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Issues involved: Disallowance of interest on outstanding loan, addition of deemed dividend, addition under sec. 68 of the Income-tax Act, 1961.
Disallowance of interest on outstanding loan: The assessees contended that the interest on outstanding loans should not be disallowed as the loans were obtained for the purpose of earning income. However, the departmental representative argued that there was no nexus between the borrowed amount and the interest earned. The Tribunal found that there was no evidence to suggest that the borrowed amount was used for earning interest income. Relying on the judgment of the Apex Court, the disallowance was confirmed as the assessees failed to prove that the interest was exclusively for earning income. The Tribunal upheld the decision of the lower authority. Addition of deemed dividend: The issue revolved around the computation of accumulated profit for treating payments to beneficial shareholders as deemed dividend. The assessees admitted the accumulated profit, but it was not computed on the date of payment. The Tribunal held that the accumulated profit should be calculated on the date of payment, which was not done by the lower authorities. As no material was provided for computing the profit on the payment date, the matter was remitted back to the Assessing Officer for re-examination. Addition under sec. 68 of the Income-tax Act, 1961: A sum was added under sec. 68 due to the failure of the assessee to prove the identity and creditworthiness of creditors. The Tribunal noted that confirmation letters were submitted, but the AO rejected them for lacking details. The assessee expressed readiness to provide necessary details, prompting the Tribunal to remit the matter back to the AO for reevaluation based on the additional material that may be presented. In conclusion, the appeals of the assessees were partly allowed for statistical purposes, with the Tribunal setting aside the orders of the lower authorities on the issues of deemed dividend and addition under sec. 68, remitting them back to the Assessing Officer for further examination in accordance with the law.
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