- (1.) The Income-tax Appellate Tribunal, Delhi, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in upholding the finding of the Commissioner of Income-tax (Appeals) 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.
(3.) 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 called for in respect of payment of interest to outsiders. He found that the interest to two directors and their relation on deposits was Rs. 86,472 and interest paid on the amount taken on the advance in business was Rs. 1,52,218. The Commissioner, therefore, upheld the disallowance under Section 40A(8) with reference to interest of Rs. 86,472. Feeling aggrieved, the Revenue preferred appeal before the Tribunal. The Tribunal upheld the order passed by the Commissioner of Income-tax (Appeals).;