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Issues Involved:
1. Addition on account of perquisite value of machinery. 2. Addition of interest income from four parties. 3. Disallowance under Section 80-IB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Addition on Account of Perquisite Value of Machinery: The first issue concerns the addition of Rs. 12,30,149 as the perquisite value of machinery, calculated as the difference between the written down value (WDV) of Rs. 17,12,893 as per the Companies Act and the purchase price of Rs. 4,82,744 from M/s. G.G. Photo Ltd. The assessee argued that the WDV is not equivalent to the market value and that the machinery was transferred at its market value of Rs. 4,83,744. The Tribunal noted that the Assessing Officer (AO) did not provide sufficient evidence to support the claim that the market value was Rs. 17,12,893. The Tribunal also emphasized that the AO did not conduct a proper valuation by an approved valuer or technically competent person. Consequently, the Tribunal allowed the assessee's appeal on this ground, holding that the difference should not be treated as a perquisite. 2. Addition of Interest Income from Four Parties: The second issue pertains to the addition of Rs. 10,01,161 as interest income from four parties, which the assessee claimed were "sticky loans" and thus did not accrue interest income. The AO added the interest income based on the mercantile system of accounting, citing various judicial precedents. However, the Tribunal referred to Accounting Standard 9 and guidelines from the Reserve Bank of India, which state that revenue recognition should be postponed if there is uncertainty regarding ultimate collection. The Tribunal also cited the decision of the jurisdictional High Court in the case of State Bank of India, which held that only real income should be taxed. Since the assessee had not received the interest and even the principal amount was doubtful, the Tribunal allowed the assessee's appeal on this ground. 3. Disallowance under Section 80-IB of the Income-tax Act, 1961: The third and most complex issue involves the disallowance of Rs. 3,39,32,311 under Section 80-IB. The AO held that the business of Photo Film Industries (PFI) was a mere reconstruction of the business of M/s. G.G. Photo Ltd. (GGPL) and thus did not qualify as a new industrial undertaking. The AO based his conclusion on several factors, including the identical nature of the business, the same employees, and the use of the same machinery and premises. The AO also noted that the machinery was transferred at a low cost to comply with the conditions under Section 80-IB(2)(ii). The Tribunal, however, found several procedural lapses and inconsistencies in the AO's approach: - The AO did not provide the assessee with an opportunity to cross-examine the employees whose statements were used against the assessee. - The AO selectively used portions of statements that were favorable to the revenue while ignoring parts that were favorable to the assessee. - The Tribunal noted that the State Government had granted Sales Tax exemption to the assessee, recognizing it as a new industrial undertaking. The Tribunal concluded that the conditions laid down under Section 80-IB(2) read with Explanation 2 were satisfied. Consequently, the Tribunal allowed the assessee's claim for deduction under Section 80-IB. Conclusion: The Tribunal allowed the appeal of the assessee on all three grounds. The addition of Rs. 12,30,149 as perquisite value of machinery was deleted, the addition of Rs. 10,01,161 as interest income was also deleted, and the disallowance of Rs. 3,39,32,311 under Section 80-IB was reversed, allowing the assessee the deduction.
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