IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No.161 of 2002 Date of decision: 20.7.2010 The Commissioner of Income Tax, Rohtak -----Appellant Vs. The Atlas Cycle Industries Limited, Sonepat ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Krishan Kumar Mehta, Advocate for the revenue. Mr. Akshay Bhan, Advocate for the assessee. Adarsh Kumar Goel,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) against order dated 17.1.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi in ITA No.3409/Del/94 for the assessment year 1984-85, proposing to raise following substantial questions of law:- i) Whether on the facts and circumstances of the case, the ITAT was justified in law in directing the A.O. to recompute the disallowance under section 37(3A) of the IT Act, 1961? ITA No.161 of 2002 ii) Whether, on the facts and circumstances of the case, the ITAT was justified in law in confirming the direction of the CIT(A) that 40% of Rs.1,86,140/- was to be allowed as expenditure under section 37(2) of the IT Act, 1961? iii) Whether, on the facts and circumstances of the case, the ITAT was justified in law in directing the AO not to charge interest under section 216 of the IT Act, 1961? iv) Whether on the facts and circumstances of the case, the ITAT was justified in law in confirming the order of CIT(A) directing deletion of Rs.26,958/- which was not held to be business expenditure? 2. The assessee filed its return but the same was revised by reducing taxable income after claiming deductions under sections 37(3A) and 37(2) of the Act and validity thereof was put in issue during the assessment. Further question was whether interest liability will be assessed on the basis of estimate of advance tax or tax found to be chargeable. On the said questions, the Assessing Officer having decided against the assessee, the matter was taken up in appeal and the CIT(A) reversed the view of the Assessing Officer in not allowing expenditure on car insurance and car repairs falling under section 31 of the Act. It was held that the special provision under section 37(3A) of the Act could only override Section 37 and not Section 31. As regards disallowance under section 37(2), the CIT (A) held that the same had to be limited to the expenditure attributable to the employees of the assessee. Thus, permissible deduction was increased from 25% as allowed by the Assessing Officer to 40%. With regard to 2 ITA No.161 of 2002 interest under section 216 of the Act, the CIT(A) held that the interest will not be chargeable under section 216. The CIT(A) also deleted the addition relating to deduction under the head ‘Sales promotion expenditure’. Finding of the Assessing Officer that there was no material to show the said expenditure was business expenditure was reversed. View of the CIT(A) was upheld by the Tribunal. 3. We have heard learned counsel for the parties and perused the record. 4. Before recording our findings on the issues raised, it will be worthwhile to advert to the findings recorded by the CIT(A) on all the four questions proposed by the revenue:- Re: (i) “As regards disallowance of Rs.21,38,490/- at para 8, ld. CIT(A) vide his order, supra held that Ld. AO was not justified in including the expenditure on cars insurance and cars repairs in expenditure of the type mentioned in section 37(3A)(3B). Following the order of ld. Tribunal, Bombay Bench in the case of B.A.Bros (Bombay) Pvt. Limited v. ITO (ITA No.1027 (BCM)/1985, ld. CIT(A) held that repair of cars is repair to plant and machinery and the same is allowable as deduction under section 31 of the IT Act. He further held that since Section 37(3A) overrides only section 37(1) and does not override section 31, cars repair/insurance is separately allowable as deduction under section 31 of the Act.” Re: (ii) “Similar issue was decided by the ld. CIT(A) Karnal in the assessment year 1985-86 in the case of the assessee vide his order dated 17.10.1990 in appeal No.113/87-88, supra, ld. CIT(A) held that 40% of the disallowance was allowable expenditure. Respectfully, following the order of ld. CIT (A), supra, 40% of disallowance of Rs.1,86,140/- is allowed 3 ITA No.161 of 2002 as allowable expenditure. Appellant gets relief of Rs.74,456/-. This ground is partly allowed.” Re: (iii) “At the time of hearing of the appeal, ld. Counsel submitted that interest under section 216 was not chargeable. He argued that in view of amendment to sections 28 and 43B which have retrospective effect, advance tax installments would have been in accordance with the total income estimated at the time of payment of advance tax, installment. As such, ld. AO was wrong in charging interest under section 216 of the Act.” Re: (iv) “Disallowance of Rs.45,972/-, Rs.29,658, Rs.10,619/-, Rs.5983/- are deleted (para Nos.4 to 7).” 5. When this appeal came up for hearing earlier alongwith ITA No.163 of 2002 on 4.2.2009, the revenue was directed to file affidavit as to why in some cases, appeals were not filed and to consider whether the revenue should be allowed to proceed with the present appeal as per principles laid down by the Hon’ble Supreme Court in CIT, Central, Kanpur v. J.K.Charitable Trust, 2008 Vol.175 Taxman Tax Reports 251. No affidavit has been filed on behalf of the revenue. Inspite of absence of any affidavit by the revenue, we have considered the merits on the questions raised particularly in view of pronouncement of the Hon’ble Supreme Court dated 5.10.2005 in Britannia Industries Limited v. CIT (2005) 278 ITR 546, dealing with some of the issues. It is no longer in dispute that provisions of section 37(3A) of the Act as well as Section 37(2) of the Act have to be given effect to irrespective of any other provision dealing with the matters covered thereby. The said provisions override not only section 4 ITA No.161 of 2002 37(1) but also Section 31 which was invoked by the assessee before the CIT (A). Accordingly, question (i) has to be decided in favour of the revenue. 6. Question (ii) has to be decided against the revenue being matter of assessment of the quantum of expenditure attributable to disallowance under section 37(2) and the permissible expenditure. 7. Adverting to Question No.(iii), in view of the Apex Court judgment in CIT v. Anjum M.H.Ghaswala and others, (2001) 252 ITR 1, the interest under Section 216 was chargeable and the Tribunal was not justified in directing otherwise. The question is, thus, answered in favour of the revenue. 8. Question No.(iv) has to be decided against the revenue being based on finding of fact. The appeal stands decided accordingly. (Adarsh Kumar Goel) Judge July 20, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 5