2003 (3) TMI 655 - AT - Income Tax

Summary

Issues:
1. Disallowance of salary paid to an employee.
2. Disallowance of traveling expenses.
3. Disallowance of bank interest claim under section 80L.

Issue 1: Disallowance of Salary Paid to an Employee:
The appellant appealed against the disallowance of Rs. 6600 as salary paid to an employee for services rendered in the assessment year 1992-93. The Assessing Officer and ld. Dy. CIT(A) contended that the employee's services were unnecessary for earning the income, suspecting the claim as a tax-saving tactic. The employee's affidavit was rejected, leading to the disallowance. The appellant argued that the employee was engaged for business purposes, and the Assessing Officer couldn't dismiss the affidavit without cross-examination. The Tribunal found the Assessing Officer's reasoning unconvincing, emphasizing the appellant's freedom to utilize employee services. As no evidence disproving the services or the source of salary payment was presented, the disallowance was overturned.

Issue 2: Disallowance of Traveling Expenses:
The Assessing Officer disallowed Rs. 3400 of traveling expenses due to lack of evidence and unspecified tour purposes by the employee, Shri Vijay Kumar. The ld. CIT(A) upheld this disallowance. The appellant argued that the tours were business-related, making the expenses legitimate. However, as the appellant failed to produce supporting documents or specify the tour purposes, the Tribunal declined to intervene, ultimately upholding the disallowance.

Issue 3: Disallowance of Bank Interest Claim under Section 80L:
The appellant claimed a deduction of Rs. 4753 under section 80L, which was disallowed by the Assessing Officer along with a larger interest amount. The ld. Dy. CIT(A) upheld this decision, resulting in no income under the 'Income from interest' head for the appellant. The appellant cited a Kerala High Court judgment to support their case, arguing that the interest paid on the loan transaction should be deducted from business income, not interest received from the bank. The Tribunal agreed, clarifying that section 80L allows deduction for the gross amount of interest received from the bank. As a result, the disallowance of Rs. 4753 was overturned, directing the Assessing Officer to permit the deduction under section 80L. Consequently, the appeal was partially allowed.