1988 (10) TMI 58 - AT - Income Tax

Summary

Issues Involved:

1. Management Service Charges
2. Sundry Expenses
3. Travelling Expenses
4. Cash Credits
5. Interest under Section 217 of the IT Act

Detailed Analysis:

1. Management Service Charges:

The assessee, a registered partnership firm, claimed management service charges amounting to Rs. 1,30,606 paid to Hira Lal Poonjabhai Children Trust through Panchal Management Services. The ITO disallowed this expense, suspecting it as a diversion of income to avoid taxes, noting that two partners of the assessee firm were beneficiaries of the trust. The CIT(A) upheld this disallowance, citing a lack of evidence of the necessity or actual rendering of services.

The Tribunal, however, found merit in the assessee's argument that similar claims were allowed in previous years. It emphasized that while res judicata does not apply to tax proceedings, consistency should be maintained in the absence of material changes in facts or law. The Tribunal concluded that the assessee sufficiently demonstrated that services were rendered, and thus, the disallowance was unjustified. The order of the CIT(A) was vacated, and the claim for management service charges was allowed.

2. Sundry Expenses:

The assessee attempted to contest the disallowance of Rs. 1,000 under sundry expenses. However, since this issue was not pressed before the CIT(A), the Tribunal dismissed this ground, accepting the CIT(A)'s statement that the issue was not raised.

3. Travelling Expenses:

The ITO disallowed Rs. 2,781 out of total travelling expenses of Rs. 38,801, citing excess claims under Rule 6D of the IT Rules. The CIT(A) confirmed this disallowance. The assessee contended that Rule 6D should not apply to partners, but the Tribunal disagreed, interpreting "any other person" in Rule 6D to include partners.

Alternatively, the assessee requested recalculating expenses as per the method approved by the Bombay Bench in the case of S.V. Ghatalia vs. Second ITO. The Tribunal accepted this alternative approach and directed the ITO to recalculate the disallowance accordingly.

4. Cash Credits:

The ITO found unexplained cash credits of Rs. 75,000 in the names of the assessee's son and son-in-law. The assessee claimed these were deposited by Krishna Lal Vaidya, who provided an affidavit and was examined by the ITO. However, the ITO and CIT(A) found the explanation unsatisfactory, noting inconsistencies and improbabilities in Vaidya's statements and the supporting documents.

The Tribunal upheld the authorities' findings, emphasizing that the explanation did not meet the standards of reasonableness and probability required under Section 68. The Tribunal concluded that the cash credits were rightly treated as unexplained and taxable.

5. Interest under Section 217 of the IT Act:

The assessee challenged the charge of interest under Section 217 amounting to Rs. 980. However, this issue was not addressed in the CIT(A)'s order, and thus, the Tribunal rejected this ground, allowing the assessee to re-agitate the issue under Section 154 if so advised.

Conclusion:

The appeal was partly allowed. The Tribunal vacated the disallowance of management service charges and directed a recalculation of travelling expenses. The disallowance of sundry expenses, cash credits, and the charge of interest under Section 217 were upheld.