Law:

Section:

Section 40A(8) of the Income-tax Act, 1961 - Business disallowance - Interest on deposits - Assessment year 1983-84 - Whether disallowance under section 40A(8) is not restricted to deposits made by directors or their relatives but it applies to all and sundry and wherever interest is paid, 15 per cent of amount is to be disallowed - Held, yes A.N. Mahajan for the Applicant. ORDER 1. The Income-tax Appellate Tribunal, Delhi has referred the following question of law under section 256(1) of the Income-tax Act, 1961('the Act') for opinion to this Court :- "Whether on the facts and in the circumstances of the case, the ITAT was legally correct in upholding the finding of the CIT(A) that disallowance under section 40A(8) of the Income-tax Act, 1961 could be made only with reference to the interest paid to the directors and their relations on their deposits and not of others?" 2. The reference relates to the assessment year 1983-84. Briefly stated, the facts giving rise to the present reference are as follows:- The respondent-assessee is a private limited company. It derives income from commission agency of Khandsari and sugar and from own trading in the commodities. For the assessment year in question it claimed interest payment of Rs. 2,45,896. The Income-tax Officer disallowed a sum of Rs. 35,803 being 15 per cent of the amount of interest under section 40A(8) of the Act. Feeling aggrieved, the respondent preferred an appeal before the Commissioner of Income-tax (Appeals) who had held that the additions made under section 40A(8) of the Act in respect of interest paid to the Directors and their relation and associates could only be disallowed. No disallowance was…

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