V.P. ELHENCE, J.M.: ORDER These cross-appeals arise out of order dt. 14th Feb., 1984 of ld. CIT (A) IX, New Delhi. 2. assessee is company. assessment year involved in 1972-73. We take up assessee s appeal first. I.T.A. No. 1772/D/84 (Assessee s appeal) 3 . first ground relates to allowance of 50per cent depreciation in respect of plant and machinery installed in premises of J.K. Cotton Spg. & Wvg. Mills. We find that Tribunal for asst. yr. 1971-72 (Para 74 of order) and for asst. yr. 1975-76 (paras 21 to 23 of order) held that only 50per cent of depreciation was admissible. Following same, we find no force in this ground of appeal. 4. next ground relates to non-allowance of depreciation in respect of machinery installed in premises of Plastics Products Ltd. We find that Tribunal in asst. yr. 1971-72 (para 76 of order) and in asst. yr. 1975- 76 (paras 24 & 25 of order) held that no depreciation was admissible in respect of machinery installed in premises of Plastics Products Ltd. Following said orders, we find no force in this ground of appeal. 5. next ground relates to admissibility of Development Rebate on additions to plant and machinery installed in premises of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. and Plastics Products Ltd. We find that for asst. yr. 1971-72, Tribunal (vide paras 75 & 76 of order) had held that no development rebate was admissible on additions to plant and machinery in question. Respectfully following same, we find no force in this ground of appeal either. 6 . next ground relates to disallowance of 50per cent of insurance charges for machinery installed in premises of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. This disallowance was made by IT authorities in view of disallowance of 50per cent of depreciation. However, after hearing ld. Representatives, on both sides, we find that under s. 31, if machinery, plant or furniture is used for purposes of business or profession, amount of insurance premium is fully allowable. Since, there is no finding that machinery installed in premises of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. was not used for purposes of business or profession, in our view IT authorities were not justified in allowing only 50per cent of insurance charges. Insurance had to be made of machinery in any case and, therefore, assessee, in our view, is entitled under s. 31 of Act to full insurance charges. We hold accordingly. 7. next ground relates to allowance of Kamla Retreat expenses to extent of 50per cent only (Rs. 21,773). We find that for asst. yr. 1971-72, IAC had restricted disallowance to 50per cent of total claim of Rs. 83,048. Tribunal vide paras 111 to 114 restricted disallowance to 50per cent of 50per cent i.e. to 25per cent. For asst. yr. 1975-76, it was pointed out on behalf of assessee before Tribunal that Allahabad Bench of Tribunal in case of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. in I.T.A. No. 2029 and 2102/All/72-73 for asst. yrs. 1967-68 to 1969-70 had held that no part of Kamla Retreat expenses were of nature of entertainment. Allahabad Bench of Tribunal had also refused to allow reference under s. 256(1) for asst. yr. 1969-70 and Hon ble High Court did not allow reference on question under s. 256(2) for asst. yr. 1967-68. However, for asst. yr. 1975-76, Tribunal observing that facts in case of J.K. Cotton Spg. & Wvg. Mills Co. Ltd. for above mentioned assessment years, were not known, followed Tribunal s order for asst. yr. 1971-72. As already stated above, for asst. yr. 1971-72, disallowance had been kept at 50per cent of 50per cent and not at merely 50per cent. Therefore, respectfully following same, we are of view that disallowance should be kept at 50per cent of Rs. 21,773 i.e. at Rs. 10,886. assessee, therefore, partly succeeds on this ground. 