1994 (6) TMI 191 - AT - Income Tax

Summary

Issues Involved:
1. Relief under "Sales Promotion"
2. Addition u/s 68 for cash credits
3. Valuation of closing stock
4. Allowance of interest on loans

Summary:

1. Relief under "Sales Promotion":
- Income-tax Appeal No. 3146/(Bom) of 1986: The Commissioner of Income-tax (Appeals) allowed a relief of Rs. 6,990 under "Sales promotion." The Tribunal upheld this decision, noting that such payments were customary in the assessee's business and the amount was reasonable given the turnover.
- Income-tax Appeal No. 3147/(Bom) of 1986: Similarly, the Commissioner of Income-tax (Appeals) allowed a relief of Rs. 10,220 under "Sales promotion." The Tribunal confirmed this, agreeing that some commission had to be allowed.

2. Addition u/s 68 for Cash Credits:
- Income-tax Appeal No. 3146/(Bom) of 1986: The Commissioner of Income-tax (Appeals) deleted an addition of Rs. 90,000 made u/s 68 for credits in the names of two Hindu undivided families (HUFs). The Tribunal initially upheld this, citing the identity, credibility, and genuineness of the transactions. However, the Accountant Member disagreed, finding the source of the amount inadequately explained. The Third Member sided with the Accountant Member, concluding there was no adequate evidence to support the Commissioner of Income-tax (Appeals)'s finding that the cash credits were adequately explained.
- Income-tax Appeal No. 3147/(Bom) of 1986: The Tribunal followed the same reasoning as in the previous appeal, disallowing the interest on loans related to the cash credits.

3. Valuation of Closing Stock:
- Income-tax Appeal No. 3146/(Bom) of 1986: The Commissioner of Income-tax (Appeals) directed a deduction of 55% for profit and bargain margin in valuing the closing stock, against the 45% allowed by the Inspecting Assistant Commissioner. The Tribunal upheld this, noting that the margin was reasonable given the business context.
- Income-tax Appeal No. 3147/(Bom) of 1986: The Tribunal confirmed the same 55% deduction for profit and bargain margin as in the previous appeal, finding it justified.

4. Allowance of Interest on Loans:
- Income-tax Appeal No. 3147/(Bom) of 1986: The Commissioner of Income-tax (Appeals) allowed interest of Rs. 10,125 on loans from the HUFs. The Tribunal initially upheld this, but following the Third Member's decision on the cash credits, the interest was disallowed as the loans were not considered genuine.

Conclusion:
Both appeals were dismissed, with the Tribunal confirming the decisions of the Commissioner of Income-tax (Appeals) on sales promotion and closing stock valuation. However, the addition u/s 68 for cash credits and the related interest allowance were overturned based on the Third Member's decision.