1988 (9) TMI 74 - AT - Income Tax

Issues Involved:
1. Addition under Section 41(2) of the IT Act, 1961.
2. Disallowance of wages paid to employees.
3. Deduction under Section 80-G.
4. Disallowance under Section 40A(2).
5. Disallowance under Section 40A(3).
6. Membership fee paid to clubs.

Detailed Analysis:

1. Addition under Section 41(2) of the IT Act, 1961:
The first issue pertains to the addition of Rs. 1,00,500 brought to tax by the ITO under Section 41(2) of the IT Act, 1961. The ITO considered the transfer of gas cylinders to the partners as a "sale" or "transfer" and invoked the provisions of Section 41(2), leading to the addition of Rs. 1,00,500 to the total income. The assessee argued that the transfer was merely a return of capital and not a sale, citing that the gas cylinders were given to partners in their profit-sharing ratio. The CIT(A) confirmed the ITO's action without recording separate reasons. The Tribunal upheld the CIT(A)'s decision, emphasizing that the revaluation of gas cylinders and subsequent transfer constituted a sale/transfer, thus attracting the provisions of Section 41(2).

2. Disallowance of Wages Paid to Employees:
The second issue involves the disallowance of Rs. 1,94,472 in respect of wages paid to employees. The learned counsel for the assessee stated that he had instructions not to press this ground for consideration. Consequently, this ground was rejected.

3. Deduction under Section 80-G:
The assessee claimed a deduction of Rs. 13,805 under Section 80-G, out of which the ITO allowed Rs. 8,805 and disallowed Rs. 5,000. The CIT(A) confirmed the ITO's action, noting that the donations to Ellisbridge Jaycees and Revenue Unity Blindness did not qualify for deduction under Section 80-G. The Tribunal set aside the CIT(A)'s order and restored the matter for re-examination, allowing the assessee to present relevant evidence.

4. Disallowance under Section 40A(2):
The ITO disallowed Rs. 10,000 out of Rs. 43,000 paid to Ranchod Lal & Sons under Section 40A(2), citing close relations between the partners of Ranchod Lal & Sons and the assessee-firm. The CIT(A) confirmed this disallowance. The Tribunal restored the matter to the CIT(A) for re-examination, considering the relevant facts and arguments presented by the assessee.

5. Disallowance under Section 40A(3):
The ITO disallowed Rs. 6,304 paid in cash to Das Brothers & Co., Calcutta, for violating Section 40A(3). The CIT(A) allowed the deduction, citing exceptions to Rule 6-DD. The Tribunal confirmed the CIT(A)'s decision, noting that the payment was covered by the exceptions to Rule 6-DD, as the assessee did not have a bank account at the place of transaction.

6. Membership Fee Paid to Clubs:
The ITO disallowed Rs. 7,500 paid as membership fees to Rajpath Club and Sports Club, considering it a personal expense. The CIT(A) allowed the deduction, referencing a similar Tribunal decision in the case of Vulcan Alloys & Industries (P) Ltd. The Tribunal upheld the CIT(A)'s decision, agreeing that the membership fees were allowable as a business expense.

Conclusion:
The assessee's appeal is partly allowed for statistical purposes, and the Revenue's appeal is dismissed. The Tribunal confirmed the CIT(A)'s decisions on the addition under Section 41(2), disallowance under Section 40A(3), and membership fees, while setting aside and restoring the matters related to deductions under Section 80-G and disallowance under Section 40A(2) for re-examination.

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