1995 (11) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 50,000 in the trading account u/s 145(1) for AY 1986-87.
2. Deletion of addition of Rs. 75,000 on account of income from combine harvester for AY 1986-87.
3. Deletion of disallowance of Rs. 92,870 u/s 40A(2)(b) for AY 1986-87.
4. Deletion of addition of Rs. 83,617 u/s 40A(2)(b) for AY 1987-88.
5. Addition of Rs. 5,000 out of staff welfare expenditure and Rs. 32,657 out of car-running expenditure for AY 1987-88.

Summary:

1. Deletion of Addition of Rs. 50,000 in the Trading Account u/s 145(1) for AY 1986-87:
The AO made an addition of Rs. 50,000 in the trading account due to discrepancies in the stock statement filed before the bank and the stock records maintained by the assessee. The assessee argued that the stock classification was rough and the higher valuation shown in the books indicated no suppression of stock. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the method of accounting was consistent with previous years and no specific defects were found in the books of account.

2. Deletion of Addition of Rs. 75,000 on Account of Income from Combine Harvester for AY 1986-87:
The AO added Rs. 75,000 assuming the harvester was hired out during the season, despite the assessee's claim that it was sold and not hired out. The CIT(A) deleted the addition, and the Tribunal agreed, finding no evidence of hiring income and noting that advance money for the sale was received in May 1985, precluding the possibility of hiring out the harvester.

3. Deletion of Disallowance of Rs. 92,870 u/s 40A(2)(b) for AY 1986-87:
The AO disallowed interest payments above 18% to related parties, deeming them excessive. The assessee justified the higher interest rates by comparing them to market rates and bank charges. The CIT(A) deleted the disallowance, and the Tribunal upheld this, citing consistency with previous years where similar interest rates were allowed and noting the higher GP rate in the current year.

4. Deletion of Addition of Rs. 83,617 u/s 40A(2)(b) for AY 1987-88:
The Tribunal rejected the Revenue's appeal for AY 1987-88, finding the facts and circumstances similar to the previous year and upholding the deletion of the addition of Rs. 83,617 u/s 40A(2)(b).

5. Addition of Rs. 5,000 out of Staff Welfare Expenditure and Rs. 32,657 out of Car-Running Expenditure for AY 1987-88:
The AO made ad hoc disallowances for staff welfare and car-running expenditures. The CIT(A) restricted the disallowance on car expenses to 1/4th. The Tribunal deleted the Rs. 5,000 disallowance for staff welfare, finding it unjustified, but upheld the CIT(A)'s decision on car expenses, considering personal use by partners.

Conclusion:
The Tribunal rejected the Revenue's appeals for both years and partly allowed the assessee's cross-objection.