2008 (1) TMI 898 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest paid to the bank due to diversion of funds to sister concerns.
2. Treatment of DEPB receipts as export incentives for computing deduction u/s 80HHC.
3. Eligibility of export turnover through export house for deduction u/s 80HHC.
4. Deduction u/s 43B for Employee's contribution to PF and ESI.

Summary:

1. Disallowance of Interest Paid to the Bank:
The first issue was whether the CIT(A) was justified in confirming the disallowance made by the Assessing Officer from the interest paid to the bank, reasoning that the funds borrowed were diverted by way of interest-free advances to sister concerns. The assessee argued that the advances were business-related and made from surplus interest-free funds. The Tribunal noted that many transactions were journal entries and not actual cash transfers, and there was a business nexus between the assessee and its sister concerns. Citing the Supreme Court's decision in S.A. Builders Ltd. v. CIT, the Tribunal held that the advances were made for commercial expediency and deleted the disallowance of Rs. 1,15,80,772.

2. Treatment of DEPB Receipts:
The second issue was the treatment of DEPB receipts of Rs. 2,24,28,263 as export incentives for computing deduction u/s 80HHC. The Assessing Officer had reduced 90% of the DEPB receipts, while the CIT(A) directed a 100% reduction. The Tribunal noted that the Taxation Laws (Amendment) Act 2005 was not considered by the lower authorities and remanded the issue back to the CIT(A) for fresh adjudication in light of the amendment.

3. Export Turnover Through Export House:
The third issue was whether export turnover through an export house was eligible for deduction u/s 80HHC. The Assessing Officer had excluded Rs. 34,80,93,567 from the computation, and the CIT(A) upheld this decision, relying on the Kerala High Court's decision in CIT v. Janatha Cashew Exporting Co. The Tribunal, following the jurisdictional High Court's decision, upheld the CIT(A)'s findings.

4. Deduction u/s 43B for Employee's Contribution to PF and ESI:
The final issue was the claim of deduction u/s 43B for Employee's contribution to PF and ESI. The Assessing Officer disallowed the deduction as the contributions were not remitted on or before the due dates, and the CIT(A) upheld this finding. The Tribunal noted that the assessee failed to provide evidence of timely payments and remanded the issue back to the Assessing Officer to verify the payment dates and decide the issue in accordance with the law.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded for further verification and adjudication.