a reasonable time) was unconditional, the assessee had bound itself absolutely to carry out the same and, therefore, the undertaking imported a liability on the assessee which accrued on the dates of the deeds of sale, though that liability was to be discharged at a future date. The Supreme Court thus held the liability to be an accrued liability and stated that the estimated expenditure which would be incurred in discharging the liability would be deducted from the profits and gains of the business. The Supreme Court furthermore held that the difficulty in estimation thereof did not convert the accrued liability into a conditional one. But it was always open to the income-tax authorities concerned to arrive at a proper estimation thereof having regard to the circumstances of the case.
6. The learned counsel for the assessee has tried to argue on the basis of this decision that even a liability which is to be actually met in future can be considered as an accrued liability in the earlier year. This principle has now become well-acknowledged. However, the main question in the instant case is whether the liability towards LTC Encashment under the Scheme propounded by the assessee in this year can be considered to have been actually accrued in this year.
In the case of Metal Box Co. of India Ltd. (supra) also, the Supreme Court held, though in the matter of computation of the profits of the company for the purpose of declaration of bonus, that contingent liabilities for gratuity could be taken into account as trading expenses on the basis of the discounted value thereof if such liabilities were sufficiently certain to Be~capable of valuation and if the profits could not properly be estimated, without taking them into consideration. The main argument behind taking into consideration the gratuity liability actually accruing during the year was that the employees had earned the right to gratuity by working during the year, although actually gratuity was payable at a future point of time.
The Allahabad High Court in the case of New Victoria Mills Ltd. (supra) held that though under the mercantile system of accounting, all items of credit are brought into credit immediately they become legally due and before they are actually received and all expenditure is debited, for which a legal liability has been incurred before it is actually disbursed, yet before a credit or debit entry can legitimately be made in the accounts, it must be shown that a certain enforceable liability has accrued or arisen. This particular aspect of the decision however goes against the assessee as we shall discuss later on.
7. Let us now consider the decision of the Karnataka High Court in the case of Bharat Earth Movers Ltd. (supra). In that case, the assessee had debited liability towards encashment of earned leave. Provision had been made to meet liability towards such encashment. The Karnataka High Court, however, did not allow the claim of the assessee by finding that leave salary is payable only when a person goes on leave and it cannot be ascertained with any certainty whether, in a particular year, the employee would go on leave. The Karnataka High Court, therefore, ultimately held that on these accounts neither leave salary nor leave encashment benefit payable to the employees could be said to be a present liability but, on the other hand, they were of the nature of contingent liability and an assessee is not entitled to deduction of the provision made to meet such liability. The facts with regard to this particular case are analogous to those of the present case. It is almost certain that an employee would either proceed on leave or failing to do so, would encash the same. Like the case of the present assessee, very few employees would miss both the benefits. Even then the Karnataka High Court held that each of the liabilities towards leave salary or leave encashment benefit is nothing but a contingent liability and hence, is not allowable.
8. The case of Hindustan Aeronautics Ltd. (supra) is also similar to that of the abovementioned case of Bharat Earth Movers Ltd (supra) and the issue related to allowability of the provision for accrued leave salary. In that case also, the Karnataka High Court had held that the claim of the assessee was towards a contingent liability merely and hence, was not a permissible deduction.
9. In the case of Mysore Lamp Works Ltd. (supra), the Karnataka High Court engaged itself in the consideration of allowability of the amount to be set apart under Section 15(1) of the Payment of Bonus Act, 1965. It was held by the High Court that the amount so set apart was not to discharge any present liability at all and that depending upon the contingency that amount might revert back to the employer absolutely for being utilised as he pleases or he might not have to make payment out of this towards computing the allocable surplus. It was finally held that the claim of the assessee was not allowable under Section 37.
10. The Rajasthan High Court also held in the case of Rajasthan State Mines & Minerals Ltd (supra) that the provision made for liability for removal of over-burden represented a provision for contingent liability only and hence, the same was not deductible.
11. In the case of Oriental Motor Car Co. (P.) Ltd. (supra), the Allahabad High Court found out that the claim of liability as made by the principals of the assessee-company for payment of infringement commission and as agreed to by the assessee under an agreement was of contractual nature and crystallised only when the assessee actually agreed to make such payment and not earlier. Since the agreement in that case was made subsequent to the close of the relevant accounting year, the High Court held the claim of the assessee not to be allowable. The decision of the Madras High Court in the case of Indian Metal & Metallurgical Corporation (supra) relates to the question of allowability for future liabilities in respect of amounts credited by the assessee towards gratuity reserve fund. It was held that even on the principle laid down by the House of Lords in the case of Southern Railway of Peru Ltd. v. Owen (Inspector of Taxes) [1957] 32 ITR 737, the assessee had not approached the question of setting apart of funds to meet a future liability on any scientific basis. Hence, the claim was considered by the High Court to be not enforceable.
