1980 (12) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of advertisement expenses.
2. Addition to trading account due to low gross profit rate.
3. Disallowance of telephone expenses.
4. Disallowance of traveling expenses.
5. Disallowance of miscellaneous expenses.

Detailed Analysis:

1. Disallowance of Advertisement Expenses:
- Assessment Year 1972-73: The disallowance of Rs. 225 out of Rs. 1,022 claimed as advertisement expenses was not pressed at the time of hearing and was therefore not considered.
- Assessment Year 1974-75: Rs. 2,100 out of Rs. 2,143 claimed as advertisement expenses was disallowed by the IAC treating it as a donation. The CIT(A) confirmed the disallowance due to lack of supporting vouchers. However, the Tribunal deleted the addition as the payments were made by cheque and should not be doubted.
- Assessment Year 1975-76: Rs. 1,000 out of Rs. 6,609 claimed as advertisement expenses was disallowed by the ITO based on the previous year's disallowance. The CIT(A) confirmed this due to non-production of vouchers. The Tribunal deleted the addition, aligning with its decision for the previous year.
- Assessment Year 1978-79: Rs. 8,000 out of Rs. 15,001 claimed as advertisement expenses was disallowed by the assessing officer under r. 6B of the IT Rules. The CIT(A) allowed Rs. 2,000 but treated part of the expenditure as a donation. The Tribunal deleted the disallowance, stating that the payment was for legitimate business needs and should not be treated as a donation.

2. Addition to Trading Account Due to Low Gross Profit Rate:
- Assessment Year 1972-73: The ITO added Rs. 5,000 to the trading account due to low gross profit rates and destruction of loose papers. The CIT(A) retained the addition to cover possible leakages but deleted Rs. 28,815. The Tribunal deleted the entire addition, stating that the ITO's application of s. 145(1) was based on suspicion and not on specific vital information.

3. Disallowance of Telephone Expenses:
- Assessment Year 1975-76: Rs. 1,000 out of Rs. 6,397 claimed as telephone expenses was disallowed due to personal use by partners. The CIT(A) confirmed this. The Tribunal reduced the disallowance to Rs. 750, considering it excessive.
- Assessment Year 1977-78: Rs. 2,000 out of telephone expenses was disallowed by the assessing officer and confirmed by the CIT(A). The Tribunal reduced the disallowance to Rs. 1,500.
- Assessment Year 1978-79: Rs. 2,000 out of Rs. 8,900 claimed as telephone expenses was disallowed for personal use by partners. The CIT(A) reduced this to Rs. 1,000. The Tribunal confirmed the disallowance.

4. Disallowance of Traveling Expenses:
- Assessment Year 1975-76: Rs. 500 out of Rs. 11,021 claimed as traveling expenses was disallowed for personal expenses by partners. The CIT(A) sustained this. The Tribunal confirmed the disallowance.
- Assessment Year 1977-78: Rs. 2,000 out of Rs. 9,521 incurred was disallowed for personal expenses by partners. The CIT(A) confirmed this. The Tribunal reduced the disallowance to Rs. 1,500.
- Assessment Year 1978-79: Rs. 2,500 out of traveling expenses was disallowed for inadmissible and unverifiable items. The CIT(A) confirmed this. The Tribunal upheld the disallowance as reasonable.

5. Disallowance of Miscellaneous Expenses:
- Assessment Year 1977-78: Rs. 3,000 out of Rs. 8,355 was disallowed for inadmissible items. The CIT(A) sustained this. The Tribunal reduced the disallowance to Rs. 2,000.
- Assessment Year 1978-79: Rs. 3,000 out of Rs. 9,250 was disallowed for unverifiable items. The CIT(A) confirmed this. The Tribunal reduced the disallowance to Rs. 2,500.

Conclusion:
- The appeals for the assessment years 1972-73 and 1974-75 were allowed.
- The appeals for the assessment years 1975-76, 1977-78, and 1978-79 were partly allowed.