- (1.) THE following questions of law have been referred for opinion of this Court arising out of the order passed by the Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, "the Tribunal"), in ITA No. 1049/Chandi/1995 "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 4,81,000 made by the AO on account of research and development expenditure for multispeed freewheel, holding as business expenditure, while the payee does not manufacture the multispeed freewheel ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 2,70,000 on the ground that there is no nexus between the borrowings and the interest -free advances made to the managing director for non -business purposes, while the assessee has to pay the interest on money borrowed from outside agencies ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding the following expenses as business expenditure : (i) Rs. 73,340 spent on costly items, i.e., silver utensils, silver glasses, etc., distributed to dealers, when the assessee himself agreed to this addition; (ii) Rs. 11,890 spent on providing taxis to dealers and 25 per cent of Rs. 33,407 spent on airfare provided to dealers; (iii) Rs. 56,777 spent on silver coins distributed to dealers; (iv) Rs. 50,000 out of Rs. 99,570 spent on distribution of shawls, suits and sweaters distributed to dealers; (v) Rs. 69,000 spent on velvets, blankets and Rs. 77,614 on account of Titan watches distributed to dealers; and (vi) Rs. 92,609 debited by way of credit cards sign while the assessee failed to furnish details and nature of these expenditures ? 4. Whether, on the facts and in circumstances of the case, the Tribunal was right in law in directing the AO to work out the deduction under s. 80HHC, on the basis of 90 per cent of export incentive, as worked out under the provisions of s. 80HHC(3), by ignoring the loss computed under cls. (a) and (b) of the said section ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding to exclude ST, CST, trade discount, miscellaneous income and insurance claims from total turnover for computation of deduction under s. 80HHC ? 6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not following the decision of the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (1973) 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC), holding that the turnover is different from trading receipts, when trading receipts only make turnover ? 7. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing relief under s. 80HHC to the assessee resulting into income even below the income returned - Question No. 1 :
(2.) BRIEFLY , the facts as mentioned in the statement of case are that the assessee company derives income from manufacture and sale of cycles and its spare parts. For the assessment year in question, the assessee paid a sum of Rs. The expenditure was disallowed by the AO for the reason that the assessee was not engaged in the manufacture of freewheels. The order was upheld by the Commissioner of Income -tax (Appeals) [for short, "the CIT(A)"]. The Tribunal accepted the plea of the assessee and allowed the expenditure as revenue during the year in question. The Tribunal while accepting the plea of the assessee observed that the expenditure of Rs. 4,81,000 made on research and development of multi -speed freewheels was with a view to explore the export market and in fact during the next year these freewheels were purchased from the sister concern M/s Avery Freewheels (P) Ltd. and exported.
(3.) WE have heard Shri S. K. Garg Narwana, advocate, for the Revenue and Shri. Akshay Bhan, advocate, for the assessee. Counsel for the Revenue submitted that since the assessee has not exported any freewheels during the year in question, the expense being not related to its business should not be allowed as revenue expenditure, whereas, on the other hand, counsel for the assessee submitted that the assessee is engaged in the business of manufacture and export of cycles and multispeed freewheels. Freewheel is one of the parts of the cycle and if any amount is spent by the assessee on the research and development of the part of the cycle, the same cannot in any manner be said to be not related with the business of the assessee.;