1995 (2) TMI 115 - AT - Income Tax

Issues Involved:
1. Disallowance of car-related expenses.
2. Addition of Rs. 10,000 to the capital account.
3. Disallowance of salary paid to the assessee's son.
4. Addition of Rs. 22,500 in respect of three separate cash credits.
5. Trading addition of Rs. 49,105 based on the gross profit rate.

Detailed Analysis:

1. Disallowance of Car-Related Expenses:
The first issue pertains to the disallowance of car depreciation, driver's salary, and car running expenses. The Income Tax Officer (ITO) disallowed 1/3rd of the claim on the grounds of personal use by the assessee and his family. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the disallowance to 1/5th, considering the assessee's age and the fact that the car was mostly used for business purposes. The Tribunal found no good ground to interfere with the CIT(A)'s decision and upheld the restriction to 1/5th of the expenditure claimed.

2. Addition of Rs. 10,000 to the Capital Account:
The second issue involves an addition of Rs. 10,000 credited to the assessee's capital account on May 7, 1987. The assessee claimed this amount was re-deposited after an earlier withdrawal on September 29, 1986, intended for a land purchase that did not materialize. The ITO rejected this explanation due to a significant time gap and the possibility that the money was used for the marriage of the assessee's son. The CIT(A) upheld the ITO's findings, noting that the amount withdrawn in September 1986 was likely spent, and the re-deposited amount represented undisclosed income. The Tribunal agreed with the tax authorities, emphasizing the improbability of keeping such a large sum in cash for over seven months without redepositing it in a bank account.

3. Disallowance of Salary Paid to the Assessee's Son:
The third issue concerns the disallowance of Rs. 6,250 out of a total salary of Rs. 18,250 paid to the assessee's son, Shri Naresh Chander. The ITO found the salary excessive based on the son's qualifications and duties, suggesting a reasonable salary of Rs. 12,000 per annum. The CIT(A) agreed, noting that the son's previous employment with a related party did not justify the higher salary. The Tribunal, however, found the disallowance unjustified, noting that the son was a genuine employee and the salary was not excessive for the assessment year 1988-89. The addition of Rs. 6,250 was deleted.

4. Addition of Rs. 22,500 in Respect of Three Separate Cash Credits:
The fourth issue involves the addition of Rs. 22,500 based on unproved cash credits from three individuals: Sh. Parbhati (Rs. 9,000), Shri Balwant Singh (Rs. 9,500), and Smt. Kaushalya Devi (Rs. 4,000). The ITO concluded that the depositors lacked the capacity to advance the money, based on their agricultural holdings, family size, and expenses. The CIT(A) confirmed the addition, and the Tribunal upheld this decision, noting that the assessee failed to provide sufficient evidence to justify the credits.

5. Trading Addition of Rs. 49,105 Based on the Gross Profit Rate:
The final issue pertains to a trading addition of Rs. 49,105 made by the ITO, who found the gross profit (GP) rate of 8.4% shown by the assessee to be low compared to previous years and other businesses in the same line. The CIT(A) deleted the addition, noting that the assessee had already surrendered Rs. 3,70,000 due to undervaluation of stock, which covered the shortfall in the GP rate. The Tribunal upheld the CIT(A)'s decision, agreeing that the surrender of Rs. 3,70,000 led to better trading results and justified the deletion of the separate addition of Rs. 49,105.

Conclusion:
In conclusion, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal upheld the CIT(A)'s decisions on most issues, except for the disallowance of the salary paid to the assessee's son, which was deleted. The Tribunal found that the surrender of Rs. 3,70,000 due to undervaluation of stock justified the deletion of the trading addition of Rs. 49,105.

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