2009 (7) TMI 862 - AT - Income Tax

Deduction under section 80HHC - Once it is not in dispute that interest is received on the loans given to the employees it is difficult (sic) to come to the conclusion that such interest earning is nothing but a receipt in the course of normal business; it is a normal commercial practice to grant loans to the employees from time to time and any interest that the business concern earns on such loan cannot be an independent source of income in character - There are large number of decisions of this Tribunal holding that interest earned on advances to the employees is to be treated as integral part of business income - the interest earned on loans ought to have been treated as part of the business income for the purposes of computation of deduction under section 80HHC of the Act - Direct the Assessing Officer to modify the claim of deduction under section 80HHC of the Act.

Summary

The Appellate Tribunal ITAT, Pune, in the case of assessment under section 143 143(3) of the Income-tax Act, 1961 for assessment year 2004-05, addressed cross-appeals against CIT(A)'s order. The assessee, a manufacturer of industrial process pumps, made royalty payments to Ebara Corporation, Japan, which were disputed during the assessment. The TPO made an adjustment to the ALP of the royalty payment, which was contested by both the assessee and the revenue. The CIT(A) partially upheld the assessee's grievance, leading to further appeals. The tribunal found inalid basis for the TPO's adjustment and directed the Assessing Officer to delete the adjustment in ALP of royalty paid by the assessee. The tribunal also allowed the assessee's claim for deduction under section 80HHC related to interest on loans to employees. The appeal of the revenue was dismissed, while the appeal of the assessee was partly allowed. The tribunal provided detailed analysis and reasoning for its decisions, including the legal basis for adjustments in the ALP and the treatment of interest on loans for deduction purposes.