1980 (7) TMI 134 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 40A(8) of the IT Act, 1961.
2. Disallowance of car expenses and depreciation for company cars.
3. Disallowance of directors' travelling expenses.

Detailed Analysis:

1. Disallowance under section 40A(8) of the IT Act, 1961:
The issue in this case revolved around the disallowance of Rs. 13,240 under section 40A(8) of the IT Act, 1961. The dispute arose from interest paid by the company to its selling agents on deposits. The Income Tax Officer (ITO) disallowed a portion of the interest under section 40A(8), which was confirmed by the ld. AAC. However, the Tribunal held that the deposits received by the company from its selling agents were advances made as security and fell within the exception provided in Explanation (b)(vii) of section 40A(8). The Tribunal noted that the deposits were treated as loans in the balance sheet but were actually advances by way of security, as evidenced by the nominal interest rate charged. Additionally, the Tribunal considered a previous order by the CIT (A) that confirmed the commercial nature of the advances. Consequently, the disallowance was deleted based on the nature of the deposits as advances by way of security.

2. Disallowance of car expenses and depreciation for company cars:
The next issue related to the disallowance of 1/4th car expenses and 1/4th depreciation for company cars. Citing previous rulings by Delhi Bench 'D' and 'E', the Tribunal held that expenses and depreciation claimed by a limited company for cars cannot be disallowed. The Tribunal emphasized that a company is a separate entity from its directors, and any personal use of company cars by directors should be treated as perquisites or benefits. The Tribunal rejected the argument that personal use could only be considered a perquisite if the car was exclusively at the director's disposal. Therefore, the disallowance of car expenses and depreciation was deleted, following the precedent set by previous Tribunal decisions.

3. Disallowance of directors' travelling expenses:
The final issue concerned the disallowance of Rs. 2,000 from directors' travelling expenses. The disallowance was made on an estimated basis under rule 6D of the IT Rules, 1962. The ITO did not specify the inadmissible items, leading to a lack of clarity in the decision. The AAC upheld the disallowance without detailed reasoning. The Tribunal found that further investigation was necessary as the ITO had not specified the items of inadmissible nature. Consequently, the Tribunal set aside the orders of the AAC and ITO, directing a fresh decision based on specific details provided by the assessee.

In conclusion, the appeal was partly allowed, with the disallowances under section 40A(8) and for car expenses and depreciation being deleted, while the issue of directors' travelling expenses was remanded for further investigation.