TMI Blog1998 (3) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the CIT(A) erred in not adjudicating upon the submission that the interest paid to Hong Kong Shanghai Banking Corporation be allowed as deduction under s. 57(iii) of the IT Act, 1961. (4) That, on the facts and circumstances of the case and in law, the CIT(A) erred in not allowing deduction under s. 32AB and instead restoring the matter to the file of the AO for disposal. (5) That, on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in not allowing any deduction under s. 80-I of the IT Act, 1961. (6) That, on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition of Rs. 5,000 made as income from undisclosed sources appearing in the name Master Dhruv Sethi. (7) That, on the facts and circumstances of the case and in law, the CIT(A) erred in not disposing of the ground taken against levy of interest under ss. 216 and 217 of the IT Act, 1961 and instead sending the issue to the file of the AO for disposal." 2. Ground Nos. 1, 4 and 7 were not pressed by the learned counsel for the assessee at the time of hearing. Hence, these grounds are reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made by SIL between November to December, 1986, amounting to Rs. 27,50,000. However, the bills raised during this period amounted to Rs. 16,39,462. As such, there was excess payment of Rs. 11,10,539. Out of this amount of Rs. 84,815 representing opening debit balance as on1st July, 1986was reduced, which left the excess amounting of Rs. 10,25,723. The aforesaid excess payment is to be increased by Rs. 2,421 being the tax deducted to the account of appellant by SIL on bills raised on29th Oct., 1986, and3rd Nov., 1986, respectively. This excess payment of Rs. 10,28,144 was paid to SIL vide Cheque No. 874811 within the relevant previous year. This excess payment of Rs. 10,28,144 included the sum of Rs. 5,39,704 on which tax was deducted and the balance was excess payment out of Rs. 7 lakhs. 3.2. The AO did not accept the aforesaid explanations submitted on behalf of the assessee. The AO observed that the assessee has received the said sum of Rs. 5,39,757 on account of assembling charges and recovery for excise duty payment made by the assessee though the specific bills were not raised for the same in the relevant previous year. Since the tax was deducted at source by SI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial in the possession of the Department. The other parallel authorities like excise department have also not challenged the job receipts declared by the assessee. The apparent should be accepted as real unless the contrary is proved. The Department has failed to bring any evidence on record to show that the sum of Rs. 5,39,756.94. received as on account payments by the assessee, which in fact, was returned back to SIL represent job charges received by the assessee. He placed reliance on judgments CIT vs. Durga Prasad More 1973 CTR (SC) 500 : (1973) 82 ITR 540 (SC) and 76 ELT 481 to support his contention that no such addition can be validly made. 3.7. The learned Departmental Representative submitted that s. 199 of IT Act, 1961 clearly provide that the credit for TDS shall be given to the assessee for the amount so deducted at source for the assessment year for which such income is assessable. Since the assessee has claimed credit for the entire amount of TDS on such payments, the amount in question is rightly assessable as income of the relevant previous year. He relied upon the elaborate reasons given in the assessment order and in the order of CIT(A) and urged that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them from the appellant company vide cheque No. 874714 dt.29th Dec., 1986, drawn on Punjab National Bank towards outstanding amount lying in their account. The AO has brought no material on record to show that the facts stated in the aforesaid two certificates given by SIL do not represent true and correct facts. These two certificates issued by SIL confirm the correctness of the entries recorded in the books of accounts of the assessee. The income by way of job charges received by the assessee from SIL would be an expenditure in the hands of SIL . SIL have clearly confirmed that they have not debited the said sum of Rs. 5,39,756.94. as an expenditure in its P L a/c. 3.9. In view of the aforesaid facts and circumstances, we are of the considered opinion that the amount of Rs. 5,39,757 added by the AO as job work receipts from SIL cannot be sustained. The AO is directed to delete the same. Ground No. 3 and 3.1: 4. The facts relating to disallowance of Rs. 4,65,539 being the amount of finance charges/interest paid by the assessee on term loan borrowed from Hong Kong Shanghai Banking Corporation has been discussed by the AO in para 3 on p. 5-6 of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diverted for non-business purposes, the extent thereof will have to be ascertained. 