8 . next ground relates to disallowance of Rs. 1,01,997 out of advertisement and publicity expenses. CIT(A) had confirmed disallowance on ground that Tribunal had upheld similar disallowance for asst. yr. 1971-72. Before us Shri Unni, ld. counsel for assessee relied upon paras 16 to 19 of order of Tribunal for asst. yr. 1975-76. He pointed out that for that year, Tribunal, following decision in case of Mohan Meakin Breweires Ltd. vs. CIT (1979) 11 CTR (HP) 49 : (1979) 118 ITR 101 (HP) and after referring to earlier decision of Tribunal for asst. yr. 1971-72, restored matter to file of ITO to examine matter in light of relevant provisions of s. 37(3) regardless of fact whether expenditure was of revenue nature or capital nature. After hearing ld. Departmental Representative, we are of view that similar direction as issued by Tribunal for asst. yr. 1975-76 should be issued to ITO and matter similarly restored to ITO for decision afresh. We hold accordingly. 9 . next two grounds namely ground Nos. 7 & 8 of assessee s appeal relate to (i) jurisdiction of ITO to reframe entire assessment and, (ii) claim regarding additional bonus of Rs. 13,06,542. However, at time of hearing of appeal, since they were not pressed n behalf of assessee before us, they no longer survive for our consideration. 1 0 . next ground relates to disallowance of Rs. 38,000 out of Director s remuneration. ld. CIT(A) confirmed disallowance, following his own order for asst. yr. 1980-81. For asst. yr. 1971-72, Tribunal had confirmed disallowance made by AAC, vide paras 80 & 81 of Tribunal s order. For asst. yr. 1975-76, Tribunal vide paras 12 to 15 of its order upheld disallowance made by CIT(A) by following Special Bench decision of Tribunal in Mettur Chemical & Industrial Corpn. Ltd. vs. ITO (1983) 3 ITD 612 (Mad)(SB). Following with respect said decisions, we find no force in this ground of appeal. 11. next ground relates to disallowance of Rs. 57,434 representing preference shares issue expenses. ld. CIT (A) had confirmed disallowance holding that expenses were of capital nature. After hearing ld. Representatives on both sides, we are of view that expenses relating by issue of capital were rightly taken by IT authorities to be of capital nature and disallowed. We hold accordingly. 12. next ground relates to disallowance of Rs. 84,417 out of mess expenses. total expenses under this head were Rs. 1,68,834 Considering part of these expenses as relating to entertainment of guests and part for employees, estimated disallowance of Rs. 1 lakh was made by ITO. Considering nature of expenses and possibilities, ld. CIT (A) maintained disallowance at 50per cent of total expenses i. e. at Rs. 84,417. Shri Unni, ld. counsel for assessee fairly admitted before us that there was no bifurcation of expenses on employees and guests. However. he pointed out that disallowance was still excessive. Reliance was placed by him on following decisions : (1) CIT vs. Patel Brothers & Co. Ltd. (1977) 106 ITR 424 (Guj) (2) CIT vs. Shah Nanji Nagsi 1978 CTR (Bom) 305 : (1979) 116 ITR 292 (Bom). (3) (1982) Taxation 65 (6) 1 (Del) Bench B We find from para 29 of order of there ITO that expenses were on tea, coffee, biscuits, cold drinks, etc., incurred for officers/staff/workers at Kota Factory branch office and at Kanpur. ITO had also remarked that most of t h e expenses were spent on employees. As such in our view disallowance needs to be kept at 1/4th of total amount claimed i. e. at Rs. 42,214 keeping in view decisions, referred to on behalf of assessee. 13. next ground relating to disallowance of foreign tour expenses to extent of Rs. 4,00,926 not having been pressed before us, at time of hearing of appeal, no longer survive for our consideration. 14. next, ground relates to disallowance out of general charges as follows : (a) Small presentations to business associates Rs. 27,134 (b) Lunches & dinners, etc., 28,908 (c) Guest house expenses 2,433 2,433 (d) Ad hoc disallowance 80,000 total claim of assessee was Rs. 3,57,078 out of which disallowance made by ITO was for Rs. 106,604. On this point, Department is also aggrieved. It has taken exception to deletion of disallowance of Rs. 48,129 on account of presentation to foreign business associates and reduction of disallowance of Rs. 1,50,000 to Rs. 80,000 on account of undetailed expenses ( referred to above as ad hoc disallowance). Shri Unni urged that expenses on foreign business associates are required to be allowed in view of