2007 (7) TMI 335 - AT - Income Tax

Summary

Issues involved:
1. Disallowance of expenses related to telephone expenses.
2. Addition made under section 68 of the Income Tax Act.

Issue 1: Disallowance of telephone expenses:
The assessee, a trader of jadibooti, claimed telephone expenses for three telephones installed at the business premises. The Assessing Officer (AO) disallowed 20% of the claimed amount due to potential personal use, which was reduced to 10% by the CIT(A). The ITAT Delhi found that all three telephones were indeed at the business premises, and there was no evidence of non-business use. The disallowance was based on presumption only, without substantiating evidence. Consequently, the ITAT allowed the appeal and deleted the entire disallowance of telephone expenses.

Issue 2: Addition under section 68 of the Income Tax Act:
An addition of Rs. 2 lakh was made under section 68 of the Income Tax Act based on deposits not matching withdrawals in the cash book. The assessee explained that the discrepancy was due to incorrect entry dates and inadvertent mistakes by a part-time accounts clerk. The AO rejected the explanation and upheld the addition, which was also confirmed by the CIT(A). The ITAT noted that the AO disregarded the explanation and did not establish that the withdrawals were unrelated to the deposits. The ITAT considered the accounts clerk's affidavit, even though not admitted as evidence, and found the explanation plausible. It concluded that the discrepancy was due to bookkeeping errors and not deliberate actions. Therefore, the ITAT allowed the appeal and deleted the entire addition made under section 68 of the Income Tax Act.

In conclusion, the ITAT Delhi allowed the appeal of the assessee, ruling in favor of the assessee on both issues raised in the appeal.