2002 (9) TMI 793 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest paid by the assessee.
2. Disallowance of club entrance fees.
3. Deduction under section 80HHC of the Act.

Issue 1: Disallowance of Interest Paid by the Assessee:

The Assessing Officer disallowed interest paid by the assessee, claiming that deposits to directors and relatives were interest-free while the assessee claimed interest on borrowed funds. The CIT(A) upheld this disallowance, stating the company diverted its funds to directors interest-free. The tribunal found no tax avoidance device, as directors purchased office premises earlier. The tribunal ruled in favor of the assessee, stating the benefit from office premises exceeded potential interest on advanced funds.

Issue 2: Disallowance of Club Entrance Fees:

The Assessing Officer disallowed club entrance fees as capital expenditure, upheld by the CIT(A). The tribunal, citing a Delhi High Court case, ruled the fees were for business expediency, not capital in nature. Thus, the disallowance was deemed incorrect, and the addition was deleted.

Issue 3: Deduction under Section 80HHC of the Act:

Regarding the deduction under section 80HHC for the assessment year 1989-90, the issue was whether freight and insurance should be included in total turnover. Citing a Bombay High Court decision, the tribunal directed the exclusion of freight and insurance charges from export turnover and total turnover as they lacked nexus with sales proceeds. The Assessing Officer was instructed to recompute the deduction under section 80HHC accordingly.

In conclusion, the tribunal allowed the appeals, ruling in favor of the assessee on all three issues.