1978 (11) TMI 97 - AT - Income Tax

Tribunal allows appeal in part, deems disclosed profit reasonable, and approves entertainment expenses claim.

The Tribunal allowed the appeal in part, finding the disclosed profit reasonable based on past history and deleting the trading addition imposed by the ... Computation of income by application of estimated gross profit rates - bifurcation of retail and wholesale sales for assessment - consistency with past years' accepted gross profit - abandonment of ground by counsel - entertainment expense versus staff amenities - allowability of business expensesComputation of income by application of estimated gross profit rates - bifurcation of retail and wholesale sales for assessment - consistency with past years' accepted gross profit - Validity of the addition made by applying higher estimated gross profit rates after bifurcating retail and wholesale sales - HELD THAT: - The Tribunal accepted that the assessee had disclosed gross profit rates in earlier assessment years which were accepted by the Department and that no specific defect or false entry in the books was pointed out for the year under appeal. The Revenue did not produce convincing evidence to justify bifurcating total sales into retail and wholesale for applying different gross profit rates in this year. In the absence of any material to displace the historic accepted gross profit position and with no comparable case or specific book irregularity shown by the ITO, the Tribunal found no justification for sustaining the trading addition made on the basis of the bifurcated estimates. [Paras 6]The addition of Rs. 4,419 made by applying the departmental estimated gross profit rates after bifurcation is deleted.Abandonment of ground by counsel - Ground relating to car expenses not pressed by the assessee - HELD THAT: - Counsel for the assessee did not press the ground challenging disallowance of car expenses (ground No. 4). Where a ground is not pressed before the Tribunal, the Tribunal declined to decide it in favour of the assessee. [Paras 7]Point regarding car expenses is decided against the assessee.Entertainment expense versus staff amenities - allowability of business expenses - Disallowance of Rs. 725 treated as entertainment expenses - HELD THAT: - The Tribunal examined the nature of the expenditure of Rs. 725, which the assessee stated was incurred in providing tea, pan etc. to employees and constituents. While noting that the Bench had views on such expenses being entertainment in character, the Tribunal found that some of the expenditure related to employees and, on that basis, there was no justification for disallowing the claim. Consequently, the disallowance was held to be not sustainable. [Paras 8]The disallowance of Rs. 725 as entertainment expenses is deleted and the claim is allowed.Final Conclusion: The appeal is allowed in part: the trading addition sustained by the Revenue is deleted and the disallowance of Rs. 725 is set aside; the unpressed ground relating to car expenses is decided against the assessee. The appeal was filed by a Registered Firm for the asst. yr. 1976-77. The income was estimated by the ld. ITO resulting in an addition of Rs. 14,103. The ld. AAC sustained a trading addition of Rs. 4,419. The Tribunal found the disclosed profit reasonable based on past history and deleted the addition. The claim for entertainment expenses of Rs. 725 was allowed. The appeal was allowed in part.