2001 (4) TMI 73 - HC - Income Tax

Court directs 25% expense deduction for tailoring business, upholds set off of income against investments.

The court remanded the computation of deductions for expenses in the tailoring business to the Income-tax Officer, directing a 25% deduction towards ... Business Expenditure, Deduction, Tailoring Establishment, Additions To Income Issues:1. Assessment of omitted tailoring receipts for the years 1981-82 and 1982-83.2. Allowance of deductions for expenditure incurred in tailoring business.3. Set off of additions made to business income against investments and cash deposits.Analysis:1. The court examined the assessment of omitted tailoring receipts by the Income-tax Officer, which were later reduced by the Commissioner and further contested by the assessee before the Appellate Tribunal. The Tribunal determined the actual omissions in tailoring charges for the two years but rejected the assessee's claim for deductions related to stitching charges and other expenses. The court considered the submissions and remanded the matter to the Income-tax Officer, directing to allow a 25% deduction towards expenses in computing the addition to income and assess the tax accordingly.2. The court deliberated on the allowance of deductions for expenditure incurred in the tailoring business, such as wages for stitching, costs of lining cloth, buttons, and other materials. The assessee argued that these expenses are essential and should be deducted from the gross profit. The Revenue contended that tailoring charges are based on reputation rather than expenses incurred. The court acknowledged the necessity of such expenses in tailoring and held that a tailor would incur certain expenditure towards these items. It directed the Income-tax Officer to allow a 25% deduction for these expenses in computing the addition to income.3. Regarding the set off of additions made to business income against investments and cash deposits, the court found that the explanation provided by the assessee for the deposits made in the name of relatives was unsatisfactory. The authorities treated these amounts as income from an undisclosed source under section 69B of the Income-Tax Act. The court upheld the decision of the Tribunal in declining to set off these amounts against the additions made to business income. Consequently, the court answered question No. 2 in favor of the Revenue and against the assessee.In conclusion, the court remanded the computation of deductions for expenses in the tailoring business to the Income-tax Officer and upheld the decision regarding the set off of additions to business income against undisclosed investments and cash deposits.