1998 (10) TMI 109 - AT - Income Tax

Issues Involved:
1. Deductions under sections 80-HHA and 80-I after deducting relief under section 32AB.
2. Allowability of deductions under sections 80HHA and 80-I on interest income.
3. Computation of deduction under section 80-I without reducing relief under section 80HHA.
4. Grant of deductions under sections 80HHA and 80-I on excess carriage receipts.
5. Disallowance of sales promotion expenses.
6. Deductions under sections 80HHA and 80-I for interest from IDBI deposits.

Issue-wise Detailed Analysis:

1. Deductions under sections 80-HHA and 80-I after deducting relief under section 32AB:
The assessee contended that deductions under sections 80-HHA and 80-I should be allowed without deducting amounts allowable under section 32AB. The CIT(A) upheld the Assessing Officer's decision to compute deductions after deducting relief under section 32AB. The Tribunal, following the Bombay High Court's judgment in Antifriction Bearings Corpn. Ltd. v. CIT, upheld the CIT(A)'s decision, dismissing the assessee's grounds.

2. Allowability of deductions under sections 80HHA and 80-I on interest income:
The assessee claimed deductions on interest received from bank deposits, loans to sister companies, and other sources. The Assessing Officer disallowed these claims, stating the income had no nexus with the industrial undertaking. The CIT(A) confirmed this decision. The Tribunal admitted additional evidence showing the deposits were made to avail credit facilities necessary for business operations. The Tribunal found a direct nexus between the interest income and the industrial undertaking, reversing the lower authorities' decisions and directing the Assessing Officer to verify and allow deductions accordingly.

3. Computation of deduction under section 80-I without reducing relief under section 80HHA:
The assessee claimed deductions under section 80-I without reducing relief under section 80HHA. The Assessing Officer, supported by the CIT(A), reduced the relief under section 80HHA before computing the deduction under section 80-I. The Tribunal, following precedents from various cases, directed the Assessing Officer to allow the assessee's claim under section 80-I without reducing the relief allowable under section 80HHA.

4. Grant of deductions under sections 80HHA and 80-I on excess carriage receipts:
The assessee claimed deductions on excess carriage receipts, arguing they were trading receipts derived from the industrial undertaking. The Assessing Officer and CIT(A) disallowed the claim, stating the receipts had no connection with the industrial activity. The Tribunal found a direct nexus between the receipts and the manufacturing activity, reversing the lower authorities' decisions and directing the Assessing Officer to allow the deductions.

5. Disallowance of sales promotion expenses:
The assessee claimed sales promotion expenses, including amounts spent on customary presents and tea, coffee, etc. The Assessing Officer and CIT(A) disallowed these claims. The Tribunal allowed 25% of the total expenses and expenses on tea, coffee, etc., as business expenditure, and directed that the amount spent on customary presents should be allowed in toto, partially allowing the assessee's claim.

6. Deductions under sections 80HHA and 80-I for interest from IDBI deposits:
The assessee claimed deductions on interest from IDBI deposits made to avail deduction under section 32AB. The Assessing Officer and CIT(A) disallowed the claim, stating the income had no nexus with the industrial undertaking. The Tribunal, considering the Supreme Court's decision in Vellore Electric Corpn. Ltd. v. CIT, held that the investment in IDBI deposits was by choice and not necessity, and thus, there was no direct nexus with the manufacturing activity. The Tribunal dismissed the assessee's claim for deductions on this interest income.

Conclusion:
The appeals were allowed in part, with the Tribunal providing specific directions for each issue based on the evidence and legal precedents presented.

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