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TMI Blog2006 (12) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal was right in law in deleting the addition of Rs. 4,81,000 made by the Assessing Officer on account of research and development expenditure for multi-speed freewheel, holding as business expenditure, while the payee does not manufacture the multi-speed freewheel ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deleting the addition of Rs. 2,70,000 on the ground that there is no nexus between the borrowings and the interest-free advances made to the managing director for non-business purposes, while the assessee has to pay the interest on money borrowed from outside agencies ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the Income-tax Appellate Tribunal was justified in not following the decision of the hon'ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, holding that the turnover is different from trading receipts, when trading receipts only make turn-over ? 7. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing relief under section 80HHC to the assessee resulting into income even below the income returned ?" Question No. 1 : 2. Briefly the facts as mentioned in the statement of case are that the assessee-company derives income from manufacture and sale of cycles and its spare parts. For the assessment year in question, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y manner be said to be not related with the business of the assessee. 5. We find the contentions raised by counsel for the assessee to be convincing. A kind of expenditure which is on tools and improvement and modification of production machines was rightly treated to be revenue in nature by the Tribunal as the same is certain relatable to the business of the assessee. Accordingly, question No. 1 is answered against the Revenue and in favour of the assessee. Question No. 2 : 6. This issue relates to the disallowance of Rs. 2,70,000 being the interest calculated on advance of Rs. 15 lakhs to Shri H. R. Pahwa, managing director of the company. The claim of the assessee that the amount was advanced as security by the assessee to be utilised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1 and submitted that a similar question has already been answered in favour of the Revenue wherein this court has disapproved the nexus theory relied upon by the Tribunal to allow the interest as an expense on the interest-free advance made to the managing director for non-business purposes. On the other hand, counsel for the assessee though not disputing the enunciation of law by this court in Abhishek Industries Ltd. [2006] 286 ITR 1 submitted that in the case in hand the Tribunal on fact found that the advance was not for non-business purposes, the same was actuated with the business consideration as the assessee was to get building, to be purchased by Shri Pahwa with the help of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 : 9. It is not disputed before us that an identical question has been gone into by the hon'ble Supreme Court in IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 wherein it has been held that for working out the incentives under section 80HHC of the Act, the loss is not to be ignored. Following the dictum of law laid down in the above judgment, the question is answered in favour of the Revenue and against the assessee. Question No. 5 : 10. It is not disputed between the parties that an identical issue regarding sales tax, excise duty has been gone into by this court in CIT v. Vardhman Polytex Ltd. in I. T. A. No. 241 of 2004 decided on August 21, 2006, wherein it has been held that the sales tax and central sales tax do not form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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