2002 (7) TMI 227 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest payments on borrowed funds for various investments.
2. Deduction u/s 80-I for sea-food products manufactured in IQF plants.

Summary:

1. Disallowance of Interest Payments on Borrowed Funds:
Investment in Subsidiary Company:
The Assessing Officer disallowed proportionate interest on borrowed funds used for acquiring equity shares in Geo Marine Exports (P.) Ltd., noting that only interest-bearing funds were available. The first appellate authority allowed the claim, recognizing the business exigency to increase seafood processing capacity. The Tribunal upheld this view, distinguishing it from the case cited by the revenue and agreeing that the investment was for business purposes.

Investment in Munnar Land Property:
The Commissioner (Appeals) deleted the disallowance of interest on borrowed funds used for purchasing property in Munnar, intended for construction purposes. The Tribunal upheld this decision, noting the property was initially acquired for business purposes and the assessee was in the construction business at the time.

Car Advance:
The Assessing Officer disallowed the interest on funds advanced for acquiring a foreign car for the Managing Director, as it was not registered in the company's name. The first appellate authority accepted the assessee's contention that the car was used for business purposes and later registered in the company's name. The Tribunal confirmed this, emphasizing the de facto ownership and business use of the car.

Loan to M/s. Choice Foundation:
The Assessing Officer disallowed interest on loans given to Choice Foundation, a charitable organization. The first appellate authority allowed the claim, noting the business benefits from the goodwill and publicity generated, which helped sell flats promoted by the assessee. The Tribunal upheld this view, distinguishing it from the case cited by the revenue and recognizing the business purpose of the loan.

2. Deduction u/s 80-I for Sea-Food Products:
The Assessing Officer disallowed the deduction u/s 80-I, arguing that IQF processing did not constitute manufacturing or production of a new article. The first appellate authority allowed the claim, referencing Kerala High Court decisions that processing fish amounts to production. The Tribunal upheld this, noting the extensive processing stages involved in IQF, which significantly altered the raw material, creating a commercially different product. The Tribunal distinguished this case from others cited by the revenue, emphasizing the unique and advanced nature of the IQF process.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, upholding the first appellate authority's decisions on all grounds.