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Issues Involved:
1. Addition of Rs. 7,11,029 referable to the claim of deduction on account of payment of hire-purchase charges. 2. Addition of Rs. 7,03,546 referable to the disallowance of Bank interest, bill discounting charges, etc. Issue 1: Addition of Rs. 7,11,029 referable to the claim of deduction on account of payment of hire-purchase charges 2. Ground No. 1 is with regard to the addition of Rs. 7,11,029 referable to the claim of deduction on account of payment of hire-purchase charges. The assessee is engaged in the business of manufacture and sale of ball pens, refill etc. On a total turnover of Rs. 2.33 crores, the assessee incurred a commercial loss of Rs. 13.41 lakhs and the sundry debtors were to the tune of Rs. 7.04 crores. For the assessment year 1996-97, the assessee filed a return showing loss of Rs. 10,33,885 which was originally processed u/s 143(1)(a) of the Act but later taken up for scrutiny and accordingly notices were issued u/s 143(2) and 142(1) of the Income-tax Act. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee claimed deduction of hire-purchase charges of Rs. 7,11,029 towards amount payable to sister concern M/s. Samy Metal Tech Pvt. Ltd. The assessee submitted that the plant and machinery available with the assessee-company was originally intended to be sold to the sister concern. M/s. Samy Metal Tech Pvt. Ltd. with an understanding that the machinery sold to the sister concern would be given to the assessee on hire purchase basis. M/s. Samy Metal Tech Pvt. Ltd. had raised finance of more than Rs. 60 lakhs from M/s. Lloyd Finance Ltd. M/s. Lloyd Finance Ltd. has directly paid a sum of Rs. 60 lakhs to the assessee-company. However, M/s. Samy Metal Tech Pvt. Ltd. did not purchase the machinery from the assessee for some reason and thus the assessee had to repay the loan to M/s. Lloyd Finance. Since the assessee had no money to repay the financier, it continued to carry on the amount in its book as loan and continued to bear the interest and finance charges for this year. It was, therefore, submitted that the amount paid to the financier is allowable as deduction from its business income. 3. The Assessing Officer noticed that the balance sheet of the company as well as Samy Metal Tech Pvt. Ltd. do not show any entry in respect of finance raised for this transaction and the assessee-company could not produce its books of account on the ground that the sales-tax authorities had impounded the books. Thus, he concluded that prima facie the transaction was with a view to raise the finance of Rs. 60 lakhs and thus the claim of deduction of hire purchase charges is, in fact, regarding payment of finance charges to M/s. Lloyd Finance. He also noticed that soon after receiving the fund, the assessee-company had passed on the funds on the same date to its sister group of concern free of interest. He also observed that a perusal of details of interest-free loans and advances clearly indicate that there was absolutely no necessity for the assessee-company to raise a sum of Rs. 60 lakhs from Lloyd Finance through Samy Metal Tech Pvt. Ltd., except for funding its sister group of concerns by way of interest-free loan. Under these circumstances, the Assessing Officer concluded that the borrowal of fund was not for the purpose of carrying on the business of the assessee-company but for the purpose of giving interest-free loan to the sister concern. 4. Before the ld. CIT(A), the assessee contended that the Assessing Officer erred in disallowing the hire purchase charges without clearly establishing that the fund was utilised for other than business purposes. Without prejudice to the above contention, it was submitted that interest-free loan and long credits to debtors were wholly financed through the interest-free loans received by the assessee from the other group concerns and the loans so granted were more than compensated by the loans so received. Hence, no part of the hire purchase finance obtained was utilised for the purpose of granting loan. The ld. CIT(A) rejected the contention of the assessee for the reasons given by him in the orders dated 24-3-1999 in the case of the assessee for the assessment year 1995-96. 5. Further aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel referred to page-1 of the Paper Book to submit that when the amount was received by the assessee, it was considered
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