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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. Summary: Issue 1: Addition of Rs. 7,11,029 for Hire-Purchase Charges The assessee-company, engaged in the manufacture and sale of ball pens and refills, claimed a deduction of Rs. 7,11,029 for hire-purchase charges payable to its sister concern, M/s. Samy Metal Tech Pvt. Ltd. The Assessing Officer (AO) observed that the transaction was primarily for raising finance of Rs. 60 lakhs from M/s. Lloyd Finance Ltd., which was not utilized for business purposes but was instead diverted to sister concerns as interest-free loans. The AO disallowed the deduction, concluding that the borrowal was not for business purposes. The CIT(A) upheld this disallowance, referencing a similar decision for the assessment year 1995-96. The Tribunal agreed with the AO and CIT(A), emphasizing that the assessee failed to prove that the borrowed amount was used for business purposes as required u/s 36(1)(iii) of the Income-tax Act. The Tribunal found no infirmity in the CIT(A)'s order and confirmed the addition of Rs. 7,11,029. Issue 2: Addition of Rs. 7,03,546 for Bank Interest and Bill Discounting Charges The AO disallowed Rs. 7,03,546 claimed by the assessee for Bank interest and bill discounting charges, noting that the borrowed funds were used to provide interest-free loans to sister concerns. The AO highlighted that the assessee had sundry debtors of Rs. 7.04 crores against a turnover of Rs. 2.33 crores, indicating non-business transactions. The CIT(A) upheld this disallowance, stating that the assessee failed to establish a nexus between the interest-free advances received and those given. The Tribunal concurred, noting that the assessee did not provide evidence to show that the interest-free loans were given from non-interest-bearing funds. The Tribunal cited relevant case law, including CIT v. Bombay Samachar Ltd. and CIT v. Hotel Savera, to support its decision. The Tribunal found no infirmity in the CIT(A)'s order and upheld the addition of Rs. 7,03,546. Conclusion: The appeal filed by the assessee-company was dismissed, with both additions being upheld by the Tribunal.
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