2001 (5) TMI 134 - AT - Income Tax

Issues Involved:
1. Taxability of advance licence benefit receivable.
2. Deduction of interest claimed u/s 36(1)(iii).
3. Deduction of premium on leasehold land.
4. Disallowance of commission paid to directors.
5. Disallowance u/s 40A(3).
6. Disallowance under Rule 6B.
7. Deduction u/s 80M.
8. Deduction u/s 80-I and 80-IA.
9. Deduction u/s 80HHC.
10. Short granting of credit for tax deducted at source.
11. Levy of additional tax u/s 143(1A).
12. Disallowance of travelling and salary expenses for new units.
13. Addition u/s 40A(2)(b) for sales at differential rates.
14. Disallowance of interest paid.

Summary of Judgment:

1. Taxability of Advance Licence Benefit Receivable:
The Tribunal upheld the inclusion of advance licence benefit receivable in the total income for the assessment year 1995-96. It was held that the benefit accrues when the export obligation is fulfilled, not when the raw materials are imported. The assessee's argument that the benefit should only be accounted for when the raw materials are actually imported was rejected.

2. Deduction of Interest Claimed u/s 36(1)(iii):
The Tribunal allowed the deduction of interest capitalized in the books of account for the unit under construction at Jhagadia, reversing the CIT(A)'s decision. It was held that interest on borrowings for the purpose of expansion of the existing business is allowable under section 36(1)(iii).

3. Deduction of Premium on Leasehold Land:
The Tribunal rejected the claim for the deduction of the entire premium paid for acquiring leasehold rights, holding it as a capital expenditure. The alternative claim for proportionate deduction over the lease period was also rejected as there is no provision in the IT Act for amortization of such capital expenditure.

4. Disallowance of Commission Paid to Directors:
The Tribunal allowed the deduction of commission paid to directors, holding that the liability to pay the commission accrued at the end of the relevant year and was in accordance with the terms of their appointment.

5. Disallowance u/s 40A(3):
The Tribunal deleted the disallowance of Rs.87,266 made under section 40A(3), accepting the assessee's contention that the payments were made under exceptional circumstances as per Rule 6DD(j).

6. Disallowance under Rule 6B:
The Tribunal deleted the disallowance of Rs.3,43,635 made under Rule 6B, holding that the presentation articles given to business associates and customers did not bear the logo or name of the company and were not in the nature of advertisement.

7. Deduction u/s 80M:
The Tribunal upheld the reduction of Rs.2 lacs from the gross dividend income for computing deduction under section 80M, as the assessee did not incur any specific expenditure for earning the dividend income.

8. Deduction u/s 80-I and 80-IA:
The Tribunal held that the deductions under sections 80-I and 80-IA should be computed on the profits of the eligible industrial undertakings without restricting the total deduction to 30% of the gross total income. The claim for deduction without deducting depreciation was rejected.

9. Deduction u/s 80HHC:
The Tribunal directed the exclusion of excise duty from the total turnover for computing the deduction under section 80HHC, following the Bombay High Court's decision in Sudarshan Chemicals Industries Ltd. The issues related to reducing 90% of certain incomes and netting off negative profits of traded goods were remanded to the CIT(A) for fresh consideration.

10. Short Granting of Credit for Tax Deducted at Source:
The Tribunal directed the Assessing Officer to grant credit for tax deducted at source after necessary verification.

11. Levy of Additional Tax u/s 143(1A):
The Tribunal directed the Assessing Officer to recompute the additional tax levied under section 143(1A) in accordance with the assessment order passed under section 143(3) and subsequent appeals.

12. Disallowance of Travelling and Salary Expenses for New Units:
The Tribunal upheld the CIT(A)'s decision to allow the deduction of travelling and salary expenses related to the setting up of new units as revenue expenditure, holding that these expenses were part of the expansion of the existing business.

13. Addition u/s 40A(2)(b) for Sales at Differential Rates:
The Tribunal confirmed the CIT(A)'s decision to set aside the issue of addition made under section 40A(2)(b) for sales at differential rates, directing the Assessing Officer to verify the evidence and decide afresh.

14. Disallowance of Interest Paid:
The Tribunal upheld the CIT(A)'s decision to set aside the issue of disallowance of interest paid and remanded it to the Assessing Officer for fresh consideration based on complete evidence.

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