4.3. The learned counsel contended that the assessee had explained the circumstances under which the assessee could not immediately utilise the funds borrowed from Hong Kong Shanghai Banking Corporation for the purpose for which it was granted in the written submissions submitted before the CIT(A) as well as in the various letters submitted before the AO. It is true that the assessee obtained a loan of Rs. 30 lakhs from the said bank for acquiring fixed assets. The loan in question was sanctioned on29th March, 1986. The appellant company had a piece of land allotted to it by UPSIDC at C-3, Sector-22, Meerut Road Industrial Area,Ghaziabad. But it could not construct the building of its own. The business was started in a rented accommodation at R-214, Raj Nagar,Ghaziabadwhich was taken on rent w.e.f.1st June, 1985. The business of the company was set up only in previous year ended on30th June, 1986, relevant to asst. yr. 1987-88. The UPSIDC forfeited the lease rights in respect of plot allotted to the company on account of failure of the assessee to construct the factory building thereon vide its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... randum of the said company. This clause empowers the company to inter alia, invest money for acquiring shares and securities of any such company-carrying any business or transactions, which may result in benefit to the assessee company. He submitted that the assessee-company is carrying on job work of SIL and TEL . The investment in shares of these companies was, therefore, an integral part of the business activity of the assessee. He invited our attention towards the judgment of Hon ble Supreme Court in the case of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), in which the Hon ble Supreme Court held that though, for the purpose of computation of the income, interest on securities is separately classified as income by way of interest from securities, it would not cease to be a part of income from business, if the securities are part of the trading assets. 4.6. The learned counsel further contended that since the assessee had invested during the relevant year an amount of Rs. 24,84,459 out of its internal accruals, the amount of loan borrowed from Hong Kong Bank should be treated as having been utilised for the purpose for which it was granted. In such a case, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon ble Madras High Court in the case of CIT vs. Tamil Nadu Industrial Development Corporation, followed its earlier judgment in (1979) 13 CTR (Mad) 261 : (1980) 122 ITR 139 (Mad) and (1987) 61 CTR (Mad) 117 : (1985) 156 ITR 542 (Mad). It was held that interest paid on moneys borrowed but not immediately used for business is not business expenditure and the interest expenditure cannot be adjusted against interest received when such moneys are invested in short-term bank deposits. The Supreme Court dismissed the SLP filed by the assessee against this judgment. It is a brief judgment and does not contain the relevant facts of the said case. It has simply followed the earlier two decisions. 4.12. The judgment in the case of CIT vs. Seshasayee Papers Boards Ltd., relate to the case of an assessee who had not established its factory during the assessment year in question. It was held that interest earned by the assessee on investment of shares capital in call deposits was assessable under the head "Other sources" and there was no question of setting off or allowing interest expenditure pertaining to the pre-production period, as the assessee had not established its factory duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the present case should be treated as having been made for the business purposes of the assessee. The memorandum of association of the company authorises the appellant company to invest money for acquiring shares and securities of such companies which are carrying on any business or transactions which result in benefit to the assessee-company. The appellant company is doing the job work of SIL and TEL and has disclosed substantial income by way of job charges from these two companies. Therefore, the decision of the appellant company to invest the funds borrowed from Hong Kong Bank, which could not be immediately utilised for the purpose for which the bank sanctioned the loan and the money was lying idle, for purchase of shares of SIL and TEL will have to be adjudged from the point of view of a prudent trader. If that is so examined, it will be found that such a decision was taken by the assessee-company in the best interest of its business purpose. The Directors of the appellant company carefully examined all the relevant facts and circumstances and they were of the view that the question relating to reallotment of land by UPSIDC and acquisition of other fixed assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the assessee-company made investment in certain shares. The