R.M. MEHTA, A.M.: appeal has been filed by Revenue whereas cross objection has been preferred by assessee. first two grounds in appeal of Revenue are taken up together as common arguments have been advanced. These grounds read as under: ld. CIT (A) erred in law and on facts in deleting addition made under s. 40A(5) on account of motor car expenses in excess of Rs. 5,400 per director. ld. CIT (A) erred in law and on facts in deleting addition made under s. 40A(5) on account of telephone expenses by treating same as perquisite. ITO in course of assessment proceedings held that 1/4th of car expenses and 1/5th of telephone expenses in respect of telephone installed at residence of Managing Director were to be treated as perquisites for purposes of working out disallowance under s. 40A(5) of IT Act. In appeal, ld. CIT(A) held that as far as car expenses were concerned, point was covered by earlier decision of Tribunal in case of assessee pertaining to asst. yr. 1979-80. It was accordingly held that addition made by ITO in working out disallowance under s. 40A(5), on account of motorcar expenses in excess of Rs. 5,400 per Director as laid down in r. 3 of IT Rules, 1962 was to be deleted. As regards telephone expenses, ld. CIT(A) followed decision of Hon'ble Calcutta High Court in case of CIT vs. Britania Industries Co. Ltd. (1981) 20 CTR (Cal) 272: (1982) 135 ITR 35 (Cal) as well as decision of Ahmedabad Benches of Tribunal in case of ITO vs. Laxmikant Bhagubhai. He accordingly held that nothing was to be considered as perquisite for purposes of s. 40A(5) of Act. CIT(A) also found that no amount had been treated as perquisite in personal assessments of two Managing Directors. aforesaid decision of CIT(A) has been challenged in first 2 grounds of appeal. ld. DR at outset relied on wording of s. 40A(1) to contend that provisions contained therein would apply irrespective of any other provisions of Act. According to him, disallowance had to be made strictly in accordance with aforesaid section and resort was not to be taken to any other provisions of Act. He further contended that no log book had been maintained in respect of cars and no register had been kept at residence of Managing Directors regarding telephone calls. It was further contended that both aforesaid items had to be considered for purposes of working out dis-allowance under s. 40A (5) of Act. For these arguments, he placed reliance on following judgments: Shree Sajjan Mills Ltd. vs. CIT (1985) 49 CTR (SC) 193: (1985) 156 ITR 585 (SC) American Express International Banking Corporation vs. IAC (1985) 4 SOT 263 (Bom) (SB) CIT vs. Common wealth Trust Ltd. (1982) 28 CTR (Ker) 311 (FB): (1982) 135 ITR 19 (Ker) (FB). It was further contended that r. 3 was applicable only for purposes of computing salary income and was not applicable for purposes of s. 40A(5) of Act. ld. counsel for assessee, on other hand, relied on earlier orders of Tribunal in case of assessee (page 17 of paper book) and order of Tribunal in case of Laxmikant Bhagubhai (page 24 of paper book). He also relied on decision of Hon'ble Calcutta High Court in case of Britania Industries Co. Ltd. (supra). We have examined rival contentions and have also perused case law cited by both sides. There is no doubt that there is order of Tribunal in respect of car expenses for earlier assessment year which is in favour of assessee and on which he has kly relied upon. However, on reference to order, we find that at time of hearing decision of Hon'ble Calcutta High Court in case of Britania Industries Co. Ltd. (supra) was referred to. This was accepted by Tribunal in view of fact that departmental representative did not cite any contra decision on point. In present appeal, however, ld. D.R. has referred to Special Bench decision of Bombay Tribunal (supra) which came in October, 1983, whereas earlier order of Tribunal was passed in June, 1983. We also observe that Special Bench has followed decision of Hon'ble Bombay High Court in case of Bombay Burmah Trading Corporation Ltd. vs. CIT (1983) 32 CTR (Bom) 306: (1983) 12 TAXMAN 178 (Bom). We also find that decision of Hon'ble Calcutta High Court in case of Britania Industries Co. Ltd. (supra) has been considered by Special Bench. We in fact note that Calcutta decision has been distinguished by Bombay High Court on "ground" that detail of expenditure was available in matter before them (Bombay High Court) and accordingly r. 3 had no application". This was however not so in case of Britania Industries Co. Ltd. (supra). As pointed out by ld. DR there is no log book or register maintained by assessee to deduce therefrom personal element. We accordingly follow earlier