Law: Income Tax Act, 1961

Section: 36,40A(3)

(a) Income-tax----Business expenditure---Disallowance of expenditure---Amounts paid in cash in excess of specified limit---Amount paid in cash for disbursement among Lorry drivers---Payments reflected in account books---Amounts could not be disallowed---Indian Income Tax Act, 1961, S. 40A(3)---Indian Income Tax Rules, 1962, R. 6DD, (b) Income-tax--- ----Interest on borrowed capital---No evidence that amounts had been borrowed for purposes of business---Interest was not deductible---Indian Income Tax Act, 1961, S.36. (c) Income-tax--- ----Business expenditure---Travel expenses---No finding on question whether travel was for purposes of business---Matter remanded---Indian Income Tax Act, 1961, S.37. The assessee-firm carried on the business of manufacturing, trading and export of cast iron. The assessee claimed deduction of payment of Rs.1,49,902 on transport. During the scrutiny, the Income­tax Officer found that out of that expenditure, the assessee had paid Rs.95,000 and the payments were in cash exceeding Rs.2,500 on different dates, and that therefore, that was hit by the provisions of section 40A(3) of the Income Tax Act, 1961. The case of the assessee was that this cash had been collected from the assessee in Calcutta and it was for the payment to drivers. The Tribunal confirmed the disallowance. The assessee had claimed deduction of interest on a loan of Rs.8,60,000. The loan had been advanced immediately to a sister concern free of interest. The case of the assessee was that it was not in fact an interest free loan to P but an advance against a flat booked by the assessee in a building. The Income-tax Officer disallowed the interest. The Tribunal found that the assessee had not produced any terms of the contract between the assessee firm and P. No construction had been undertaken by P. The entire story of the assessee that the money was advanced for booking flats was not supported by any material. The Tribunal upheld the disallowance. The assessee had also claimed deduction of Rs.1,08,381 as travel expenses for purposes of the business. The Income-tax Officer did not allow the deduction and the Tribunal confirmed the disallowance. On a reference: Held,…

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