assessee had borrowed funds in overdraft account with its partners. The Hon ble High Court held that the material on record showed that the assessee had retained earnings and thus, with the borrowings, formed a common fund for the investment in shares. It was held that entire payment of interest on borrowings was deductible under the head "Business". If the question relating to allowability of interest is viewed keeping in mind the overall analysis of funds, it would be found that the investment in fixed assets, current assets and other business assets even after excluding the investment in shares, are substantially more than the amount of term loan borrowed by the appellant company from Hong Kong Bank. A copy of the Balance Sheet as on30th June, 1987, placed at p. 101 of the paper-book gives the relevant details of such investments made in business assets as also the amount of outstanding liabilities as on30th June, 1987. The term loan in question was of Rs. 30 lakhs. The amount outstanding at the end of the year was only Rs. 10,56,000. The investment in fixed assets made in the year under consideration was Rs. 24,84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding year, did produce electron guns, whereas in the year under consideration, no production at all was carried out by the assessee. 5.1. The CIT(A) confirmed the view taken by the AO. 5.2. The learned counsel for the assessee submitted that the assessee is clearly entitled to grant of deduction under s. 80-I. He invited our attention towards written submissions submitted before the CIT(A). He also placed reliance on decisions in Nishit Synthetics (P) Ltd. vs. ITO (1984) 18 TTJ (Ahd) 508 : (1984) 7 ITD 486 (Ahd), and the judgment of Hon ble Supreme Court in the case of Assessing Authority-cum-Excise Taxation Officer, Gurgaon vs. East India Cotton Manufacturing Co. Ltd. 48 STC 239. 5.3. The learned Departmental Representative submitted that the audited statements reveal that the assessee did not carry out any production of its own. It has only done job work of its sister companies, SIL and TEL . He relied upon the elaborate reasons given in the assessment order and the order of the CIT(A) to support the denial of deduction under s. 80-I. 5.4. We have carefully considered the submissions made by the learned representatives of the parties. The assessee has poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanical process and chemicals, it manufactures twisted yarn which is entirely a different commercial commodity from the flat yarn supplied to it. The opinion of a technical expert had also pointed out that the assessee was engaged in a manufacturing activity. The item "Textile" does not figure in Schedule XI so as to deny the benefit. It figures in Schedules V and IX. In the circumstances, the CIT was not justified in upsetting the ITO s order." 5.7. The Hon ble Supreme Court in the case of Assessing Authority-cum-Excise Taxation Officer vs. East India Cotton Mfg. Co. Ltd., was considering the question as to whether a registered dealer could purchase processing material on concessional rate of tax by giving form C to the supplier, which is a declaration by the buyer that the goods purchased will be used in the manufacture of goods for sale. The goods so purchased by the assessee was actually used partly in the manufacture of buyer s own goods and partly in job work for other manufacturers for sale by them. The question was whether the C forms used by the dealer in relation to the job work amounted to misuse of the declaration. The Hon ble Supreme Court in the aforesaid j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly entitled to grant of deduction under s. 80-I provided other conditions mentioned in the said section are fulfilled. The eligibility of the industrial undertaking belonging to the assessee for grant of deduction under s. 80-I has been accepted in asst. yr. 1987-88. Such eligibility accepted in the initial year, namely, asst. yr. 1987-88 has not been disturbed by the Revenue authorities either by initiating proceedings for reassessment under s. 147 nor by initiating revisional proceedings under s. 263. The learned Departmental Representative has not pointed out any such action taken by the Department for asst. yr. 1987-88. 5.9. In view of the aforesaid facts and circumstances, and in view of the principle of law laid down by the Hon ble Supreme Court in the case of Assessing Authority vs. East Indian Cotton Mfg. Co. Ltd., we are of the view that the assessee is clearly entitled to grant of deduction under s. 80-I. AO is directed to compute the amount of such deduction allowable under s. 80-I of IT Act, 1961, to the assessee. 6. Ground No. 6 relates to confirmation of an addition of Rs. 5,000 as income from undisclosed sources appearing in the name of Master Dhruv Sethi. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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