1977 (10) TMI 44 - AT - Income Tax

Summary

Issues:
1. Disallowance of car expenses for business purposes.
2. Claim of compensation for defective medicine supplied.
3. Disallowance of commission paid for bringing customers.
4. Disallowance of travelling expenses by estimate.

Analysis:
1. The Appellate Tribunal considered the disallowance of 50% of car expenses by the Income Tax Officer (ITO) as not being laid out for the business purposes of the assessee. The firm had five partners without personal conveyance, and the total car expenditure was Rs. 5,642. The disallowance amount was Rs. 2,821, deemed reasonable by the Tribunal as it was less than Rs. 250 per month and did not deny personal use of the car by partners. Thus, the Tribunal refused to interfere with the lower authorities' decision on this issue.

2. The Tribunal addressed a situation where the assessee firm supplied defective medicine to the Veterinary Department, resulting in the death of rams. The department required the assessee to compensate for the loss, disallowed by the department as a penalty not falling under legitimate business expenditure. However, the Tribunal deemed the payment as compensation incidental to business necessity, allowable under section 37 of the IT Act, 1961, and deleted the addition.

3. Regarding the payment of commission amounting to Rs. 10,883 to various persons for bringing customers, the Tribunal noted that the disallowance of Rs. 2,000 by the Appellate Authority was reasonable due to lack of verifiability. The Tribunal upheld the Authority's decision, emphasizing the need for verifiable expenses related to business needs.

4. The Tribunal reviewed the disallowance of Rs. 3,000 travelling expenses by the ITO, which was reduced to Rs. 1,000 by the Appellate Authority. The assessee contended that the entire addition should have been deleted as the touring details indicated that only employees, not partners, undertook the tour. After examining the expenses details filed by the assessee, the Tribunal found the disallowance of Rs. 1,000 sustained by the Authority unjustified and deleted the addition, as it was spent on employee travel with proper documentation provided.