1994 (4) TMI 90 - AT - Income Tax

Assessing Officer, Assessment Year, Previous Year, Raw Material, Rejection Of Accounts, Set Off

Summary

Issues Involved:
1. Disallowance of Rs. 10,253 u/s 40A(2)
2. Addition of Rs. 21,98,898 on account of low yield
3. Computation of book profit u/s 115J
4. Disallowance of Rs. 33,270 for Diwali gifts
5. Disallowance of Rs. 10,000 out of motor car expenses
6. Disallowance of Rs. 5,000 out of staff and workmen welfare expenses
7. Disallowance of Rs. 10,000 out of telephone expenses
8. Initiation of penalty proceedings u/s 271(1)(c)

Summary:

1. Disallowance of Rs. 10,253 u/s 40A(2):
The Assessing Officer (A.O.) disallowed Rs. 10,253 out of the freight paid to M/s Geetanjali Road Lines and M/s Vishal Hind Roadways, considering the payment as excessive. The CIT (Appeals) confirmed this disallowance. However, the Tribunal found that the A.O. failed to bring any material on record to prove that the expenditure was excessive or unreasonable. The disallowance was therefore cancelled.

2. Addition of Rs. 21,98,898 on account of low yield:
The A.O. added Rs. 21,98,898 due to low yield in the manufacturing process. The CIT (Appeals) confirmed this addition. The Tribunal found that the A.O. did not provide a basis for considering the yield as unreasonable and noted the misappropriation of 25,433 kgs of material by a third party. The Tribunal directed the A.O. to reduce the addition to Rs. 2,92,480, considering the value of the misappropriated material.

3. Computation of book profit u/s 115J:
The A.O. revised the book profit u/s 115J to Rs. 8,05,696, which was confirmed by the CIT (Appeals). The Tribunal dismissed the assessee's contention, stating that the computation of book profit by the A.O. was correct and in conformity with the interpretation of clause (iv) of the Explanation to section 115J.

4. Disallowance of Rs. 33,270 for Diwali gifts:
The CIT (Appeals) upheld the disallowance of Rs. 33,270 for Diwali gifts. The Tribunal found that such expenses are customary business expenditures and not in the nature of advertisement. The disallowance was cancelled.

5. Disallowance of Rs. 10,000 out of motor car expenses:
The A.O. made an ad hoc disallowance of Rs. 10,000 out of motor car expenses, which was confirmed by the CIT (Appeals). The Tribunal found that the personal use of the car by directors was negligible and directed the A.O. to delete the disallowance.

6. Disallowance of Rs. 5,000 out of staff and workmen welfare expenses:
The A.O. made an ad hoc disallowance of Rs. 5,000 out of staff and workmen welfare expenses, which was confirmed by the CIT (Appeals). The Tribunal found no specific instance of disallowable expenditure and cancelled the disallowance.

7. Disallowance of Rs. 10,000 out of telephone expenses:
The A.O. made an ad hoc disallowance of Rs. 10,000 out of telephone expenses, which was confirmed by the CIT (Appeals). The Tribunal found no justification for the disallowance as the expenses were supported by vouchers and regular books of account. The disallowance was cancelled.

8. Initiation of penalty proceedings u/s 271(1)(c):
The Tribunal noted that no appeal is maintainable against the initiation of penalty proceedings u/s 271(1)(c) in an appeal against the assessment order u/s 143(3). This ground was rejected.

Conclusion:
The appeal was partly allowed, with several disallowances and additions being cancelled or reduced by the Tribunal.