1999 (10) TMI 89 - AT - Income Tax

Issues Involved:

1. Disallowance of Delhi administration office expenses.
2. Deletion of addition due to variation in stock position and suppression of sales.
3. Disallowance of commission account expenses.
4. Disallowance of payments to the assessee's son.

Detailed Analysis:

1. Disallowance of Delhi Administration Office Expenses:

The Revenue challenged the CIT(A)'s decision to allow relief of Rs. 1,86,060 out of the disallowance made by the ITO under the head 'Delhi administration office expenses'. The assessee had claimed expenses related to the Miami branch, which were debited to the Delhi branch account. The AO disallowed Rs. 2,04,306, arguing that the expenses related to the Miami business, which was an independent entity and not a branch of the Indian business.

The CIT(A) allowed relief, stating that the expenses for employees of the appellant were allowable in full and restricted the disallowance of travel expenses to Rs. 25,000, allowing the remaining Rs. 81,754. However, the ITAT found that the assessee failed to provide bifurcation of expenses between the Indian and Miami businesses. The ITAT restored the AO's order, disallowing the relief of Rs. 1,86,060 granted by the CIT(A).

2. Deletion of Addition Due to Variation in Stock Position and Suppression of Sales:

The Revenue contested the CIT(A)'s deletion of Rs. 4,00,000 added by the AO due to discrepancies in stock valuation and alleged suppression of sales at the Agra branch. The AO found a significant difference between the stock hypothecated to the bank and the stock shown in the trading account, estimating the suppressed income at Rs. 4,00,000.

The CIT(A) deleted the addition, agreeing with the assessee's explanation that the discrepancies were due to clerical errors and the higher stock valuation was for obtaining bank overdraft facilities. The ITAT disagreed, citing a precedent where discrepancies in stock valuation given to the bank could justify additions unless satisfactorily explained. The ITAT restored the AO's addition of Rs. 4,00,000.

3. Disallowance of Commission Account Expenses:

The Revenue appealed against the CIT(A)'s deletion of Rs. 2,00,000 disallowed by the AO from the commission account. The AO disallowed the amount as the assessee failed to provide vouchers or details of the commission payments.

The CIT(A) deleted the disallowance, considering the sales and variations in sales. However, the ITAT found that the CIT(A) misdirected himself by focusing on sales rather than the genuineness of the commission payments. The ITAT restored the AO's disallowance, as the assessee failed to prove the genuineness of the commission payments.

4. Disallowance of Payments to the Assessee's Son:

The Revenue challenged the CIT(A)'s deletion of Rs. 48,522 paid to the assessee's son, Mr. Jahangir Mir, who worked for the Miami branch. The AO disallowed the amount, arguing that it was related to the Miami business and not the Indian business.

The CIT(A) allowed the deduction, stating that Mr. Jahangir Mir worked for the assessee. However, the ITAT found that the CIT(A) ignored the fact that the Miami business was independent and the expenses could not be debited against the Indian business. The ITAT restored the AO's disallowance of Rs. 48,522.

Conclusion:

The ITAT allowed all the grounds of appeal by the Revenue, setting aside the CIT(A)'s order and restoring the AO's order in all respects.

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