1979 (2) TMI 123 - AT - Income Tax

Issues Involved:
1. Whether the AAC correctly upheld the ITO's decision to frame one assessment for the period 20th Oct., 1969 to 9th Oct., 1970.
2. Whether the disallowance of travelling expenses of Rs. 1,000 and Rs. 1,500 was justified.
3. Whether the deletion of Rs. 2,64,260 as income from undisclosed sources was appropriate.
4. Whether the deletion of the additions of Rs. 10,000 each in the cotton and oil accounts was justified.
5. Whether the deletion of Rs. 1,264 in interest account and Rs. 678 in kitchen expenses account was correct.

Detailed Analysis:

1. Single Assessment for the Period:
The assessee contended that the AAC wrongly upheld the ITO's action in framing one assessment for the period 20th Oct., 1969 to 9th Oct., 1970, arguing that two separate assessments should have been framed due to the dissolution of the firm upon the death of a partner, Naurang Rai, on 26th Jan., 1970. The AAC upheld the ITO's decision based on the judgment in Dharam Pal Sat Dev. vs. CIT, which was further supported by the Full Bench judgment in Nand Lal Sohan Lal vs. CIT. The Tribunal found that the death of Naurang Rai did not affect the continuity of the business, as his share was allotted to Smt. Mohran Devi, and the business continued uninterrupted. Therefore, the case was fully covered by the provisions of s. 187 (2) of the Act, justifying a single assessment.

2. Disallowance of Travelling Expenses:
The assessee had claimed travelling expenses of Rs. 5,066 and Rs. 7,566 for the two periods, out of which the ITO disallowed Rs. 1,000 and Rs. 1,500, respectively, on the grounds that these included personal expenses of the partners. The AAC confirmed these disallowances. The Tribunal, after hearing the parties, found no evidence to take a different view and thus upheld the disallowances.

3. Deletion of Rs. 2,64,260 as Income from Undisclosed Sources:
The main contention in the Revenue's appeal was the deletion of Rs. 2,64,260 added as income from undisclosed sources. The assessee argued that the excess stock of Kapas pledged with the bank was obtained on 'Udhari' basis, a practice prevalent in the trade. The AAC had remanded the case to the ITO for further verification, including examining the cash book, octroi receipts, and statements from relevant parties. The ITO's remand report confirmed the assessee's version, leading the AAC to delete the addition. The Tribunal upheld the AAC's decision, noting that the ITO had confused 'Udhari' basis deliveries with regular purchases and that the assessee had provided sufficient evidence to support its claim.

4. Deletion of Additions in Cotton and Oil Accounts:
The ITO had made additions of Rs. 10,000 each in the cotton and oil accounts due to a shortage of yield. The AAC deleted these additions, reasoning that low yield alone could not justify the additions without pointing out specific defects. The Tribunal upheld the AAC's decision, finding no error in his approach.

5. Deletion of Rs. 1,264 in Interest Account and Rs. 678 in Kitchen Expenses Account:
The AAC had deleted the addition of Rs. 1,264 in the interest account, agreeing with the assessee's contention that the interest credited to the account of the deceased partner, Naurang Rai, did not automatically transfer to his wife, Smt. Mohran Devi, as a partner. The Tribunal upheld this deletion. However, the AAC's deletion of Rs. 678 in kitchen expenses was reversed by the Tribunal, citing the Punjab and Haryana High Court judgment in CIT vs. Gheru Lal Bal Chand, which held that providing messing facilities to constituents constituted entertainment.

Conclusion:
The Tribunal dismissed the assessee's cross-objection and partly allowed the Revenue's appeal, restoring the addition of Rs. 678 in kitchen expenses while upholding the AAC's decisions on other points. The Tribunal emphasized the thorough examination of evidence and the need for coordination between ITOs to avoid unnecessary litigation.

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