decision of Hon ble Gujarat High Court in case of CIT vs. S. L. M. Maniklal Industries Ltd. (1977) 107 ITR 133 (Guj). He also referred to order of Tribunal for asst. yr. 1975-76. Next he pointed out that CIT(A) had allowed these expenses for asst. yr. 1980-81. We have heard ld. Departmental Representative also. So far as disallowance of Rs. 27,134 representing small presentation to business associates are concerned, assessee is right in pointing out that considerations applicable in respect of gifts to foreign assocites would be applicable in respect of gifts to Indian business associates also. assessee is right in pointing out that for asst. yr. 1980-81 these expenses had been allowed by CIT(A) himself vide order dt. 14th Feb., 1984 in appeal No. 97/83- 84. He did so, after relying upon decision of Gujarat High Court in case of S.L.M. Maniklal Industries (supra) as also on decision dt. 20th Dec., 1976 of Tribunal in ITA No. 445/D/75-76. We are, therefore, of view that this disallowance requires to be deleted. So far as lunches and dinners and guest house expenses are concerned, however, we do not find any justification for interfering with order of ld. CIT(A). Lastly we come to ad hoc disallowance of Rs. 80,000. In that connection, Shri Unni, ld. counsel for assessee drew our attention to statement showing general charges disallowance on ad hoc basis right from asst. yrs. 1970-71 to 1981-82. His point was that even though assessee had no details, we should evolve some formula or percentage on basis of past history and reduce ad hoc disallowance further. We have heard ld. Departmental Representative also on this ground. For 1970-71, no disallowance was made by ITO. For asst. yr. 1971-72, disallowance of Rs. 1,50,000 was made out of Rs. 3,80,631 by IT authorities. In appeal, Tribunal set aside matter of ITO for fresh examination of items below Rs. 1000 and to make such disallowance as may be warranted after scrutinising details. For that year, however, details had been filed by assessee. In this connection, para 85 of order of Tribunal for 1971-72 refers. For asst. yrs. 1973-74 and 1974-75, no assessments were made in view of stay order of Supreme Court. For asst. yr. 1976-77, out of total expenses of Rs. 3,86 lakhs, ITO ultimately retained disallowance of Rs. 15,000. For asst. yr. 1977-78, CIT(A) had deleted disallowance made by ITO. Similar was position for asst. yr. 1979-80. For asst. yr. 1978-79, disallowance of Rs. 25,172 out of Rs. 4,24, 23 5 was upheld. For asst. yr. 1980-81, out of total expense of Rs. 3,97,706, disallowance sustained by CIT(A) was Rs. 1 lakh. For asst. yr. 1981-82, CIT(A) upheld disallowance of Rs. 1,15,594 out of total expenses claimed at Rs. 8,00,928. After considering same as also facts and circumstances for assessment year in question, we are of view that no interference is called for in ad hoc disallowance maintained by ld. CIT(A) at Rs. 80,000. result is that on whole of this ground, assessee succeeds only party. 15. next ground relating to non-admission of claim of non- taxability of amount of Rs. 11,69,802 not having been pressed before us at time of hearing of appeal, no longer survives for our consideration. 1 6 . next ground relates to disallowance of Rs. 23 ,330 out of travelling expenses. details appear in para 33 of order of ITO. total claim was Rs. 17,65,325. ITO found from scrutiny of details that expenses were incurred on business friends, customers and dealers. details of disallowance expenses have also been given in ITO s order namely Rs. 25,897 were disallowed for 10 items specified therein and further amount of Rs. 8,361 was disallowed having been incurred on personal servant of Shri Sohanlal Singhania, total Rs. 34,258. disallowance was reduced by amount of Rs. 10,928 by considering three items out of aggregate of Rs. 25,897 (Rs. 5013+Rs. 1011+Rs. 4904) as allowable. After hearing ld. Representatives on both sides and looking into details, we find disallowance to be in order. 