decision of Tribunal in assessee's case and confirm order of CIT(A) in respect of ground No. 1. As regards telephone expenses, we do not propose to disturb order of CIT (A) inasmuch as he has followed reasoning given by Tribunal in case of Laxmikant Bhagubhai (supra) with which we respectfully agree. As result ground No. 2 is also rejected. third ground in appeal of Revenue reads as under: "The learned CIT(A) erred in law and on facts in holding that cost of D.G. set amounting to Rs. 2,02,273 is allowable as revenue expenditure". ITO in course of assessment proceedings observed that assessee had claimed deduction amounting to Rs. 2,02,273 being cost of Diesel Generating Set as revenue - expenditure. ITO, however, rejected claim of assessee, as according to him, expenditure was of capital nature. He, however, held that assessee company would be entitled to depreciation as well as investment allowance. This matter was taken up in appeal - and before CIT(A) it was stated that Diesel Generating Set was installed as stand by in case of break-down or short-fall of electric power supply. It was further submitted that alternative power supply was of considerable importance in view of fact that regular power supply used to fail from time to time on account of power cut as well as system of staggering observed by authorities. It was also submitted that idea of installing Diesel Generating Set was to augment productivity of profit making structure by ensuring production as well as guarding against losses due to failure or short-fall of electricity supply. In support of his argument assessee relied on various reported cases which are mentioned in para 5(1) of order of CIT(A). assessee, however, placed k reliance on decision of Hon'ble Gujarat High Court in case of Sarabhai M. Chemicals Pvt. Ltd. vs. CIT (1981) 20 CTR (Guj) 68: (1981)127 ITR 74 (Guj) as well as decision of Hon'ble Supreme Court in cease of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113: (1980) 124 ITR 1 (SC). It was also submitted that Hon'ble Gujarat High Court had in fact followed aforesaid decision of Hon'ble Supreme Court. CIT(A) proceeded to allow claim of assessee by treating cost of Diesel Generating Set as revenue expenditure. It is this action of CIT(A) which is now challenged before us. ld. DR. in course of his arguments kly supported order of I T O to contend that CIT (A) had erred in treating cost of Diesel Generating Set as revenue expenditure whereas in fact it was item of capital expenditure. In course of his submissions he relied on decision of Hon'ble Supreme Court in case of CIT vs. Jalan Trading Company Pvt. Ltd. (1985) 48 CTR (SC) 182: (1985) 155 ITR 536 (SC). He drew our attention to observations at page 541 to press home his arguments. ld. counsel for assessee, on other hand, placed k reliance on order of CIT(A). It was contended that (1) item of expenditure was not in respect of initial outlay but was only alternative item of expenditure. (2) that it was not replacement but standby (3) acquisition of generator did not increase production but only maintained same production (4) that generating set could not, produce anything except electricity which was to be entirely used by assessee company and could not be given to outsider. ld. counsel also drew our attention to pages 28, 29 and 30 of his paper book. It was contended that assessee had originally capitalised cost of book. It was contended that assessee had originally capitalised cost of diesel generating set and had also claimed investment allowance and depreciation thereof. (page 28 of paper book). According to him, "no objection" had been obtained from Ahmedabad Electricity Company Ltd. for installing generating set (page 29 of peper book) and undertaking had also been given to Gujarat Electricity Board to effect that generating set would be used only standby and there will be no sale of power to others (page 30 of paper book). ld. counsel for assessee also drew support from judgment of Hon'ble Gujarat High Court in (1981) 127 ITR 74 (Guj) (supra) as well as judgment of Hon'ble Supreme Court in case of Empire Jute Company Ltd. (supra). We have examined rival contentions and have also perused case law cited by both sides. We find that decisions cited by ld. counsel for assessee are distinguishable on facts. In case of Sarabhai Chemicals Pvt. Ltd. (supra) point at issue was whether expenditure on laying new power lines by Electricity Board in increase supply of electricity to consumers was capital expenditure or revenue expenditure. assessee in that case along with other sister concerns located in same compound required more power for efficient working of their