2004 (8) TMI 316 - AT - Income Tax

ITAT Upholds CIT(A) Decisions on Income Transfer & Salary Expenses

The ITAT dismissed the appeal, upholding the CIT(A)'s decisions on both issues. The addition of income transferred without charging interest was deemed ... - Issues:1. Addition of income transferred to spouse, children, and HUF without charging interest.2. Disallowance of salary expenses claimed by the assessee.Issue 1: Addition of income transferred without charging interest:During assessment, the AO noted loans given by the assessee to close relatives without charging interest. The AO applied section 60 of the IT Act and added Rs. 1,60,000 as income earned by family members on these loans. However, the CIT(A) deleted the addition stating that the assessee did not transfer income to family members but provided interest-free loans. The AO invoked s. 60 to tax the income in the hands of the transferor, but the CIT(A) disagreed, emphasizing that no arrangement was made to reduce tax liability. The learned Departmental Representative supported the AO's order, while the Authorised Representative argued against invoking s. 60, citing the Gujarat High Court's decision in a similar case. The Authorised Representative contended that the addition was not justified as it was not covered by s. 60, and the parties had shown their interest income in their returns. The ITAT upheld the CIT(A)'s decision, concluding that s. 60 did not apply as it was a case of interest-free loans, and the assessee had sufficient own funds.Issue 2: Disallowance of salary expenses:The AO disallowed Rs. 67,000 of claimed salary expenses based on the net profit declared by the assessee. The CIT(A) overturned this decision, stating that the AO did not provide evidence that the expenses were not incurred for business purposes. The AO's disallowance was based on the declared net profit without considering depreciation and financing charges. The ITAT agreed with the CIT(A), confirming that the expenses were legitimate and incurred for business purposes. Therefore, the disallowance of salary expenses was unjustified, and the CIT(A)'s decision was upheld.In conclusion, the ITAT dismissed the appeal, confirming the CIT(A)'s decisions on both issues.