17. next ground relates to addition of Rs. 6,22,058 on account of closing stock of spare parts for machinery repairs. This disallowance was also sustained for asst. yr. 1971-72 (vide para 59 of Tribunal s order) and for 1975-76 (vide para 26 to 28 of Tribunal s order). We, therefore, find no reason or justification for taking contrary view. 18. next ground relates to s. 80J. On this ground, Department is also in appeal. claim related to Nylon Unit II for which asst. yr. 1972-73 is fourth year. CIT(A) directed ITO to compute relief in accordance with decision of Supreme Court on this issue. Now that Supreme Court has decided case of M/s Lohia Machines vs. Union of India (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC) we see no flaw in such direction. This ground, therefore, fails. 1 9 . next ground relates to claim for depreciation on scientific research assets. Here also, position is similar to s. 80J claim. ld. CIT(A) found that in view of retrospective amendment of s. 35(2)(iv), matter required to be set aside to ITO for fresh computation in light of judgment of Supreme Court. We find no flaw in such direction. This ground also, therefore, fails. 20. next ground relates to disallowance under s. 40A(5). Cash allowances had been included by ITO in perquisites for purposes of computation of disallowace under s. 40A(5). Following his own order for asst. yr. 1980-81, ld. CIT(A) directed ITO to recompute disallowance after excluding cash allowances from perqusites. Department is also in appeal on this point. After hearing ld. Representatives on both sides, we are of view that there is no reason or justification for any interference with order of CIT(A). This ground, therefore, fails. 21. last ground in assessee s appeal relates to charging of interest under ss. 139(8) and 215. cas of assessee is that ITO should have been directed to look into provisions of rr. 40 and 117A. However, ld. CIT(A) was under impression that assessee was only pleading for consequential relief on basis of re-computation of income. We find that for asst. yr. 1975-76, Tribunal vide para 20 of its order directed ITO to giving hearing to assessee in accordance with rr. 40 and 117A before levying interest under ss. 139(8) and 215. Respectfully following same, we give similar directions to ITO for asst. yr. 1975-76. 2 2 . In result, appeal filed by assessee partly succeeds as above. I.T.A. No. 1921/84 (Department s appeal) 2 3 . first ground relates to deletion of disallowance of Rs. 15,85,722 on account of interest pertaining to P.V.C. production period for Acrylic, Cement SSF and Nylon Tyre Cord Plants. ld. CIT(A) had deleted disallowance following order of Tribunal for asst. yr. (in this connection para 115 to 118 of Tribunal s order refer). Respectfully following Tribunal s order, we find no force in this ground. 2 4 . next ground relates to allowance of 50per cent of depreciation allowable on machinery installed at J.K. Cotton Spg. & Wvg. Mills Co. Lt.d, allowance of interest on machinery installed at J.K. Cotton Mills and allowance of insurance for machinery installed at J.K. Cotton Mills to extent of 50per cent. We have dealt with these four grounds while dealing with first four grounds of assessee s appeal. In view, thereof, there is no force in this ground. 25. next ground relates to allowance of development rebate on all units. Since ld. CIT(A) had directed ITO to allow development rebate on all units @ 25per cent in view of decision of Tribunal for asst. yr. 1971-72 (paras 75 and 76 of Tribunal s order refer in this connection), we find no force in this ground either. 2 6 . next ground relates to deletion of allowance of Rs. 5,11,597 on account of security deposit on cops. deletion was made by ld. CIT(A), following his own order for asst. yr. 1980-81. perusal of para 16 of order of ITO shows that excess deposit receipt by assessee had been held by him as income of assessee. There was no justification for considering it as income. We are of view that ld. CIT (A) was justified in deleting addition. We hold accordingly. 