2003-VIL-195-ITAT-CHD

Equivalent Citation: [2004] 1 SOT 114 (CHD.)

Income Tax Appellate Tribunal CHANDIGARH

IT APPEAL NO. 1058 (CHD.) OF 1996

Date: 14.01.2003

PUNJAB WOOL COMBERS LTD.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

VIMAL GANDHI AND P.K. BANSAL, JJ.

JUDGMENT

P.K. Bansal, AM. - The assessee has come in appeal against the order of CIT(A)(c), Ludhiana, dated 24-7-1996 for the assessment year 1993-94 on the following grounds :

1.That the ld. CIT(A) has erred in law and on the facts while upholding the disallowance of Rs. 2 lacs out of interest paid during the year.

2.That the ld. CIT(A) has erred in law and on the facts while upholding the disallowance of proportionate premium payable on redemption of debenture as revenue expenditure.

3.That the ld. CIT(A) has erred in law and on the facts while disallowing Rs. 10,873 out of telephone expenses.

4.That the ld. CIT(A) has erroneously upheld the action of the learned Assessing Officer for the reduction of claim under section 80-I from Rs. 6,88,017 to nil.

5.That the ld. CIT(A) has erred in law and on the facts while rejecting the assessee’s contention that no adjustment in the relief claimed under section 80-I could be made in view of the order of Hon’ble ITAT in appellant’s own case for assessment year 1990-91.

6.That the ld. CIT(A) has erred in law and on the facts in upholding the action of reducing the claim under section 80HHC from Rs. 7,61,342 to Rs. 7,56,348.

2. In respect of Ground No. 1 which relates to upholding the disallowance of Rs. 2 lacs out of interest paid during the year, the Assessing Officer noted that there is a debit balance of Rs. 5 lacs each in the accounts of M/s. Manipur Vanaspati and Allied Inds., and M/s. Oswal Wools Ltd., on which no interest has been charged while the assessee has paid interest of Rs. 296.25 lacs on the loans raised by it. The assessee went in appeal before the CIT(A) and submitted before the CIT(A) that the assessee is a promoter of M/s. Oswal Wools Ltd. and M/s. Manipur Vanaspati & Allied Inds. The funds to Oswal Wools were given. These loans were advanced not during the year but in the year ending 31-3-1990. The funds were advanced for the purpose of business. No nexus was established between the money borrowed and the money given by the assessee. Therefore, no disallowance should be made on the basis that the funds have been put to use for non-business purposes. The CIT(A) confirmed the order of the Assessing Officer. Being aggrieved, the assessee has come in appeal before us.

2.1 We have heard the rival submissions and perused the material on record. We find force in the submissions of the assessee. The case of the assessee is duly covered by the decision of Karnataka High Court in the case of CIT v. Sridev Enterprises [1991] 59 Taxman 439 in which the Hon’ble High Court has held that no addition has been made in the earlier years, the opening balance could not be considered in the year in question for the purpose of computation of disallowance. The facts of the assessee are duly covered by the aforesaid decision because in the earlier year when the money was advanced by the assessee, the Assessing Officer did not make any disallowance and no finding has been recorded by the Assessing Officer that the money so advanced by the assessee to these parties was for non-business purposes. In the absence of findings by the Assessing Officer for the assessment year in which the money was advanced, we feel that no disallowance can be made during the year and accordingly we allow this ground of appeal of the assessee. Thus first ground of appeal filed by the assessee is allowed.

3. The Second ground of appeal relates to upholding of disallowance of proportionate premium payable on redemption of debentures. Ld. AR was fair enough to concede that this issue is duly covered against the assessee by the decision of Hon’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802 .

3.1 We, therefore, after perusing the facts of the case, are of the view that this ground of appeal is duly covered by the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. (supra) and accordingly we dismiss the second ground of appeal filed by the assessee.

4. The 3rd ground of appeal relates to the disallowance of Rs. 10,873 out of telephone expenses. After carefully considering the rival submissions, we find that this ground is duly covered in favour of the assessee by the order of ITAT Chandigarh Bench in ITA No. 1408/Chandi/94 for the assessment year 1990-91, a copy of which is filed before us in which this Tribunal has taken a view that in the case of a company where telephone facility is provided at the residence of the Director, wholly and exclusively for the business purposes of the assessee, no disallowance can be made in the hands of the company. Accordingly, following the said judgment, we allow this ground of appeal of the assessee and direct the Assessing Officer to delete the sum of Rs. 10,873.

5. Ground Nos. 4 & 5 relate to the reduction of claim of the assessee made under section 80-I from Rs. 6,88,017. After hearing the rival submissions and perusing the material on record, we find that the assessee has claimed a relief to the extent of Rs. 688017. The Assessing Officer noted that the spinning unit was not working independently and the combing unit first purchased greezy wool, manufactured wool tops and transferred these to the spinning unit and not at the prevailing market rate due to which the profit of the spinning unit got increased. Therefore, by applying provisions of section 80-I(6),(8),(9), the Assessing Officer made adjustment in the transfer price and after making other adjustments for administrative and other expenses, reduced the deduction of Rs. 6,88,017 to nil. Both the parties although agreed before us that this issue is duly covered by the order of this Tribunal in the earlier years, but from the facts on record, we find that in the earlier year, the Assessing Officer had adjusted the profit due to less charge of the transfer price from the market value but in this year on account of adjustment on account of difference in transfer price as well as sale price is only Rs. 60,172 while in this year, profit has been adjusted on account of allocation of the indirect expenses and increase in the value of the closing stock, beyond difference in transfer price. In respect difference due to transfer price. We have already in ITA No. 1057/Chandi/96, restored this issue to the file of the Assessing Officer directing the Assessing Officer that if difference between the market price and the transfer price is to the extent of .026% the same should be ignored and if it is in excess of .026%, then relief to the assessee in excess of .026%be

reduced. Accordingly we direct in respect of adjustment on account of difference in transfer price. Respectfully following the order for the assessment year 1992-93 by restoring this issue to the file of the Assessing Officer to reduce the relief if the market price is in excess of .026% of the transfer price, otherwise the relief need not be reduced but the adjustment on account of common indirect expenses and on account of reduction in profit due to increase in the value of the closing stock are hereby confirmed in the absence of any plea or arguments being advanced before us. We, therefore, restore these grounds of appeal to the file of the Assessing Officer directing him to recompute the deduction under section 80-I on the basis of our aforesaid findings.

6. Ground No. 6 relates to the reduction under section 80HHC from Rs. 7,61,342 to Rs. 7,56,348. Both the parties to the dispute agreed that this issue is duly covered in favour of the assessee by the decision of this Tribunal in the case of Malwa Cotton Spg. Mills Ltd. [IT Appeal Nos. 264 and 408 (Chd.) of 1996] where this Tribunal has taken a view that items like CST and ST (Central Sales Tax and Sales Tax) are not to be included in the total turn over. Following the judgment of Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769  and after giving our careful consideration, and following the aforesaid judgment of this Tribunal, restore the issue to the file of the Assessing Officer directing him that the CST and ST need not be included in the total turnover for the purpose of computation of deduction under section 80HHC. Accordingly, the Assessing Officer is directed to recompute the deduction under section 80HHC. Thus, the assessee succeeds on this ground.

7. In the result the appeal is partly allowed.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.