1983 (6) TMI 41 - AT - Income Tax

Summary

Issues:
Disallowance of interest payment under section 40A(8) of the IT Act, 1961.

Analysis:
The appeal before the Appellate Tribunal pertained to the disallowance of Rs.21,794 under section 40A(8) of the IT Act, 1961. The assessee, engaged in manufacturing, claimed deduction for interest payments to 147 depositors. The Income Tax Officer disallowed a portion of the interest payment. The Commissioner (A) upheld the disallowance, stating that the provisions applied to interest expenditure on deposits received, regardless of the date of borrowing. The Tribunal heard arguments from both parties. The assessee's counsel argued that the funds were loans, not deposits, and thus section 40A(8) did not apply. Additionally, the counsel claimed full deduction under specific provisions of the Act. The department's representative defended the disallowance, citing the clear language of the law and circulars issued by the CBDT. The Tribunal considered the submissions and rejected the assessee's arguments. They emphasized the specific provisions of section 40A(8) and upheld the disallowance, dismissing the appeal.

The Tribunal highlighted that the provisions of section 40A(8) were clear and must be followed, disregarding the general provisions of the Act. The section mandated a disallowance of 15% of interest expenditure on deposits received by a company. The Tribunal noted that the assessee claimed deduction for interest paid to depositors, falling within the scope of section 40A(8). Despite the arguments regarding loans versus deposits and the timing of payments, the Tribunal found no merit in the assessee's contentions. They rejected the distinction proposed by the assessee and affirmed that the provisions of section 40A(8) applied to the case at hand. The Tribunal also dismissed the argument that the insertion date of the provisions limited the disallowance period, emphasizing that the law applied to the assessment year regardless of the provision's effective date. Consequently, the Tribunal upheld the disallowance of Rs.21,794 under section 40A(8) of the IT Act, 1961, and dismissed the appeal.