1983 (4) TMI 69 - AT - Income Tax

Summary

Issues:
1. Deletion of Rs. 76,705
2. Classification of the assessee as an Industrial Company

Analysis:

Deletion of Rs. 76,705:
The case involved a private limited company manufacturing drugs and chemicals. The Income Tax Officer (ITO) added Rs. 76,705 to the company's income based on papers found during a search indicating commission payments to the Managing Director's wife. However, the Commissioner of Appeals (C(A)) deleted this addition. The Tribunal noted that the department failed to establish that the commission received was indeed the company's income. Despite the circumstantial evidence and the relationship between the recipient and the Managing Director, no direct evidence linked the commission to the company. The absence of evidence during a thorough search, coupled with the company's evidence showing non-payment of commissions, supported the C(A)'s decision to delete the addition. Therefore, the Tribunal upheld the deletion of Rs. 76,705.

Classification as an Industrial Company:
The second issue raised was whether the company could be classified as an industrial company under the Finance Act, 1977. The department contended that since the company did not manufacture drugs but outsourced the manufacturing process, it should not be considered an industrial company. However, the Tribunal referred to a previous decision by the Bombay High Court in the assessee's case for a different assessment year, where the High Court had accepted the company's classification as an industrial company. Citing this precedent, the Tribunal rejected the department's objection and upheld the classification of the assessee as an industrial company. Consequently, the departmental appeal was dismissed, affirming the company's status as an industrial company as per the Finance Act, 1977.