12. In the instant case, the assessee has claimed the minimum amount out of the total liability towards LTC and/or LTC Encashment Scheme which it considers to be ultimately payable by it during the relevant block year. Leaving aside the stray cases of a few employees who might ultimately not avail of either of the benefits, it may be said that the argument of the assessee that ultimately the entire liability claimed by it will have to be paid, may be correct. That by itself, however, does not make the entire amount deductible in this year. The question is whether the liability became crystallised in this year and hence can be considered as having been actually incurred in this year. We are aware of a large number of decisions wherein it has been laid down that if the liability be actually incurred in a year, even though it might not be possible to quantify the liability in a precise manner, the fairly estimated amount of the liability will have to be allowed as deduction. In this case, however, the assessee was certainly not to incur the entire expenditure during this year. By formulating the scheme of LTC encashment, the assessee merely made an offer to its employees to either opt for that scheme or to stick to the other scheme of availing of the actual LTC benefits. Had all the employees actually opted for the scheme in this year (which is not the case here at all), it might be said that the assessee was actually liable to make payments of the entire amount under the LTC encashment scheme to all its employees. A large number of employees would like to keep their options open till the last moment inasmuch as they would consider the possibility of actually availing of the LTC benefits, the financial amounts under which scheme would certainly be much larger than the financial benefits receivable by them under the Encashment Scheme. The Encashment Scheme may, therefore, be considered at best as an offer made by the assessee-company in accordance with the Contract Act. Till the offer is accepted by the employee by exercise of his option for the Encashment Scheme, it cannot be said that the contract is completed between the assessee-company and the employee for payment of the LTC Encashment amount. We completely agree with the argument of the learned DR that until an employee actually exercises his option in favour of the Encashment Scheme, no enforceable liability in that regard arises. Hence, in accordance with the decision of the Allahabad High Court in the case of New Victoria Mills Ltd. (supra), no liability in that regard can be said to have accrued or arisen under the mercantile system. Since according to the assessee’s own computation, a large number of employees kept their option open till the last date of the relevant accounting year, we cannot consider that the assessee’actually incurred the liability towards making of payment to them either under the LTC Scheme or under the LTC Encashment Scheme during this particular accounting year.
In this connection, we would like to quote from some of the papers submitted by the learned counsel for the assessee before us pelating to the decisions taken by the assessee-company clarifying the p6sition: As per Clause 1.4 of such ‘Subsequent decisions/clarifications’ relating to the LTC Encashment (page 5.5.11), the assessee was actually trying to stagger its liability in this regard throughout the entire block period. The said Clause 1.4 is being quoted below :-
1.4 Phasing out the encashment during the entire Block period:
The financial commitment on account of LTC encashment in the case of employees who are willing to encash the facility should be phased out over the entire period of four years in an equitable manner. Therefore, applications should be invited from the employees who are willing to encash for the block period and distribute the expenses on a monthly or quarterly basis based on the budget provision for the purpose. Ticket Number seniority should determine the priority payment. Employees who are transferred from one unit to another should be accommodated suitably in the priority list based on the original date of joining HMT in order to avoid injustice to persons.
It would be clear from above that the assessee itself wanted not to incur the entire liability during this year but on the other hand, tried its best to phase out the same amongst the different years covered by the block period under consideration. The assessee’s own conduct also, therefore, does not display that it had incurred the entire liability in this year alone. Taking into consideration all these facts and also the judicial pronouncements, as discussed above, we must come to the conclusion that the assessee did not actually incur the entire liability during this year. On the other hand, the liability actually incurred by the assessee by way of making payment or providing for such payments in respect of those employees who had already opted for the encashment scheme, has duly been claimed by the assessee by debiting the same in its accounts. Ultimately, therefore, we uphold the actions of the lower authorities in disallowing the claim of the assessee in this regard.
13. In ground No. 2, the assessee contends that the CIT(A) erred in setting aside the issue relating to allowance of deduction under Section 80HHC by considering the export turnover with reference to each category of goods and/or merchandise. With regard to the allowability of deduction at the rate of 5% on the incremental portion over the figure of export in the immediately preceding year, the assessee wanted to take into consideration only such items of goods/merchandise in which there was an actual increase in this year neglecting such other items where there was decrease in the figure of export as compared to the last year. The Assessing Officer, however, took into consideration the entire export for this year and compared the same with the total figure of export for the immediately preceding year and allowed the relief on the difference between the two figures. This issue was decided against the assessee in the order of the ITAT dated 21-9-1995 in ITA No. 1647(Bang.)/1989 for assessment year 1983-84. So far as the matter for this year is concerned, the CIT(A) set aside the matter to the Assessing Officer with a view to examine the issue afresh in the light of the decisions in the case of M.S.P. Exports (P.) Ltd., referred to by the assessee and after giving the assessee an opportunity to take appropriate decision in accordance with law.
