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2013 (8) TMI 15 - GUJARAT HIGH COURTDisallowance of interest u/s 40A(2)(b) - Rejection of books of accounts - CIT deleted estimation of additional profit - Tribunal set aside CIT order and upheld addition - Held that:- out of the three persons from whom loan taken, two persons cannot be said to be related to the assessee within the meaning of section 40A(2) (b) - It is required to be noted that as such the aforesaid persons are found to be nephews of the assessee and the finding that money was first diverted by the assessee from his business as a gift to the aforesaid three persons and thereafter the same money was given to the assessee at the rate of 16% per annum and on which the assessee claimed benefit under section 40A(2)(b) and the entire series of transactions were illusory, colourable and not genuinely for the purpose of the business - Decided against Assessee. Disallowance of salary payment u/s 40A(2)(b) - ITAT held that the assessee has devised a colourful mechanism to avoid tax liability in the hands of his proprietary business - Held that:- although payment might have been made and there might have been agreement in existence, still it would be open to the Assessing Officer to take into consideration various factors which would go to show whether the payment was made as required by the section 37 of the Act or not. It is required to be noted that as such the Assessing Officer after taking into consideration the relevant factors came to the conclusion that the payment was not made wholly or exclusively for the purpose of the business of the assessee and therefore, the Assessing Officer rightly disallowed the aforesaid deduction which has been rightly restored by the ITAT - Decided against assessee.
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