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1986 (5) TMI 40 - AT - Income TaxDeduction, Profits And Gains From Newly Established Industrial Undertaking, Reassessment, Business Disallowance
Issues:
1. Validity of reopening proceedings under section 147 of the Income-tax Act, 1961 2. Entitlement to relief under section 80J of the Act for a new industrial unit 3. Addition under section 40(b) of the Act for interest paid to certain individuals Analysis: Issue 1: Validity of reopening proceedings under section 147 The Tribunal had previously ruled that the reopening under section 147 was valid, rejecting the grounds of appeal against it. The Tribunal's decision in IT Appeal No. 1235 (All.) of 1978-79 upheld the validity of the reopening under section 147. Consequently, the grounds of appeal related to this issue were rejected. Issue 2: Entitlement to relief under section 80J The dispute revolved around the eligibility of the assessee for relief under section 80J for a new unit started with borrowed funds. The Tribunal clarified that relief under section 80J is not admissible on borrowed capital. Despite arguments citing various legal precedents and interpretations, the Tribunal held that the law is clear and settled on this matter. The capital borrowed by the head office and provided to the branch for the new unit did not entitle the assessee to claim relief under section 80J. Issue 3: Addition under section 40(b) for interest paid The contention was regarding the addition under section 40(b) for interest paid to certain individuals. The departmental representative argued that the interest disallowance was valid under the reopened assessment. The Tribunal noted that the assessee had conceded before the Commissioner (Appeals) on this issue. The Tribunal upheld the disallowance of interest under section 40(b) based on the decision of the Allahabad High Court, which clarified the criteria for disallowance of interest payments to partners, even if made in different capacities. The Tribunal, following the binding decision of the Allahabad High Court, upheld the disallowance of interest under section 40(b) amounting to Rs. 16,214. In conclusion, the Tribunal dismissed the appeal, affirming the decisions on all issues raised in the case.
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