We cannot find any fault with the abovementioned decision of the CIT(A) nor is there any merit in the claim of the assessee, according to us. Hence, this particular ground is being dismissed.
14. In the third ground/the assessee contends that the CIT(A) erred in holding that the assessee is not entitled to deduction under Section 80-1 on the eligible profits and gains of the undertakings on the basis of commercial profits for the first year of operation. In this regard, the assessee draws our attention to the language used in Sub-section (6) of Section 80-1 which speaks of allowance of the relevant deduction on the profits and gains of an industrial undertaking, etc., for the assessment year immediately succeeding the initial assessment year by computing the said profits and gains as if such industrial undertaking were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. The assessee contends in this connection that by using the expression “for the assessment year immediately succeeding the initial assessment year or in subsequent assessment year” in the relevant sub-section, the Legislature has kept the question of determination of the profits and gains of the undertaking for the initial assessment year open and hence, so far as the initial assessment year is concerned, the assessee can resort to the method of taking into account the commercial profits. This contention of the assessee has been negatived by both the lower authorities.
We do not find much merits in the argument of the assessee. Section 80AB does not state that its provisions would not cover Section 80-1. Hence, for the purpose of computation of the profits and gains of an undertaking either for the initial assessment year or for any subsequent year, even for allowing deduction under Section 80-1, the net profits as per computation in the income-tax assessment: are only required to be taken into consideration. The question of basing the deduction on commercial profits cannot, therefore, arise. Hence, we uphold the actions of the lower authorities in rejecting the claim of the assessee in this regard.
15. In ground No. 4, it is contended that the CIT(A) erred in holding that Section 80AB of the Act warrants computation of profits and gains as if each industrial undertaking was a separate assessee by itself.
This issue is covered in favour of revenue and against the assessee by the judgment of the Karnataka High Court dated 13-4-1992 in ITRC Nos. 104 and 105 of 1987 in the assessee’s own case for assessment year 1981 -82. Following the said line therefore, we also hold that the lower authorities have rightly considered each undertaking to be a separate assessee for the purpose of computation of the deduction under Section 80-1. We uphold the said actions.
16. In the result, the appeal filed by the assessee is dismissed.
17. Departmental appeal [ITA No. 1148(Bang.)/89]:
In the first ground in this departmental appeal, it is claimed that the CIT(A) erred in allowing the initial depreciation on the buildings including those, the WDVs in respect of which had merely been brought forward in this year. In this connection, the paragraphs 4 and 5 of the CIT(A)’s order detailing out the facts of the case, the issue involved and the decision of the CIT(A) thereon are being quoted below :
4. Vide ground No. 2, the appellant objects to the action of the I.A.C. in recomputing and reducing the W.D.V. on buildings on 1-4-1983 allowed in the earlier years on certain buildings ignoring the amended provisions of Section 32(1)(iv) and holding that they do not operate retrospectively and that recomputation of opening written down value is not permissible. The appellant claims that the statute was introduced with effect from 1984-85 by the Finance Act, 1983 which came into effect from 1-4-1984 which meant that initial depreciation admissible for assessment years commencing from 1984-85 will have to be deducted in arriving at the W.D.V. However, the Assessing Officer relied on the Board’s Circular No. 372 dated 8-12-1983 reported in 146 ITR 9 (St.) and applied the provisions retrospectively by recomputing the value of the W.D.V. in respect of closing balance of W.D.V. as on 31-3-1984 and deducted from the W.D.V. the same total allowance by way of initial depreciation allowable and allowed depreciation under Section 32(1)(if) of the Act only on such reduced W.D.V. According to the appellant, the Board’s circular relied upon by him does not even remotely suggest that the accumulated initial depreciation of all the past years will have to be deducted and the W.D.V. re-fixed as at 1st April, 1983 to work out the normal depreciation for the assessment year 1984-85. According to the appellant, the accumulated initial depreciation of all the past years aggregate to Rs. 50,76,360 on which the IAC has not allowed normal depreciation at 5% for the year 1984-85. The entire controversy relates to the following words detailed at the end of Clause (it) of Sub-section (1) of Section 32(1)(iv) of the I.T. Act, 1961 ‘but any such sum shall not be deductible in determining the W.D.V. for the purpose of Clause (if) of Sub-section (1)’. The words were deleted by the Finance Act, 1983, with effect from 1-4-1984 which meant that the initial depreciation admissible for assessment years commencing from 1984-85 will have to be reduced in arriving at the W.D.V.
