1989 (10) TMI 90 - AT - Income Tax

Issues Involved:
1. Deletion of disallowance of bank interest.
2. Deletion of addition towards price less charged from sister concerns.
3. Deletion of addition on account of export benefits passed onto sister concern.
4. Allowance of further weighted deduction under Section 35B.
5. Deletion of addition towards building rent.
6. Deletion of disallowance of foreign agents' commission.
7. Deletion of addition on account of building rent from bank.
8. Allowance of depreciation on TV set.
9. Cross objection on weighted deduction under Section 35B.
10. Additional ground on Cash Compensatory Support (CCS) as capital receipt.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Bank Interest:
The CIT(A) deleted the disallowance of Rs. 51,499 made by the ITO, who argued that the interest pertains to borrowings utilized by the assessee's sister concerns, not for the assessee's business. The CIT(A) found that the packing credit account was squared up only against export proceeds, not diverted to sister concerns. The ITAT upheld the CIT(A)'s order, agreeing that no part of the funds from the packing credit account was diverted to sister concerns.

2. Deletion of Addition Towards Price Less Charged from Sister Concerns:
The ITO added Rs. 30,000, alleging that the assessee sold zips to its sister concern at below cost. The CIT(A) deleted this addition, accepting the assessee's explanation that the zips were sold at cost price due to entitlement to custom duty and duty drawback claims. The ITAT upheld the CIT(A)'s order, noting that the Revenue did not prove that the sales at lesser rates reduced the tax liability.

3. Deletion of Addition on Account of Export Benefits Passed Onto Sister Concern:
The ITO included Rs. 27,716 as income, arguing that export incentives should be retained by the assessee per an agreement dated 1st Nov., 1978. The CIT(A) deleted this addition, relying on a modified agreement dated 3rd April, 1980, which stated that incentives should be passed on to M/s Lifo International. The ITAT agreed with the CIT(A), emphasizing that the modified agreement governed the relevant period.

4. Allowance of Further Weighted Deduction Under Section 35B:
The ITO disallowed the weighted deduction claimed by the assessee under Section 35B, as the relevant sub-clauses were omitted by the Finance (No. 2) Act, 1980, effective from 1st April, 1981. The CIT(A) allowed the claim, but the ITAT reversed this decision, holding that Rule 6AA(c), which prescribed the expenditure, was inserted w.e.f. 1st August, 1981, and was not applicable retrospectively.

5. Deletion of Addition Towards Building Rent:
The ITO disallowed Rs. 6,000, arguing that the actual rent paid for 5 months was Rs. 15,000, not Rs. 21,000 as claimed. The CIT(A) deleted this disallowance, accepting the assessee's claim of actual rent paid. The ITAT reversed the CIT(A)'s order, restoring the ITO's disallowance.

6. Deletion of Disallowance of Foreign Agents' Commission:
The ITO disallowed Rs. 13,180 paid as commission to M/s Toni Bandhak, London, as no sales were effected to London. The CIT(A) deleted this addition, accepting the assessee's explanation that the commission was paid for export orders. The ITAT restored this issue to the CIT(A) for fresh determination, requiring evidence of services rendered by the London party.

7. Deletion of Addition on Account of Building Rent from Bank:
The ITO included Rs. 2,500 as rent receivable from a bank, arguing it should be assessed on an accrual basis. The CIT(A) deleted this addition, noting the rent was in dispute. The ITAT reversed the CIT(A)'s order, restoring the ITO's inclusion of the rent.

8. Allowance of Depreciation on TV Set:
The ITO disallowed depreciation on a TV set, arguing it was not used for business purposes. The CIT(A) allowed the claim, stating the TV was installed at the business premises for employees' benefit. The ITAT restored this issue to the CIT(A) for fresh determination, requiring verification of the TV set's installation at the business premises.

9. Cross Objection on Weighted Deduction Under Section 35B:
The assessee filed a cross objection regarding the disallowance of weighted deduction on expenses under Section 35B. The ITAT, having already ruled that Rule 6AA(c) was not retrospective, found no merit in the cross objection and dismissed it.

10. Additional Ground on Cash Compensatory Support (CCS) as Capital Receipt:
The assessee raised an additional ground, arguing that CCS received was a capital receipt and not taxable, citing ITAT Special Bench decisions. The ITAT admitted this additional ground and restored the issue to the ITO for determination in line with the Special Bench's order in Gadore Tools (India) Pvt. Ltd.

Conclusion:
The ITAT dismissed ITA No. 592/Chd/86, partly allowed ITA No. 948/Chd/85, and admitted the additional ground on CCS, restoring it to the ITO for fresh determination. The cross objection by the assessee was dismissed.

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