1979 (11) TMI 269 - AT - Income Tax

Summary

Issues:
1. Disallowance of additional interest amount in two appeals filed by the assessee.
2. Disallowance of interest on advances made to Directors for vehicle purchase in two Departmental appeals.

Analysis:

Issue 1: Disallowance of additional interest amount
In the appeals filed by the assessee, the contention was that the Assessing Officer was not justified in upholding the addition of additional interest during the assessment years 1976-77 and 1977-78. The Assessing Officer found that the company charged a lower interest rate to its Directors compared to the rate it paid to an allied concern from which it borrowed funds. The Appellate Tribunal held that the borrowing and lending transactions were independent, and there was no evidence to suggest diversion of borrowed funds to the Directors at a lower interest rate. The Tribunal also noted that the interest rate charged by the company was reasonable, considering the circumstances. Citing relevant case law, the Tribunal ruled in favor of the assessee, deleting the disallowed interest amounts.

Issue 2: Disallowance of interest on advances for vehicle purchase
In the Departmental appeals, the first contention was regarding depreciation on vehicles not registered in the company's name but in the names of Directors. The second contention was the disallowance of interest claimed by the company on advances made to Directors for vehicle purchase. The Tribunal noted that the vehicles were assets of the company, used for business purposes, and reflected in the company's balance sheet. The Tribunal referred to relevant decisions supporting the claim of depreciation despite registration in Directors' names. Regarding interest disallowance, the Tribunal agreed with the AAC that the advances were made for business purposes, and hence, upheld the deletion of interest disallowance. Consequently, the appeals filed by the assessee were allowed, and those filed by the Department were dismissed.

In conclusion, the Tribunal ruled in favor of the assessee in both sets of appeals, emphasizing the independence of transactions, reasonableness of interest rates, and the business purpose of advances made to Directors for vehicle purchases.