1985 (12) TMI 97 - AT - Income Tax

Summary

Issues:
1. Disallowance of salary paid to Shri Ramesh Kumar.
2. Disallowance of repair expenses.
3. Disallowance of petty bad debt.
4. Addition of credit in the account of Kala Singh.

Analysis:

1. Disallowance of Salary Paid to Shri Ramesh Kumar:
The assessee, a registered partnership firm, appealed against the disallowance of Rs. 1,500 out of the salary paid to Shri Ramesh Kumar, one of the partners. The CIT (A) had restricted the disallowance from Rs. 3,000 to Rs. 1,500. The assessee argued that Ramesh Kumar's work was not in dispute, he was a graduate, and the salary paid was reasonable. The Tribunal noted that in previous years, some disallowance was made, but each year is independent. Considering Ramesh Kumar's qualifications and the total salary paid, the Tribunal held that no disallowance was justified.

2. Disallowance of Repair Expenses:
The second issue involved the disallowance of Rs. 2,000 from repair expenses claimed by the assessee. The ITO reduced the claimed amount due to lack of day-to-day repair details, despite acknowledging increased work and expenses. The CIT (A) upheld this decision. However, the Tribunal found that the repairs were higher than the previous year, and the lack of spare parts register did not warrant the disallowance. The Tribunal reversed the CIT (A)'s decision, stating that the disallowance was unjustified as it was a petty amount and no such disallowance had been made in the past.

3. Disallowance of Petty Bad Debt:
The next issue concerned the disallowance of a petty bad debt of Rs. 1,194, which was not allowed by the ITO or the CIT (A). The assessee argued that these were minor short recoveries, and the amounts were small. The Tribunal disagreed with the lower authorities, stating that in the trade the assessee was in, such small recoveries were common, and legal action for such petty amounts was impractical. The Tribunal reversed the CIT (A)'s decision and allowed the amount on account of short recoveries.

4. Addition of Credit in the Account of Kala Singh:
The final issue revolved around the addition of Rs. 20,000 credited to Kala Singh's account, who had passed away. The ITO and CIT (A) made the addition as the source of the amount was unexplained. The assessee argued that Kala Singh had significant land holdings, and the amount was genuine. The Tribunal reviewed the accounts of Kala Singh and his son, Bagga Singh, along with other evidence. It found that the addition was unwarranted as the evidence supported the genuineness of the credit. The Tribunal reversed the CIT (A)'s decision and allowed the appeal.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee on all grounds.