Tribunal Overturns Interest Disallowance, Excludes CST/ST from Turnover for s. 80HHC Relief; Affirms Exceptions for Rule 6DD.

The Tribunal deleted the disallowance of interest under s. 36(1)(iii), concluding that advances were made from the assessee's own funds. For s. 43B, the Tribunal restricted the disallowance to Rs. 2,742, acknowledging payments within the grace period. Disallowance under Rule 6DD was deleted, recognizing an exception for official purposes. The Tribunal excluded CST and ST from total turnover for s. 80HHC relief, contrary to CIT(A)'s inclusion. The Third Member agreed with the Vice-President, affirming the deletion of interest disallowance for the assessment years 1992-93 and 1993-94, and referred the matter to the regular Bench for order issuance per the majority opinion.

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Issues Involved:
1. Disallowance of interest u/s 36(1)(iii)
2. Disallowance under section 43B
3. Disallowance under Rule 6DD
4. Inclusion of CST and ST in total turnover for section 80HHC

Summary:

1. Disallowance of interest u/s 36(1)(iii):
The primary issue was whether the interest-free advances given by the assessee to its sister-concern Oswal Palms Ltd. were for non-business purposes, thereby justifying the disallowance of Rs. 2,31,261 u/s 36(1)(iii). The Assessing Officer (AO) and CIT(A) upheld the disallowance, citing a clear nexus between interest-bearing funds and the interest-free advances. The assessee argued that the advances were made from surplus funds and not borrowed funds, relying on the decisions in Woolcombers of India Ltd. and British Paints (India) Ltd. The Tribunal, after examining the cash flow statement and relevant case laws, concluded that the advances were made out of the assessee's own funds and not borrowed funds, thus deleting the disallowance.

2. Disallowance under section 43B:
The AO disallowed Rs. 65,859 for late payment of ESI and PF beyond the due dates specified in the respective Acts. CIT(A) upheld the disallowance, rejecting the assessee's reliance on a circular allowing a grace period for payment. The Tribunal, however, found that the payments were made within the grace period allowed by the Central Board of Trustees of the Provident Fund and restricted the disallowance to Rs. 2,742, deleting the balance amount of Rs. 63,117.

3. Disallowance under Rule 6DD:
The AO disallowed Rs. 11,184 paid to Holiday Travel (P.) Ltd. for air tickets, citing a contravention of section 40A(3). The CIT(A) upheld the disallowance due to lack of evidence. The Tribunal found that the payment was made for official purposes and was covered by the exception to Rule 6DD(j), thus deleting the disallowance.

4. Inclusion of CST and ST in total turnover for section 80HHC:
The issue was whether CST and ST collected should be included in the total turnover for calculating relief u/s 80HHC. The CIT(A) included CST and ST in the total turnover, following the Supreme Court decisions in Chowringhee Sales Bureau (P.) Ltd. and Sinclair Murray & Co. The Tribunal, however, followed its earlier decision and the Bombay High Court's ruling in Sudarshan Chemicals Industries Ltd., directing the AO to exclude CST and ST from the total turnover for computing relief u/s 80HHC.

Separate Judgment by Third Member:
The Third Member concurred with the Vice-President, holding that the disallowance of interest u/s 36(1)(iii) for both assessment years 1992-93 and 1993-94 should be deleted, as the advances were made out of the assessee's own funds and not borrowed funds. The matter was referred to the regular Bench for passing an order according to the majority opinion.

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