2001 (1) TMI 917 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the Department.
2. Eligibility for deduction under section 80HHC for export of processed mica.
3. Deduction of interest on loan paid to the bank.
4. Disallowance of motor car expenses and depreciation for personal use by directors.
5. Disallowance of estimated profit on sale of scrap.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The Department filed an appeal with an 11-day delay. The Tribunal, after hearing the representatives and reviewing the reasons provided, found the delay satisfactorily explained and condoned it, allowing the appeal to be considered on its merits.

2. Deduction under Section 80HHC:
The primary issue was whether the assessee, engaged in exporting processed and fabricated mica, was eligible for deduction under section 80HHC. The Assessing Officer had denied this deduction, arguing that the export of minerals and ores was not eligible for such benefits. However, the assessee contended that their product was not raw mica but a processed industrial product, supported by various certificates from authoritative bodies like the Mica Trading Corporation of India and the Engineering Export Promotion Council, which confirmed that the exported product was not a mineral.

The Commissioner of Income-tax (Appeals) agreed with the assessee, noting that the processed mica was distinct from raw mica and was eligible for deduction under section 80HHC. The Tribunal upheld this decision, emphasizing that the processed mica did not fall under the category of minerals and ores as per section 80HHC(2)(b)(ii). The Tribunal also referenced a previous Tribunal order and clarifications from the Central Board of Direct Taxes supporting this interpretation.

3. Deduction of Interest on Loan:
The Assessing Officer had disallowed the interest paid on a loan taken from a nationalized bank, arguing that the assessee had advanced an interest-free loan to a related company. The Commissioner of Income-tax (Appeals) had deleted this disallowance, accepting the assessee's argument that the loan was for business purposes. However, the Tribunal found that the assessee did not provide sufficient evidence that the loan was advanced out of business expediency. The Tribunal restored the Assessing Officer's disallowance of the interest, noting that the business transactions of the assessee and the loanee company were distinct and separate.

4. Disallowance of Motor Car Expenses and Depreciation:
The Assessing Officer had disallowed motor car expenses and depreciation on the grounds of personal use by the directors. The Commissioner of Income-tax (Appeals) allowed these expenses and depreciation, stating that any personal use by directors would constitute perquisites in their hands, but the company should be allowed the full expenditure. The Tribunal agreed with this view, deleting the disallowance of motor car expenses and allowing the depreciation.

5. Disallowance of Estimated Profit on Sale of Scrap:
The Assessing Officer had made an estimated addition to the assessee's income for the sale of scrap, arguing that expenses incurred for removing scrap indicated it was a saleable commodity. The Commissioner of Income-tax (Appeals) reduced this addition. The Tribunal, however, found the assessee's argument convincing that the scrap was essentially garbage with no market value, and the expenses were merely for clearing space. The Tribunal deleted the entire addition, noting that the Assessing Officer's estimation was based on presumptions without concrete evidence.

Conclusion:
The Department's appeal was partly allowed, specifically regarding the interest on loan disallowance, while other grounds were decided in favor of the assessee. The cross-objection by the assessee was allowed, leading to the deletion of disallowance related to motor car expenses and estimated profit on scrap sales.