2004 (5) TMI 233 - AT - Income Tax

2016 (2) TMI 190 - AT

Issues Involved:
1. Disallowance of loss of Mehsana office.
2. Payment of commission to New Chirag Tractors (NCT).
3. Payment of commission to Tractor Sales Corporation (TSC).
4. Addition of Rs. 72,000 in respect of sale of spare parts.
5. Addition of Rs. 60,561 in respect of 296 bags of soda ash.
6. Disallowance of Rs. 8,656 under s. 40A(3) for cash payment.
7. Loss of Rs. 1,51,554 due to fire in communal riots.

Detailed Analysis:

(i) Disallowance of loss of Mehsana office:
The AO disallowed the expenditure of Rs. 64,739 for the Mehsana office, arguing that the assessee outsourced the work of sale and servicing of tractors and motorcycles to NCT and TSC, rendering the maintenance of the office unnecessary. However, the CIT(A) and the Tribunal found that maintaining an office and godown was essential for business operations, even if the technical and sales work was outsourced. The Tribunal upheld the CIT(A)'s decision to allow the expenditure.

(ii) Payment of commission to New Chirag Tractors:
The AO disallowed the commission paid to NCT, based on a statement from Shri Nitin G. Patel, which suggested that NCT was not performing services for the assessee. The Tribunal found that the statement was recorded behind the assessee's back and was retracted by an affidavit. The Tribunal noted that NCT provided essential services like PDI, installation, and servicing of tractors and motorcycles, as per the agreement. The Tribunal upheld the CIT(A)'s decision to allow the commission payment to NCT.

(iii) Payment of commission to Tractor Sales Corporation:
The AO partially disallowed the commission payment to TSC, allowing Rs. 1,000 per tractor instead of the agreed Rs. 1,500. The Tribunal found that TSC provided necessary sales services and employed full-time staff for this purpose. The Tribunal upheld the CIT(A)'s decision to allow the full commission payment as per the agreement, noting that the AO had no basis for reducing the commission and that TSC was not a related concern under s. 40A(2).

(iv) Addition of Rs. 72,000 in respect of sale of spare parts:
The AO estimated the sales at Rs. 20 lakhs and applied a GP rate of 20%, resulting in an addition of Rs. 72,000. The Tribunal noted that the assessee's records were destroyed in a fire, and the GP rate disclosed was better than in most preceding years. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no infirmity in the disclosed GP rate.

(v) Addition of Rs. 60,561 in respect of 296 bags of soda ash:
The AO disallowed the claim of loan of 296 bags of soda ash, citing that the confirmation from Saurashtra Chemicals was not genuine. The Tribunal found that merely reflecting the loan in the stock register was insufficient without confirmation from the lender. The Tribunal reversed the CIT(A)'s decision and restored the AO's addition.

(vi) Disallowance of Rs. 8,656 under s. 40A(3) for cash payment:
The CIT(A) found that the payment was made to small laborers who had no bank accounts, thus falling under the exceptional circumstances of r. 6DD(j) of the IT Rules. The Tribunal upheld the CIT(A)'s decision to allow the payment.

(vii) Loss of Rs. 1,51,554 due to fire in communal riots:
The AO disallowed the loss claim, noting that the assessee received further insurance compensation, which covered the total loss. The Tribunal agreed with the CIT(A) that there was no loss after considering the subsequent insurance claim. The Tribunal upheld the CIT(A)'s decision, allowing the assessee to make appropriate claims in the subsequent assessment year if necessary.

Conclusion:
The Tribunal dismissed the Revenue's appeals in ITA Nos. 3628, 3629, 2433, 2434, and 2435, and partly allowed the Revenue's appeal in ITA No. 3627. The assessee's appeal in ITA No. 3448 and cross-objections were dismissed.

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