2006 (7) TMI 276 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of 1/6th of expenses claimed under petrol, telephone, and car depreciation.
2. Non-granting of deduction under section 80-IA on income surrendered during a survey.
3. Charging of interest under section 234B.

Issue-wise Detailed Analysis:

1. Disallowance of 1/6th of Expenses Claimed:

The Assessing Officer disallowed 1/6th of the expenses claimed under petrol, telephone, and depreciation on the car due to personal use by the proprietor. The CIT(A) upheld this disallowance. The appellant argued that the disallowance was excessive and that depreciation should not be disallowed for personal use. However, the tribunal found that section 38(2) mandates that if an asset is not exclusively used for business purposes, deductions, including depreciation, must be proportionate. Therefore, the argument to exclude depreciation was rejected. However, the tribunal reduced the disallowance from 1/6th to 1/8th, considering it more just and fair.

2. Non-granting of Deduction under Section 80-IA:

The main ground of appeal was the non-granting of deduction under section 80-IA for income surrendered during a survey. The assessee, engaged in manufacturing jaljeera and Ayurvedic medicines, surrendered Rs. 15.01 lakhs found in excess cash during a survey and claimed it as eligible for deduction under section 80-IA. The Assessing Officer taxed this amount under 'Income from other sources' and denied the deduction. The tribunal noted that for income to qualify for deduction under section 80-IA, it must be derived from the business of an industrial undertaking. The burden of proof lies on the assessee to establish a direct nexus between the income and the eligible business. The tribunal found that the excess cash was not recorded in the books and no explanation was provided linking it to the business. The tribunal also noted the negligible difference in stock during the survey, indicating the excess cash was unrelated to the business of Ayurvedic medicines. Consequently, the tribunal upheld the decision to tax the surrendered income under 'Income from other sources' and denied the deduction under section 80-IA.

3. Charging of Interest under Section 234B:

The last ground regarding the charging of interest under section 234B was deemed consequential and disposed of accordingly.

Conclusion:

The tribunal partially allowed the appeal by reducing the disallowance of expenses from 1/6th to 1/8th but upheld the denial of deduction under section 80-IA for the surrendered income and the charging of interest under section 234B.