1986 (8) TMI 146 - AT - Income Tax

Appellate Tribunal favors assessee in income tax appeal, disallowing certain expenses and directing partial interest disallowance.

The Appellate Tribunal ruled in favor of the assessee in an income tax appeal. The Tribunal disagreed with the addition made on account of excessive ... - Issues:1. Addition on account of excess breakage of bottles.2. Disallowance of petrol and diesel expenses.3. Disallowance of repairing account expenses.4. Disallowance of Theka and Basa expenses.5. Disallowance of telephone expenses.6. Charge of interest on over withdrawal by partners.Issue 1: Addition on account of excess breakage of bottlesThe main issue in this appeal was the addition made by the Income Tax Officer (ITO) on account of excessive breakage of bottles in the assessee's liquor business. The ITO noticed a significant increase in the breakage expenses from the previous year and added Rs. 1,40,000 to the income. The CIT(A) reduced the addition to Rs. 1,00,000. However, the Appellate Tribunal disagreed with the addition. The Tribunal observed that the cost of bottles should have been treated as part of the trading account and reflected in the gross profit. By considering the cost of breakage claimed by the assessee, the Tribunal found that the overall results were not worse than the previous year. Citing relevant case laws, the Tribunal deleted the entire amount of addition made on account of excessive breakage.Issue 2: Disallowance of petrol and diesel expensesAnother issue raised in the appeal was the disallowance of Rs. 3,000 out of petrol and diesel expenses. The assessee argued that most partners resided in different places and did not use the Jeep much. The Tribunal restricted the disallowance to Rs. 2,000 considering the partners' locations and usage of vehicles.Issue 3: Disallowance of repairing account expensesA sum of Rs. 1,600 was disallowed from the repairing account due to lack of proper vouchers. The assessee explained the difficulty in obtaining vouchers for petty amounts. The Tribunal restricted the disallowance to Rs. 1,000, considering the circumstances and details of the expenses.Issue 4: Disallowance of Theka and Basa expensesThe CIT(A) upheld the disallowance of Rs. 3,000 from Theka expenses and Rs. 1,500 from Basa expenses based on past history, and the Tribunal found no reason to interfere with these disallowances.Issue 5: Disallowance of telephone expensesThe disallowance of Rs. 2,500 from telephone expenses was confirmed by the CIT(A) and upheld by the Tribunal based on past history, as no interference was deemed necessary.Issue 6: Charge of interest on over withdrawal by partnersThe last issue pertained to the charge of interest on overdrawals by partners. The ITO disallowed interest paid on overdrawn amounts by the partners. The Tribunal agreed that interest on borrowed capital used for non-business purposes should be disallowed. However, considering the partners' circumstances, the Tribunal directed the ITO to disallow interest only on the net debit balance of partners during the relevant accounting period. The appeal was partly allowed in this regard.