Tax Tribunal: Fees disallowed, 80HH deduction allowed, assessment reopened, tax rate adjusted

In a case involving disallowance of legal and professional fees, deduction under section 80HH on the sale of scrap, reopening of assessment under section 147, and the applicability of income tax rate, the Tribunal partly allowed the appeals of the assessee. The disallowance of legal and professional fees was upheld, while deduction under section 80HH on the sale of scrap was allowed. The reopening of assessment under section 147 was upheld, but the correct income tax rate was determined to be 45% instead of 50%.

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Issues Involved:
1. Disallowance of legal and professional fees.
2. Deduction u/s 80HH on sale of scrap.
3. Reopening of assessment u/s 147.
4. Applicability of Income Tax rate on the appellant company.

Summary:

(A) ITA No. 783/Mum./97 (A.Y. 1992-93)

1. Disallowance of Legal and Professional Fees:
The assessee's claim of Rs. 1,35,000 paid to M/s. Anand Pvt. Ltd. for arranging a Bridge Loan and disposing of convertible debentures was disallowed by the Assessing Officer due to the absence of independent evidence. The CIT(A) upheld this disallowance, and the Tribunal confirmed that the assessee failed to produce satisfactory evidence, thus rejecting the claim.

2. Deduction u/s 80HH on Sale of Scrap:
The assessee claimed a deduction u/s 80HH, including income from the sale of scrap. The Assessing Officer excluded the scrap sale income, stating it was incidental to the industrial undertaking. The CIT(A) confirmed this view. However, the Tribunal reversed this decision, citing the precedent from the Hon'ble Madras High Court in Fenner (India) Ltd. v. CIT, which allowed deduction on scrap sales as they had a direct link with the industrial undertaking.

(B) ITA No. 784/Mum./97 (A.Y. 1991-92)

3. Reopening of Assessment u/s 147:
The assessee contested the reopening of the assessment, arguing it was due to a change of opinion. The Tribunal upheld the reopening, stating that the original assessment did not discuss the tax rate issue, thus justifying the invocation of section 147.

4. Applicability of Income Tax Rate:
The dispute was whether the appellant should be taxed at 45% or 50%. The Assessing Officer applied a 50% rate, treating the company as an investment and trading company. The CIT(A) upheld this. However, the Tribunal found that the assessee's income from manufacturing activities was the highest percentage of total income, thus qualifying for the 45% tax rate. The Tribunal reversed the CIT(A)'s order, ruling that the correct rate of tax was 45%.

Conclusion:
Both appeals of the assessee were partly allowed.

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