1985 (10) TMI 109 - AT - Income Tax

Summary

Issues:
1. Disallowance of salary payment to a partner.
2. Disallowance of conveyance and travelling expenses.

Detailed Analysis:

1. Disallowance of Salary Payment to a Partner:
The case involved a registered partnership firm with 18 partners, some of whom joined the firm as Karta of their respective HUFs. The firm was engaged in manufacturing electronic yarn clearers. The issue arose when the ITO disallowed a sum paid to one of the partners, Shri Patwa, during the assessment for the year 1981-82. The CIT (A) upheld the disallowance based on a Supreme Court decision, ruling that the salary payment was not justified as there was no evidence of Shri Patwa working for the firm in his individual capacity. However, the firm contended that the salary was paid based on his qualifications and services rendered. The Tribunal observed that the CIT (A) did not consider the nature of the business, qualifications, and experience of Shri Patwa. The Tribunal directed the CIT (A) to re-decide the issue, emphasizing the need to consider all relevant facts and judicial pronouncements before making a decision.

2. Disallowance of Conveyance and Travelling Expenses:
The ITO disallowed specific amounts for conveyance and travelling expenses without providing reasons. The CIT (A dismissed the disallowance, citing non-verification of taxi fare amounts. The firm submitted detailed month-wise expenses and argued that the disallowance was unjustified as the authorities did not verify the expenses or ask for necessary vouchers. The Tribunal agreed with the firm, noting that the disallowance was made without evidence or inquiry. It further explained that expenses incurred during business tours should be considered as business expenditure, not personal. The Tribunal directed the ITO to pass appropriate orders and instructed the CIT (A) to re-decide the issue, ultimately allowing the appeals in part.

In conclusion, the Tribunal set aside the CIT (A) order regarding the disallowance of salary payment to a partner and the disallowance of conveyance and travelling expenses. The Tribunal emphasized the importance of considering all relevant facts, nature of business, and judicial pronouncements before making decisions related to disallowances.