1981 (2) TMI 112 - AT - Income Tax

Summary

Issues:
Disallowance of interest payments for the assessment years 1976-77 and 1977-78.

Analysis:
The appeals involved a common issue of disallowance of interest payments totaling Rs. 13,205 for 1976-77 and Rs. 11,367 for 1977-78. The assessee, engaged in trading, claimed interest payments but faced disallowance by the ITO due to interest-free loans given to directors and shareholders. The ITO charged interest at 18% based on the rates the company received from a related firm. The Commr. (Appeals) allowed interest for two directors but disputed loans to another individual, leading to a detailed analysis of various accounts and withdrawals. The ITO's disallowance was upheld for one individual, Chandarana, based on the net average debit balance in his accounts. The assessee argued the interest-free loans were justified due to commercial expediency, while the Deptl. Rep. contended it was unjustified. The Tribunal considered the role of Chandarana in the company, his lack of remuneration, and the commercial expediency of the interest-free loans. Ultimately, the Tribunal found the facility extended to Chandarana was justified by commercial considerations and deleted the additions sustained by the Commr. (Appeals).

In conclusion, the appeals were allowed, and the disallowance of interest payments for the assessment years 1976-77 and 1977-78 was overturned.