2001 (6) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Unexplained Cash Credit u/s 68 of the Income-tax Act, 1961.
2. Disallowance of Interest on Interest-Free Advances.
3. Deduction of Technical Know-How u/s 35AB of the Income-tax Act, 1961.

Summary:

1. Unexplained Cash Credit u/s 68 of the Income-tax Act, 1961:

The department challenged the deletion of additions made on account of unexplained cash credit of Rs. 1,64,70,000 and Rs. 45 lakhs u/s 68. The Assessing Officer (AO) had disallowed these amounts, questioning the genuineness and capacity of the shareholders. The CIT (Appeals) deleted these additions, stating that the assessee had provided sufficient evidence to prove the genuineness of the transactions. The Tribunal upheld the CIT (Appeals)'s decision, noting that the assessee had filed comprehensive details, including confirmation letters, annual accounts, and assessment orders of the shareholders. The Tribunal referred to the decisions in CIT v. Stellar Investment Ltd. and CIT v. Sophia Finance Ltd., concluding that the identity and existence of the shareholders were established, and hence, no further inquiry was required. The Tribunal found no infirmity in the CIT (Appeals)'s order and dismissed the department's appeal.

2. Disallowance of Interest on Interest-Free Advances:

The AO disallowed interest expenses of Rs. 29,00,148 and Rs. 3,18,819, claiming that the assessee had diverted funds for non-business purposes by advancing interest-free loans to M/s DITL. The CIT (Appeals) deleted these additions, noting that the assessee had sufficient non-interest-bearing funds and advances received from customers. The Tribunal upheld the CIT (Appeals)'s decision, stating that the advances were made from surplus funds on which no interest was paid. The Tribunal confirmed that there was no nexus between the interest-bearing funds and the interest-free advances, thereby dismissing the department's appeal on this issue.

3. Deduction of Technical Know-How u/s 35AB of the Income-tax Act, 1961:

The assessee appealed against the disallowance of the claim for deduction of technical know-how u/s 35AB. The AO and CIT (Appeals) had rejected the claim, suspecting that the payment of Rs. 70 lakhs was made to revive the subsidiary company, M/s DEIL, rather than for genuine technical know-how. The Tribunal, after reviewing the submissions and evidence, concluded that the payment was genuine and the technical know-how was beneficial to the assessee's business, resulting in substantial profits. The Tribunal directed the AO to allow the claim of amortization at 1/6th u/s 35AB, thereby allowing the assessee's appeal.

Conclusion:

The Tribunal dismissed the department's appeal and allowed the assessee's appeal, affirming the CIT (Appeals)'s decisions on all issues.