2002 (9) TMI 256 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction under section 263 of the Income-tax Act, 1961.
2. Deduction of technical know-how fees and design and drawing expenses.
3. Interest-free advance to subsidiary company.
4. Deduction under section 80M for dividend income.

Summary:

1. Jurisdiction under section 263 of the Income-tax Act, 1961:
The assessee's appeal was directed against the CIT's order dated 19th January 1996, passed u/s 263 of the Income-tax Act, 1961. The primary grievance was that the CIT erred in assuming jurisdiction u/s 263, and that the order sought to be revised was neither erroneous in law nor on facts.

2. Deduction of technical know-how fees and design and drawing expenses:
The CIT pointed out that the assessee had claimed deductions of Rs. 14,30,416 and Rs. 15,51,373 for technical know-how fees and design and drawing expenses, respectively, which were wrongly allowed as these were capital expenses. The assessee contended that the technical fees were added back in the computation of income and only deduction u/s 35AB was claimed. For the design and drawing expenses, the assessee argued that these were for a specific order and should be considered as part of the cost of executing that order. The Tribunal found that the CIT did not adequately address these contentions and concluded that the view taken by the Assessing Officer was reasonable and within the scope of a possible view.

3. Interest-free advance to subsidiary company:
The CIT noted that the assessee had advanced an interest-free loan of Rs. 2,26,23,000 to its subsidiary despite having huge liabilities for interest. The CIT suggested that an amount of Rs. 18,45,901 should have been disallowed. The assessee argued that the advances were made from common pools of funds, including collections and profits, and cited several High Court judgments to support their case. The Tribunal found that the view taken by the Assessing Officer was reasonable and that the CIT's conclusion of a "colourable transaction" was devoid of any basis or material on record.

4. Deduction under section 80M for dividend income:
The CIT observed that it was not acceptable that such a huge dividend income was earned without any expenses and directed the Assessing Officer to ascertain the expenditure incurred in earning the dividend. The assessee maintained that no specific expenses were incurred in earning the dividend and that only actual expenditure could be deducted. The Tribunal supported this view, stating that notional or estimated expenses could not be allocated to dividend income for the purpose of deduction u/s 80M.

Conclusion:
The Tribunal concluded that the view taken by the Assessing Officer on all three issues was reasonable and that the CIT's order u/s 263 was unsustainable in law. The appeal was allowed, and the CIT's order was set aside.