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2023 (1) TMI 761 - AT - Income TaxAddition u/s 40A(3) - assessee was making cash payment in excess of Rs. 20,000/- in violation of provisions with respect to certain expenses such as salary, labour expenses, materials purchases and land purchases - HELD THAT:- The salary paid to the directors has nowhere been doubted by the authorities below. Furthermore, it is the directors who were managing the affairs of the company and they were acting as the custodian of the cash belonging to the assesse. As such the directors of the company closely connected with each other. Thus any salary paid to them by way of making any adjustment of the salary cannot be made subject to the disallowance under the provisions of section 40A(3) of the Act. Payment towards the purchase of bricks, we find that there was no argument advanced by the learned AR for the assesse at the time of hearing. Accordingly, we hold that such payment has been made inviolation of the provisions of section 40A(3) and therefore the same has to be disallowed. Hence the ground of appeal of the assesse is hereby partly allowed. Addition on account of interest not charged on the interest-free loans and advances given to the parties - assessee on one hand has incurred interest expenses on the borrowed fund and on the other hand, it has made interest-free loans and advances - Thus the AO computed the amount of interest being 14% on the interest-free loans and advances provided by the assessee and added to the total income of the assessee - HELD THAT:- There is no dispute to the fact that the own fund of the assessee including the interest-free loans and advances exceeds the amount of interest free loans and advances provided by the assessee and therefore a presumption can be drawn that owned fund which is interest-free available with the assessee has been utilized for making such advances - See R.L. KALTHIA ENGGINEERING & AUTOMOBILES PVT. LTD. [2013 (2) TMI 754 - GUJARAT HIGH COURT] - thus disallowances of interest expenditure in the given facts & circumstances where the assessee was having sufficient interest free fund is not justified. - Decided in favour of assessee.
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