factories. agreement was entered into with Gujarat Electricity Board by which it was agreed to pay cable line charges to tune of Rs. 4,28,550 in four half-yearly instalments. This entire expenditure was shared by various companies including assessee. As consequence power supply was increased by Gujarat Electricity Board. It was held by Hon'ble Court that expenditure incurred by assessee company was for purposes of augmenting productivity of profit making structure and was allowable as revenue expenditure. distinguishing features between aforesaid judgment and present assessee which is before us are that (1) new power lines were laid to augment existing power lines since increased load could not be supplied by means of old power lines; (2) second distinguishing feature was that new lines laid in case of Sarabhai Chemicals Pvt. Ltd. & Others belonged to Gujarat Electricity Board and under terms of agreement it was open to Board to utilise these lines for supplying energy to other consumers as well; (3) company was in manufacturing business for number of years and payment was not initial outlay but was spent for getting increased supply of power. As against these facts (1) in case of present assessee before us, generating set was not in replacement of such type of equipment already with assessee; (2) generating set belonged to assessee and not to anybody else (3) cost of generating set was initial outlay being first purchase. According to us, decision in case of Sarabhai Chemicals (supra) would not apply to facts as obtaining in appeal before us. In case of Empire Jute Co. Ltd. (supra) as well, assessee had not purchased any asset but had only purchased "loomhours from other mills. According to arrangement between various mills it was working time agreement by means of which working hours of signatories were regulated. According to us this decision does not help assessee as it is distinguishable on facts. According to us, assessee in this case has purchased diesel generating set which no doubt may be standby in case of power failure. This generating set may not increase his production in any manner but it may only enable him to maintain existing production. However, this could not make it revenue expenditure inasmuch as assessee has with him as asset generating set which is his property and which is likely to give him enduring benefit for number of years. To accept same as revenue expenditure, on analogy that it is only standby and does not increase his production would be to bring about situation when every second item of capital nature would be treated as item of revenue expenditure since it is "standby". similar reasoning would mean that one office car as pointed out by DR is item of capital expenditure but second office case is revenue expenditure because it is "standby'. This could also be said of various items of office equipment such as almirah, chairs and tables and list would not finish. According to us this would result in ridiculous situation and would open floodgates of fresh spate of litigation between assessee and Department. According to us, this would not have been intention of legislature and we do not propose to interpret it so. We would accordingly reverse order of CIT(A) whereby he has treated cost of diesel generating set as item of revenue expenditure. order of ITO is generating set as item of revenue expenditure. order of ITO is restored and this ground of appeal is allowed. last ground in appeal of Revenue reads under: "The learned CIT(A) erred in law and on facts in holding that provisions of s. 40A(8) were not applicable in respect of interest paid to Directors and shareholders." ld. departmental representative has drawn our attention to Special Bench decision of Tribunal reported in Kaloomal Shorimal Sachdeo Rangwalla P. Ltd. vs. ITO (1985) 23 TTJ (Bom) 132 (SB): (1983) 14 ITD 248 (Bom) (SB). According to him issue was squarely covered by aforesaid decision in favour of Department. learned counsel for assessee, on other hand, placed before us copies of accounts of Directors at pages 31 to 36. It was contended that these accounts were not deposits as understood for purposes s. 45A(8). We are not inclined to accept arguments advanced by ld. counsel for assessee as point has been settled by aforesaid Special Bench decision. We would accordingly reverse order of CIT(A) and restore that of ITO. As result this ground is allowed in favour of Department. As result Revenue's appeal is partly allowed. As result of decision that we have taken in Revenue's appeal present cross objection becomes infructuous and is dismissed. *** INSPECTING ASSISTANT COMMISSIONER OF INCOME TAX v. CADILA LABORATORIES P. LTD.