27. next ground relates to addition of Rs. 20 lakhs on account of closing stock of cops. ld. CIT (A) deleted addition, following his order for asst. yr. 1980-81. addition was made by ITO noficing figures of purchases of cops during asst. yrs. 1970-71, 1971-72 and 1972-73. We find from para 17 of order of ITO where he has discussed this point, that addition was made only on basis of surmises. He estimated addition on account of non-inclusion of cops in closing stock which was not justified. deletion of addition is, therefore, upheld. 28. next ground relates to deletion of amounts of Rs. 18,894 and Rs. 14,182 on account of foreign tour expenses of PAs to executives and PAs to directors respectively. ld. CIT (A) deleted these additions on ground that expenses relating to these PAs partook same character as directors/executives tour expenses. After hearing representatives on both sides, we are of view that Department could not say that they were personal expenses. PAs would have been taken by directors and executives with them only for business purpose which could not be called personal. There is, therefore, absolutely no justification for any interference with order of CIT (A) in that regard. 2 9 . next ground relates to deletion of disallowance of Rs. 48,129 on account of presentations to foreign business associates and reducing addition of Rs. 1,50,000 to Rs. 80,000 on account of undetailed expenses under head "General Charges" (Ad hoc disallowance). CIT (A) had allowed amount of Rs. 48,129 on basis of his order for asst. yr. 1980- 81 as also on basis of decision of Hon ble Gujarat High Court in case of CIT vs. S. L. M. Maniklal Idustries (supra). We are of view that allowance was on sound basis and calls for no interference. So far as ad hoc disallowance out of general charges is concerned, we have already discussed same which discussing ground No. 13 of assessee s appeal and in view thereof, there is no force in this sub-ground of appeal of Department. 30. next ground relates to deletion of addition of Rs. 1,90.055 out of legal charges. ld. CIT (A) following order of Tribunal for asst. yr. 1971-72 deleted disallowance, and withdrew depreciation and development rebate allowed with reference to said expenses. After hearing ld. Representative on both sides, we find that decision of Tribunal was based upon decision of Supreme Court in Case of Challapali Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) and in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC). Respectfully, following earlier decision of Tribunal, therefore we find no force in this ground. 31. next ground relates to s. 80J which we have already dealt with under ground No. 17 of assessee s appeal. There is, therefore, no force in this ground either. 3 2 . Similar is position regarding depreciation on assets relating to scientific research and depreciation on SSF unit and tyre cord unit @ 15per cent as against 10per cent allowed by ITO. first point has been dealt with by us under ground No. 18 of assessee s appeal on basis of Tribunal s order for asst. yr. 1975-76. Regarding SSF Unit and Tyre Cord Unit, decision of ld. CIT (A) is in accordance with decision of Tribunal for asst. yr. 1971-72. 33. next ground relates to deletion of addition of Rs. 20,09,620 on account of reduction in first grade production. assessee had shown first grade production at 73. 2per cent as against 80.9per cent considered reasonable. addition made represents value of deficiency of 7.7per cent for asst. yr. 1971-72, production of first grade yarn was 63.8per cent and on same basis, addition of Rs. 26.90 lakhs had been made. However, Tribunal vide Paras 37 to 49 of its order for asst. yr. 1971-72 deleted that addition. Since CIT (A) has deleted addition for assessment in question by following Tribunal s aforesaid order, there is no force in this ground. 3 4 . only other ground in Department s appeal relates to direction of CIT (A) for computing disallowance under s. 40A (5). We have already upheld order of CIT (A) while discussing ground No. 19 in assessee s appeal. There is, therefore no force in this ground either. 35. To sum up, therefore, we find no force in any of grounds of appeal raised on behalf of Department. 36. In result, whereas I. T. A. No. 1772 filed by assessee is partly allowed, I. T. A. No. 1921 filed by Department fails and is dismissed. *** INCOME TAX OFFICER v. J.K. SYNTHETICS LTD.