1978 (1) TMI 95 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest under section 40A of the Income Tax Act, 1961.
2. Addition of Rs. 3,000 in the trading account.

Analysis:

1. The appeal by the Revenue and the cross objection by the assessee were against the order of the AAC regarding the disallowance of interest under section 40A of the Income Tax Act, 1961. The ITO had added Rs. 16,368 by disallowing interest on loans taken by the assessee, which was later reduced to Rs. 15,563 by the AAC. The Revenue contended that the interest was not required for the business and should be disallowed. However, the assessee argued that the Revenue cannot dictate how the business should be run, citing the Supreme Court's decision in A. Raman & Co's Case. The ITAT found no justification for the Revenue's appeal, as the ITO did not establish any specific borrowings that were unnecessary for the business. Therefore, the appeal of the Revenue was dismissed, and the decision of the AAC to delete the interest amount was upheld.

2. The only remaining issue in the cross objection by the assessee was the addition of Rs. 3,000 in the trading account. The assessee argued that the turnover and gross profit declared were better than in previous years. The ITAT noted that the gross profit for the relevant year was higher than in the preceding years, and the turnover had also increased. Consequently, the addition of Rs. 3,000 was deemed unjustified and was deleted. The cross objection of the assessee was partially allowed in this regard.

In conclusion, the ITAT dismissed the Revenue's appeal regarding the disallowance of interest under section 40A and allowed the cross objection of the assessee in part by deleting the addition of Rs. 3,000 in the trading account.