5. I have gone through the reasonings of the appellant as well as the Circular No. 372 dated 8-12-1983 reported in 146 ITR 9 (St.) by the Assessing Officer. The circular contains the provisions relating to the direct taxes and at page 27 dealing with Item 14 under the title in Section 32 after discussing the clarification given at Para 22.5 gives the following clarifications. ‘These amendments shall take effect from 1-4-1985, apply in relation to the assessment year 1984-85 and subsequent year, admitting that the aforesaid amendments apply in computing the W.D.V. of such buildings for the assessment year 1984-85 even though the initial depreciation under the aforesaid provision have been allowed in the assessment year 1983-84 or any earlier assessment year’. These wordings of section in no way can be interpreted to imply that the provisions are to be adopted from retrospective effect and not from the prospective effect. Hence, the Assessing Officer was not justified in interpreting the Board’s circular in a different manner than those provided for in the wording of the amendment proposed by the Finance Act, 1983. Therefore, I allow the initial depreciation on the buildings including those which were brought forward during 1984-85 under Section 32(1)(i’v) in terms of the amended provisions of the Finance Act, 1983 with effect from April 1984. The appellant succeeds.
On examination of the amendment caused to Clause (iv) of Sub-section (1) of Section 32 by the Finance Act, 1983 with effect from 1-4-1984, we find that under the said amendment only the following expression was deleted:
but any such sum shall not be deductible in determining the written down value for the purposes of Clause (it) of Sub-section (1).
The expression “written down value” has been defined in Section 43(6) to mean in the case of assets acquired before the relevant previous year, the actual cost to the assessee less all depreciation actually allowed to him under the 1961 Act or any earlier Income-tax Act. There is a specific proviso added to this definition about “depreciation actually allowed” not including depreciation allowed under Sub-clauses (a), (b) and (c) of Clause (vi) of Sub-section (2) of Section 10 of the Indian Income-tax Act, 1922, where such depreciation was not deductible in determining the written down value for the purposes of the said Clause (vi). However, no amendment was brought to this definition under Section 43(6) by the Finance Act, 1983 under which the last expression in Clause (iv) of Section 32(1) was deleted, as mentioned above. This clearly shows that the deletion of the expression was to have prospective effect only and the written down value which stood already brought forward from earlier years as on 1 -4-1984, was not supposed to be disturbed by the amendment. Irvpther words, the purpose of the amendment was to treat initial depreciation allowable under Section 32(1)(iv) also at par with ordinary depreciation for the purpose of computation of written down value prospectively only. Whatever initial depreciation had been allowed in past in respect of which no deduction had been made in computing the written down value of the assets concerned, would not be affected by the amendment. Hence, we agree with the finding of the CIT(A) in this regard and uphold his decision.
18. The next two issues relate to the directions of the CIT (A) to allow extra-shift allowance on water system and sanitation and also on the capitalised documentation by following certain decisions of the ITAT for the earlier years. These two issues were decided in favour of the assessee by the judgments of the Karnataka High Court dated 13-4-1992 in ITRC Nos. 104 and 105/87 relating to assessment year 1981-82 and also dated 10-1 -1992 in ITRC No. 40 of 1987 regarding assessment year 1980-81. Following the said judgments therefore, we uphold the actions of the CIT(A) in these two matters also.
(SIC)
of the same should be disallowed under Section 3 7(3A). The Assessing Officer, however, disallowed this alternative claim also on the ground that he did not find anything worth mentioning which could be said to be having any advertisement value as far as the assessee-company was concerned. The other ground given by the Assessing Officer for disallowing the claim was that the revenue expenditure in this regard had been incurred in the accounting year 1981-82 and hence, the claim of the assessee towards advertisement could have been allowed at best in assessment year 1982-83 and not after that. The CIT(A), however, stated that the claim is justified by way of advertisement expenditure. He did not discuss the issues raised by the Assessing Officer in detail. We, therefore, consider it to be a fit case for remanding this matter back to the file of the CIT(A) for examining the issue at length as to whether the expense can really be considered as an advertisement expense and also from the angle of, even if it be so, whether the expense can be allowed in this year, as has been pointed out by the Assessing Officer. The CIT(A) should allow proper opportunity to both the sides to argue on this issue and thereafter take appropriate decision on the matter.
24. In the last ground, it has been contended that the CIT(A) erred in holding that the assessee is entitled to include the capital work-in-progress and the machinery and equipment in transit within the computation of “capital employed” for the purpose of allowing the benefit under Section 80 J to the assessee. The issue is squarely covered in favour of the assessee by the decision of the Karnataka High Court in the case of Ravi Machine Tools (P.) Ltd. v. CIT [1978] 114 ITR 459. Following the said decision, therefore, we uphold the action of the CIT(A).
25. In the result, the departmental appeal is partially allowed to the above-mentioned extent.