1994 (3) TMI 149 - AT - Income Tax

Tribunal Adjusts Expenses in Tax Appeal Ruling

BS. AGRICULTURAL INDUSTRIES (INDIA). Versus INCOME TAX OFFICER.

The tribunal partly allowed the appeal, deleting the trading addition of Rs. 2,84,055 after finding the Assessing Officer's reliance on a comparable case ... - Issues Involved:1. Trading addition of Rs. 2,84,055.2. Disallowance of Rs. 4,992 relating to telephone expenses.3. Disallowance of car expenses and depreciation.4. Disallowance of Rs. 15,000 as guest house rent.Issue-wise Detailed Analysis:1. Trading Addition of Rs. 2,84,055:The primary issue pertains to the trading addition of Rs. 2,84,055. The Assessing Officer (AO) rejected the book results of the assessee, invoking provisions of Section 145(2), due to non-maintenance of quantitative details of raw materials and discrepancies in stock valuation between bank statements and books of accounts. The AO applied a gross profit (g.p.) rate of 17.4%, based on a comparable case, M/s India Casting Co., which disclosed a similar business turnover and g.p. rate. The assessee contended that the AO was unjustified in rejecting the book results, as past records were accepted, and discrepancies were explainable. The assessee also argued that the g.p. rate of 15.66% disclosed was higher than the preceding year's 13.5%.Upon review, the tribunal noted the progressive improvement in the assessee's trading results over the years, with a g.p. rate of 15.66% for the year under appeal. The tribunal found that the AO's reliance on M/s India Casting Co. was misplaced, as necessary adjustments for freight and cartage expenses were not considered. The adjusted g.p. rate for M/s India Casting Co. was 15.39%, lower than the assessee's rate. The tribunal concluded that no trading addition was warranted, and deleted the addition of Rs. 2,84,055.2. Disallowance of Rs. 4,992 Relating to Telephone Expenses:The AO disallowed 1/4th of the total telephone expenses (Rs. 9,984) for personal use by partners, which the CIT(A) enhanced to 50%. The assessee argued that the disallowance was excessive, especially since no notice for enhancement was issued, and there was no telephone at the partners' residences.The tribunal found the disallowance of Rs. 4,992 excessive and reduced it to Rs. 1,000, roughly 10% of the total expenses, considering it reasonable for personal use by partners. The enhancement by the CIT(A) was deemed unjustified.3. Disallowance of Car Expenses and Depreciation:The AO disallowed 1/4th of car expenses (Rs. 6,345) and car depreciation (Rs. 19,196) for personal use by partners. The CIT(A) enhanced these disallowances to Rs. 8,457 and Rs. 25,581, respectively, without issuing a notice for enhancement.The tribunal agreed that some disallowance for personal use was warranted but found the amounts excessive. It reduced the disallowance to 1/6th of the car expenses and depreciation, aligning with general practice.4. Disallowance of Rs. 15,000 as Guest House Rent:The AO disallowed Rs. 15,000 claimed as guest house rent, asserting it was for a guest house at Patna, not allowable under Section 37(4) and (5). The assessee argued that the rent was for premises provided to the branch manager as per employment terms, not a guest house.The tribunal reviewed the employment terms and found the rent was indeed for the branch manager's residence, not a guest house. It concluded that the disallowance was unwarranted and deleted the Rs. 15,000 disallowance.Conclusion:The appeal of the assessee was partly allowed. The tribunal deleted the trading addition of Rs. 2,84,055, reduced the disallowance of telephone expenses to Rs. 1,000, adjusted the car expenses and depreciation disallowance to 1/6th, and deleted the Rs. 15,000 disallowance for guest house rent.