2003 (3) TMI 318 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Travelling Expenses u/r 6D.
2. Disallowance of Expenses u/s 37(2A).
3. Deduction u/s 80-I for Income from Erection, Installation, and After Sales Service.
4. Deduction u/s 80-I for Interest Earned.
5. Other Grounds of Appeal.

Summary:

1. Disallowance of Travelling Expenses u/r 6D:
The learned CIT(A) did not allow the travelling expenses incurred u/r 6D as worked out by the assessee. The Tribunal upheld the order of the CIT(A) and dismissed this ground of appeal, noting that the issue is covered against the assessee by the Bombay High Court decision.

2. Disallowance of Expenses u/s 37(2A):
The learned CIT(A) treated the expenses incurred on employees accompanying guests as coming within the purview of disallowance u/s 37(2A). The Tribunal directed the Assessing Officer to consider the disallowance u/s 37(2A) after allowing 20% on account of employees' participation, as done in similar cases, and to allow necessary relief to the assessee.

3. Deduction u/s 80-I for Income from Erection, Installation, and After Sales Service:
The Assessing Officer disallowed the deduction u/s 80-I for income earned from services rendered by the engineers of the company for installation, commissioning, etc., and the CIT(A) confirmed this action. The Tribunal discussed the distinction between "attributable to" and "derived from" as per the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. and other cases. The Tribunal upheld the disallowance, stating that the net profit from such activities is not derived from the industrial undertaking.

4. Deduction u/s 80-I for Interest Earned:
The Assessing Officer disallowed the deduction u/s 80-I for interest earned on bank deposits and deposits with IDBI, and the CIT(A) confirmed this action. The Tribunal, following the Madras High Court's decision in Pandian Chemicals Ltd., held that the interest income is not derived from the industrial undertaking and upheld the disallowance.

5. Other Grounds of Appeal:
Ground Nos. 5(a) and 5(b) were set aside to the Assessing Officer for re-adjudication in light of the Supreme Court decision. Ground No. 6 was dismissed as it was not pressed. The appeal was partly accepted.

Separate Judgement by Judges:
The Accountant Member dissented on ground Nos. 3 & 4, arguing that the income from erection, installation, and after-sales service, as well as interest charged to customers for late payment, should be eligible for deduction u/s 80-I. The matter was referred to a Third Member, who concurred partly with the Judicial Member and partly with the Accountant Member. The majority view held that the assessee is not entitled to deduction u/s 80-I for service charges and interest from FDRs but is entitled to deduction for interest from customers for delayed payment.