1981 (1) TMI 141 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 17,113 under Section 40A(3) for payments made in cash.
2. Disallowance of Rs. 25,158 under Section 40A(3) for payments made in cash in "Shyam Sugar Works".
3. Addition of Rs. 15,000 as income from undisclosed sources.
4. Disallowance of Rs. 500 out of rasoi expenses and another Rs. 500 out of miscellaneous expenses.
5. Disallowance of 1/5th expenditure on motorcycle and depreciation.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 17,113 under Section 40A(3):
The first issue concerns the disallowance of Rs. 17,113 under Section 40A(3) for payments made in cash exceeding Rs. 2,500. The assessee explained that the payment of Rs. 5,849 was for three purchases, each below Rs. 2,500, and thus not covered by Section 40A(3). For the remaining payments, it was argued that cash was necessary due to the trucks arriving after banking hours. The Commissioner of Income-tax (Appeals) deleted the addition of Rs. 5,849 but confirmed the rest, as the identity of the payees was not established. The Tribunal accepted the affidavits of the Dalals and the Dharam Kanta receipts, concluding that the payments were genuine and the identity of the payees was established. The Tribunal also accepted that the payments in cash were due to exceptional circumstances, covered by Circular No. 220 of the CBDT, and deleted the addition of Rs. 17,113.

2. Disallowance of Rs. 25,158 under Section 40A(3) in "Shyam Sugar Works":
The second issue involves the disallowance of Rs. 25,158 under Section 40A(3) for payments made in cash. The assessee provided explanations and affidavits for various payments, arguing that cash payments were necessary due to business exigencies and lack of banking facilities. The ITO disallowed the amounts, finding discrepancies in the cash memos and the existence of some parties. The Commissioner of Income-tax (Appeals) deleted Rs. 10,699 but confirmed Rs. 25,160. The Tribunal accepted the genuineness and necessity of some payments, deleting Rs. 2,552 and Rs. 13,506. The remaining Rs. 9,100 was upheld as disallowed due to lack of evidence and discrepancies in the cash memos.

3. Addition of Rs. 15,000 as Income from Undisclosed Sources:
The third issue is the addition of Rs. 15,000 as income from undisclosed sources. The ITO compared the agricultural expenses and proceeds, using data from the District Agriculture Officer, and concluded that the net income should have been higher. The Commissioner of Income-tax (Appeals) reduced the addition to Rs. 15,000. The Tribunal, referring to a similar case, deleted the addition of Rs. 15,000, finding the ITO's calculations and assumptions unjustified.

4. Disallowance of Rs. 500 out of Rasoi Expenses and Another Rs. 500 out of Miscellaneous Expenses:
The fourth issue involves the disallowance of Rs. 500 each from rasoi and miscellaneous expenses. The Tribunal decided not to interfere with these disallowances, implying acceptance of the ITO's decision.

5. Disallowance of 1/5th Expenditure on Motorcycle and Depreciation:
The last issue, concerning the disallowance of 1/5th expenditure on motorcycle and depreciation, was not pressed by the assessee during the appeal hearing, and thus, no decision was made on this ground.

Conclusion:
The appeal was partly allowed, with significant deletions in the disallowances under Section 40A(3) and the addition of income from undisclosed sources, while minor disallowances were upheld.

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