TMI Blog2002 (9) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... are common. 2. The first common ground of appeal is regarding the disallowance of interest paid by the assessee. The disallowance of interest has been made by the Assessing Officer on the basis that the deposits given to the directors and relatives were interest free whereas the assessee had claimed interest on borrowed funds. It is further stated by the Assessing Officer that the assessee did not receive any interest from the Directors to whom Rs. 40 lakhs were advanced. The assessee submitted before the Assessing Officer that the Directors of the Company had purchased the office premises one year ago by investing their own funds. Subsequently, when the office premises were required by the assessee-company, the Director agreed to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the findings of the Assessing Officer. According to him, the assessee adopted a device, method and inserted steps to rope in the Directors giving them interest free advances for making purchase of property and then entering into an agreement with them for use of the premises showing interest free deposits. Thus according to him, the Assessing Officer has successfully gone behind the smoke screen and has unearthed the real intent of the transaction in so far as co-relation of interest to loans is concerned. The learned CIT(A) further held that the assessee-company took the loans because they diverted their own funds to the Directors, interest free. He, therefore, fully justified the disallowance made by the Assessing Officer. 3. At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Chamber-VI which is also well maintained building in the area. If the Licensors would have given the office premises to any other company or individual for compensation or licence fee per month without taking security deposit, the Licensors would have easily got an offer of Rs. 450 per sq. ft. per month which comes to about Rs. 64,000 per month for the whole office. After deducting the outgoings that are required to be borne by the Licensors, the net receipt would not have been less than Rs. 56,000 per month. As the Licensors have accepted the interest free refundable deposit on which they can earn interest at the rate of 15 per cent per annum, they have given deduction of a sum of Rs. 50,000 from the licence fee to be charged to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the submissions made by the rival parties. We have also gone through the various documents produced before us. The assessee advanced Rs. 40 lakhs, interest free, to the Directors. Out of Rs. 40 lakhs, the deposit of Rs. 23,60,500 was made on 30-6-1987 which pertains to the assessment year 1988-89. The remaining deposit was made on 30-6-1988. The learned Counsel for the assessee has rightly pointed out that by giving this advance of Rs. 40 lakhs to the Directors which is interest free, they got the benefit of getting the office premises of 1600 sq. ft. in the area of Nariman Point. As mentioned above, the assessee-company agreed to pay licence fee of Rs. 10,000 per month. The Licensors have agreed to pay all outgoings in respect of the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of 15 per cent per annum. Under the circumstances, we do not find any justification on the part of the taxing authorities to make the disallowance of interest on Rs. 40 lakhs advanced by the assessee-company to the Directors. This ground of appeal is, therefore, decided in favour of the assessee. 5. The second ground of appeal is regarding the disallowance of Rs. 1,80,000 being the club entrance fees. This ground of appeal pertains only to assessment year 1989-90. The Assessing Officer made the disallowance on the basis that the expenditure incurred by the company is of capital nature. The learned CIT(A) agreed with the findings of the Assessing Officer. 6. At the time of hearing the learned Counsel for the assessee contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxing authorities as capital in nature. The addition made is, therefore, deleted. 8. The last ground of appeal is regarding the deduction under section 80HHC of the Act. This ground of appeal also pertains to the assessment year 1989-90 only. The main issue is whether the freight and insurance are includible in the total turnover for deduction under section 80HHC. This issue is squarely covered with the decision of the Bombay High Court in the case of CIT v. Kantilal Chhotalal [2000] 246 ITR 439 wherein the Hon ble Court has laid down that the reading of clauses ( b ) and ( ba ) of the Explanation to section 80HHC clearly indicates that the Legislature has brought on par the components of export turnover and sale turnover. Bot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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