1981 (8) TMI 164 - AT - Income Tax

Summary

Issues:
1. Disallowance of salary paid to Directors
2. Disallowance of interest payments
3. Disallowance of motor vehicle expenses and depreciation
4. Carry forward of loss from an earlier year

Analysis:

1. Disallowance of salary paid to Directors:
The appeals were filed against the disallowance of salary paid to three Directors of the assessee company. The Income Tax Officer (ITO) disallowed a portion of the salary as excessive and unreasonable due to the company's running losses. However, the Appellate Tribunal found that in previous years, the entire remuneration paid to the Directors was allowed, indicating it was for business purposes. Therefore, the Tribunal allowed the entire claimed remuneration for the years in question, overturning the disallowance.

2. Disallowance of interest payments:
The disallowance of interest payments claimed by the assessee was based on the ITO's view that loans taken by the company were used to siphon off profits. The Tribunal noted that interest on the same loans was allowed in previous years, indicating a business purpose. As no new loans were taken in the relevant years, the Tribunal held that the interest payments should be allowed in full, overturning the disallowances made by the lower authorities.

3. Disallowance of motor vehicle expenses and depreciation:
The ITO disallowed a portion of motor vehicle expenses and depreciation for non-business use of the car by the Directors. The Appellate Tribunal restricted the disallowances to 1/5th of the expenses and depreciation, finding that personal use could not be ruled out entirely. The Tribunal directed the ITO to calculate the necessary relief to the assessee accordingly.

4. Carry forward of loss from an earlier year:
The assessee claimed that the loss from an earlier year should have been allowed to be carried forward and set off against the current year's profits. The Tribunal found that the issue was not discussed by the CIT (Appeals) and directed the ITO to decide on carrying forward the loss from the earlier year to the relevant assessment year. The Tribunal allowed this ground of the assessee, emphasizing the need to address the carry forward of losses.

In conclusion, the Appellate Tribunal partially allowed both appeals, overturning various disallowances made by the lower authorities and directing necessary actions to address the issues raised by the assessee.