2003 (7) TMI 258 - AT - Income Tax

Summary

Issues Involved:
1. Unexplained deposits of Rs. 1,55,000.
2. Loss on unsold lottery tickets of Rs. 1,44,202.
3. Disallowance of general expenses and car depreciation.
4. Disallowance of car hire charges and running expenses.
5. Disallowance of travelling expenses.

Issue-wise Detailed Analysis:

1. Unexplained Deposits of Rs. 1,55,000:
The assessee's appeal contested the addition of Rs. 1,55,000 as unexplained deposits. The AO observed that these deposits were in violation of Section 269SS and treated them as unexplained income under Section 68. The CIT(A) confirmed this addition due to non-service of summons to the depositors. The Tribunal, however, noted that the AO had already initiated penalty proceedings under Section 271D for the same amount, implying acceptance of these deposits as loans or deposits. The Tribunal found that the AO did not take adequate steps to verify the transactions and that the CIT(A) had accepted the assessee's books of accounts as reliable. The Tribunal concluded that the deposits were indeed security deposits from lottery agents and deleted the addition, allowing the assessee's appeal on this ground.

2. Loss on Unsold Lottery Tickets of Rs. 1,44,202:
The AO disallowed the claimed loss on unsold tickets, arguing that the tickets should have been returned to the U.P. State Lotteries. The CIT(A) upheld this disallowance, stating that the loss could not be considered a business loss. The Tribunal found that the U.P. State Lottery Rules stipulated that sold tickets were non-returnable, and the assessee had maintained detailed records of the unsold tickets. The Tribunal held that the loss was a legitimate business expense, as the unsold tickets could not generate profit and must be deducted from the closing stock. Consequently, the Tribunal allowed the assessee's appeal on this issue and deleted the addition.

3. Disallowance of General Expenses and Car Depreciation:
The AO disallowed Rs. 5,000 out of general expenses for lack of vouchers and for including charity and donation expenses. The CIT(A) reduced this disallowance to Rs. 2,500. The AO also disallowed 25% of car depreciation for personal use, which the CIT(A) confirmed. The Tribunal upheld the CIT(A)'s decision, finding the disallowances reasonable and not excessive.

4. Disallowance of Car Hire Charges and Running Expenses:
The AO disallowed Rs. 76,994, including Rs. 24,000 for car hire charges, due to lack of details and ownership of the car. The CIT(A) reduced this disallowance to 20% of the total expenditure. The Tribunal found no agreement or details provided to justify the expenses and upheld the CIT(A)'s decision, rejecting the assessee's appeal on this ground.

5. Disallowance of Travelling Expenses:
The AO disallowed Rs. 6,915 out of travelling expenses without detailed reasons. The CIT(A) sustained the addition based on the tax audit report, which determined the excess expenditure as per Rule 6D. The Tribunal found the audit report justified the disallowance and upheld the CIT(A)'s decision, rejecting the assessee's appeal on this ground.

Conclusion:
The Tribunal partly allowed the assessee's appeal by deleting the additions related to unexplained deposits and loss on unsold lottery tickets. The Tribunal upheld the disallowances related to general expenses, car depreciation, car hire charges, running expenses, and travelling expenses. The Department's appeal was dismissed, following the Tribunal's findings in the assessee's appeal.