1985 (10) TMI 141 - AT - Income Tax

Tribunal rules on hire purchase commissions, disallows car & telephone costs, and remits interest calculation for reconsideration.

The Tribunal dismissed the Department's appeal regarding the hire purchase commissions, affirming that the liability accrues when the agreement is signed. ... - Issues Involved1. Whether the CIT (A) was justified in holding that the hire purchase commissions aggregating to Rs. 1,20,380 accrued in the year itself and were fully allowable in the year.2. Whether the gross profit rate of 22.5% was correctly applied by rejecting the books of accounts maintained by the assessee.3. Disallowance for personal use of car and telephone by the partners.4. Verification of the claim of deduction under Section 80G.5. Calculation of interest under Sections 139(8) and 217.Detailed AnalysisIssue 1: Hire Purchase CommissionsThe Department's appeal questioned the CIT (A)'s decision that hire purchase commissions of Rs. 1,20,380 accrued in the year itself and were fully allowable, despite being payable over the hire purchase period. The Department representative argued that the term 'commission' was a misnomer and should be considered as interest on installments. He emphasized that the liability to pay interest does not arise when the agreement is entered into, especially if the assessee defaults in payments, leading to potential forfeiture of the vehicle.Conversely, the assessee's representative submitted that the liability for hire purchase charges is established the moment the agreement is entered into, regardless of the payment schedule. This practice was consistent with the system followed by the assessee and accepted by the Department. The Tribunal, after reviewing the agreement, concluded that the liability to pay hire purchase charges is indeed fastened upon the assessee when the agreement is signed. Thus, the Department's appeal lacked merit and was dismissed.Issue 2: Gross Profit Rate and Rejection of Books of AccountsThe assessee's appeal challenged the application of a 22.5% gross profit rate and the rejection of its books of accounts. The Department's rejection was based on several reasons, including the absence of a log book, unvouched diesel expenses, and inadequately vouched expenses for octroi charges, rasta allowance, commission, and labour.The assessee's representative provided detailed explanations and supporting documents, showing that truck-wise, trip-wise income and expenditure statements were maintained, which effectively served as log books. Diesel expenses were supported by bills or cash memos, and the increase in diesel prices was documented. Expenses for octroi charges, rasta allowance, commission, and labour were vouched and counter-signed by drivers.The Tribunal found the Department's objections to be largely unfounded. It acknowledged that while some expenses might not be fully vouched, the overall system maintained by the assessee was reasonable. Consequently, the Tribunal deemed the rejection of the books of accounts and the gross profit rate applied by the Department to be improper. An ad hoc addition of Rs. 30,000 to the trading account was retained instead.Issue 3: Personal Use of Car and TelephoneThe assessee contested the disallowance for personal use of car and telephone by the partners. The Tribunal found the disallowance to be reasonable and upheld the authorities' decision.Issue 4: Deduction under Section 80GThe assessee argued that the CIT (A) should have verified the claim of deduction under Section 80G instead of remitting it back to the ITO. The Tribunal found the direction given by the authorities to be proper and did not interfere with this decision.Issue 5: Calculation of InterestRegarding the calculation of interest under Sections 139(8) and 217, the Tribunal noted that this issue is consequential. Therefore, it remitted the matter back to the ITO for recalculating the interest charges.ConclusionThe appeal of the assessee was partly allowed, while that of the Department was dismissed.