1998 (3) TMI 184 - AT - Income Tax

Summary

Issues Involved:
1. Denial of natural justice by the CIT(A).
2. Addition of Rs. 5,39,757 as job work receipts from Samtel India Ltd.
3. Disallowance of Rs. 4,75,539 out of finance charges paid to Hong Kong & Shanghai Banking Corporation.
4. Denial of deduction u/s 32AB.
5. Denial of deduction u/s 80-I.
6. Addition of Rs. 5,000 as income from undisclosed sources.
7. Levy of interest u/s 216 and 217.

Summary:

Issue 1: Denial of Natural Justice
Ground not pressed by the assessee at the time of hearing and hence rejected.

Issue 2: Addition of Rs. 5,39,757 as Job Work Receipts from Samtel India Ltd.
The assessee reconciled the difference between the job receipts declared and those shown in the TDS certificates. The AO treated the excess payment of Rs. 5,39,757 as job work receipts. The CIT(A) confirmed this addition. However, the Tribunal found that the excess payment was refunded to Samtel India Ltd. and the Department failed to provide evidence to the contrary. The addition of Rs. 5,39,757 was deleted.

Issue 3: Disallowance of Rs. 4,75,539 Out of Finance Charges Paid to Hong Kong & Shanghai Banking Corporation
The AO disallowed the interest on the ground that the loan was used for purchasing shares of Samtel India Ltd. and Teletube Electronics Ltd., not for the intended business purpose. The CIT(A) upheld this view. The Tribunal, however, found that the loan was used for business purposes and the investment in shares was a prudent business decision. The interest was also allowable u/s 57(iii) as it was laid out for earning income. The disallowance was deleted.

Issue 4: Denial of Deduction u/s 32AB
Ground not pressed by the assessee at the time of hearing and hence rejected.

Issue 5: Denial of Deduction u/s 80-I
The AO and CIT(A) denied the deduction on the ground that the assessee did not manufacture or produce any article or thing, merely assembling parts for other companies. The Tribunal held that the assessee was engaged in the manufacturing process and was entitled to the deduction u/s 80-I. The AO was directed to compute the allowable deduction.

Issue 6: Addition of Rs. 5,000 as Income from Undisclosed Sources
The CIT(A) confirmed the addition due to lack of confirmation from the party. The Tribunal found that the investment was made by Master Dhruv Sethi, confirmed by his father, and the identity and genuineness of the transaction were established. The addition was deleted.

Issue 7: Levy of Interest u/s 216 and 217
Ground not pressed by the assessee at the time of hearing and hence rejected.

Conclusion:
The appeal was partly allowed with deletions of the additions of Rs. 5,39,757 and Rs. 5,000, and the disallowance of Rs. 4,75,539. The deduction u/s 80-I was allowed.