1984 (6) TMI 63 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest under section 40A(8) of the Income Tax Act.
2. Levy of interest under section 139(8) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Interest under Section 40A(8):
The appeal in question pertained to the assessment year 1980-81 and primarily focused on the disallowance of interest under section 40A(8) of the Income Tax Act. The appellant had claimed a deduction of interest amounting to Rs. 3,33,235 paid on deposits, but the Income Tax Officer (ITO) disallowed 15% of the interest, totaling Rs. 49,984, citing the provisions of section 40A(8). The appellant contended before the Commissioner of Income Tax (Appeals) [CIT(A)] that a portion of the interest related to payments made to various agents. However, the CIT(A) rejected this argument, stating that the deposits were not in the nature of security deposits, hence not eligible for exclusion. The appellant further appealed, asserting that the deposits received from agents were covered under Explanation (b)(vii) of section 40A(8) of the Act. The Appellate Tribunal, after considering the submissions, referred to the relevant provisions and held that the deposits in question, being from agents and part of ongoing business transactions, did not fall under the definition of "deposit" as per section 40A(8). Citing a previous Tribunal case, it was established that such transactions were not subject to disallowance of interest. Consequently, the disallowance of interest was deemed unjustified, and the appeal on this ground was allowed.

2. Levy of Interest under Section 139(8):
The second issue revolved around the levy of interest amounting to Rs. 16,245 under section 139(8) of the Income Tax Act. The appellant had filed the income tax return for the relevant year after the due date, leading the ITO to impose interest under section 139(8). The CIT(A) ruled that the appellant had no right to appeal against the levy of interest, thereby declining to assess the claim on its merits. Upon review, the Appellate Tribunal observed that the CIT(A) had overlooked a precedent set by the Gujarat High Court, establishing the appellant's right to challenge the assessment, including the imposition of penal interest. Consequently, the Tribunal directed the CIT(A) to reconsider the appellant's claim regarding the levy of interest under section 139(8) on its merits. As a result, the appeal was partly allowed, specifically concerning the levy of interest under section 139(8) of the Act.