2003 (1) TMI 265 - AT - Income Tax

Summary

Issues involved:
1. Computation of proceeds derived from industrial undertaking for deduction u/s 80-I.
2. Allocation of expenses between head office and manufacturing unit for computing profits derived from industrial undertaking.
3. Disallowance of bad debts written off by the assessee.

Computation of proceeds derived from industrial undertaking:
The assessee established a manufacturing unit for dish antenna alongside its trading business. The AO reduced the deduction u/s 80-I due to perceived discrepancies in profit declaration. The CIT(A) found that the assessee maintained separate accounts for the manufacturing unit and trading business. The CIT(A) directed allocation of certain expenses to the manufacturing unit based on sales ratio. The Tribunal considered the legal position that profits derived from industrial undertaking must have a direct nexus with the activity. The Tribunal modified the CIT(A)'s allocation method for specific expenses to ensure only those directly related to the industrial activity are considered.

Allocation of expenses for computing profits:
The Tribunal analyzed various expenses like directors' remuneration, bank interest, and advertisement costs to determine their direct nexus with the industrial activity. It was concluded that only expenses directly related to the industrial undertaking should be considered for computing profits. The Tribunal modified the CIT(A)'s allocation approach for certain expenses and directed the AO to adjust specific amounts in computing the income of the industrial unit.

Disallowance of bad debts:
The Revenue appealed the deletion of an addition made by the AO regarding bad debts written off by the assessee. The CIT(A) upheld the deduction based on the amendment in s. 36(1)(vii) and relevant Board Circular. The Tribunal found no merit in the Revenue's appeal as the bad debts were written off in the books of accounts, as required by the amended provisions. The CIT(A)'s decision to delete the addition was upheld.

Conclusion:
The appeal of the assessee was partly allowed, while the appeal of the Revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions regarding the computation of profits derived from the industrial undertaking and the allowance of bad debts written off.