2008 (2) TMI 510 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of Trade Deposits.
2. Deletion of disallowance of interest.
3. Deletion of disallowance of vehicle and telephone expenses.
4. Deletion of addition on account of difference in value of shares.
5. Disallowance of interest payment in Cross Objection.
6. Disallowance of vehicle and telephone expenses in Cross Objection.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Trade Deposits:
The Assessing Officer (AO) added Rs. 33.90 lakhs to the assessee's taxable income, treating the Trade Deposits as unconfirmed cash credits under section 68 of the Income-tax Act, 1961. The assessee claimed these were amounts received against sales, but failed to provide adequate supporting documents to the AO. The Commissioner of Income-tax (Appeals) [CIT(A)] accepted the assessee's claim based on ledger accounts and directed deletion of the addition. The Tribunal found that the CIT(A) accepted the material without giving the AO a chance to examine it, violating Rule 46A of the Income-tax Rules, 1962. The Tribunal restored the matter to the AO for re-examination, granting the assessee an opportunity to establish its case.

2. Deletion of Disallowance of Interest:
The AO disallowed Rs. 94.30 lakhs of interest expenditure, arguing that the advances made by the assessee were not for business purposes. The CIT(A) allowed most of the disallowance except Rs. 8.62 lakhs, which was confirmed. The Tribunal found a clear violation of Rule 46A by the CIT(A) and noted inconsistencies in the facts on record. The Tribunal remitted the matter back to the AO for proper adjudication, allowing the assessee to present any material supporting its case.

3. Deletion of Disallowance of Vehicle and Telephone Expenses:
The AO disallowed Rs. 1 lakh for vehicle and telephone expenses, attributing them to personal use by the Directors. The CIT(A) reduced the disallowance to Rs. 50,000. The Tribunal found that the assessee failed to provide evidence that the personal use was per an understanding with the Directors or that the perquisite element was taxed in their personal returns. The Tribunal restored the issue back to the AO, allowing the assessee to present its case.

4. Deletion of Addition on Account of Difference in Value of Shares:
The AO added Rs. 87.48 lakhs due to under-valuation of shares in Indo Tra Decco Ltd. and Motorol (India) Ltd. The CIT(A) deleted the addition, accepting the assessee's method of valuing shares at average cost. The Tribunal found that the valuation should be based on actual cost when shares are identifiable. The Tribunal confirmed the addition for Indo Tra Decco Ltd. shares but remitted the issue of Motorol (India) Ltd. shares back to the AO for verification. The Third Member later confirmed the AO's valuation, rejecting the average cost method for identifiable shares.

5. Disallowance of Interest Payment in Cross Objection:
The assessee contested the disallowance of Rs. 8.62 lakhs interest payment. The Tribunal, while addressing the revenue's appeal on the same issue, remitted the matter back to the AO for re-examination. Consequently, the assessee's cross objection on this issue was also allowed for statistical purposes.

6. Disallowance of Vehicle and Telephone Expenses in Cross Objection:
The assessee contested the disallowance of Rs. 50,000 for vehicle and telephone expenses. The Tribunal, while addressing the revenue's appeal on the same issue, remitted the matter back to the AO for re-examination. Consequently, the assessee's cross objection on this issue was also allowed for statistical purposes.

Separate Judgments:
The Third Member confirmed the AO's valuation of Motorol (India) Ltd. shares, rejecting the average cost method and restoring the AO's addition, thus resolving the difference of opinion between the Judicial Member and the Accountant Member.

Result:
- The assessee's cross objection and the revenue's appeal for assessment year 1996-97 were allowed for statistical purposes.
- The revenue's appeal for assessment year 1995-96 was partly allowed.