2006 (2) TMI 152 - HC - Income Tax

Summary

Issues:
1. Disallowance of interest on trade advance
2. Deduction under section 80HHC of the Income-tax Act

Issue 1: Disallowance of interest on trade advance
The appeal was filed against the Income-tax Appellate Tribunal's order disallowing interest on a trade advance of Rs. 15 lakhs. The Assessing Officer considered the transaction as diversion of borrowed funds for a non-business purpose and disallowed Rs. 2,70,000 of interest payable by the assessee. The Commissioner of Income-tax (Appeals) reversed the Assessing Officer's order, but the Tribunal restored it, holding the transaction as not genuine. The High Court, after hearing both parties, upheld the Tribunal's finding that the transaction was not genuine and dismissed the appeal. The court emphasized that the factual finding by the Tribunal on the transaction's genuineness is binding and cannot be disturbed in the absence of merit or legal questions raised by the appellant.

Issue 2: Deduction under section 80HHC of the Income-tax Act
The Tribunal disallowed the deduction under section 80HHC regarding certain receipts related to service charges, commission, and other incomes, as the appellant failed to establish a direct nexus between these receipts and export business profits. The Tribunal found no material on record proving the connection between the income derived from various charges and the export activities, leading to the disallowance. The High Court concurred with the Tribunal's decision, stating that without factual evidence demonstrating the nexus, the appellant cannot claim the benefit of deductions under section 80HHC. The court highlighted that it cannot decide factual issues afresh when the Tribunal did not provide any findings due to lack of evidence. Consequently, the High Court dismissed the appeal on this issue, upholding the Tribunal's decision.

In conclusion, the High Court upheld the Tribunal's findings on both issues, emphasizing the binding nature of factual determinations and the necessity of proving direct nexus for claiming deductions under the Income-tax Act.