1983 (2) TMI 61 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 3,000 to the gross profit.
2. Disallowance of Rs. 21,553 as salary paid to the assessee's son under Section 40A(2).
3. Disallowance of Rs. 800 out of travelling expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3,000 to the Gross Profit:
The Income Tax Officer (ITO) added Rs. 3,000 to the gross profit on the grounds that the assessee did not maintain a day-to-day stock register and relied on physical verification for stock valuation at year-end, invoking the proviso to Section 145(1). On appeal, the Appellate Assistant Commissioner (AAC) deleted the addition, noting that the ITO had not provided any material evidence to justify the rejection of the book results and that maintaining a day-to-day stock register was impractical in the assessee's line of business. The Tribunal upheld the AAC's decision, finding no justification to interfere with the order.

2. Disallowance of Rs. 21,553 as Salary Paid to the Assessee's Son under Section 40A(2):
The ITO disallowed the salary paid to the assessee's son, arguing that the payment was excessive and unreasonable under Section 40A(2), and questioned the fair market value of the services rendered. The AAC, however, deleted the disallowance, accepting the assessee's arguments that the salary was justified due to the son's significant contribution to the business, especially given the assessee's deteriorating health and blindness. The Tribunal agreed with the AAC, noting that the assessee's son was crucial to the business operations and had advanced substantial interest-free loans to the business. The Tribunal concluded that the provisions of Section 40A(2) were not applicable in this case.

3. Disallowance of Rs. 800 out of Travelling Expenses:
The ITO had disallowed Rs. 800 out of the total claimed travelling expenses of Rs. 1,646, citing that the expenses were not incurred exclusively for business purposes. The AAC sustained the disallowance. The Tribunal, upon reviewing the submissions, decided that a partial disallowance was justified but reduced the disallowance to Rs. 300, directing the ITO to modify the assessment accordingly.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection. The addition of Rs. 3,000 to the gross profit and the disallowance of Rs. 21,553 as salary were both deleted, while the disallowance of Rs. 800 out of travelling expenses was reduced to Rs. 300.