1992 (5) TMI 70 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 10,00,000 in the trading account.
2. Discrepancy in the quantity of goods dispatched between godowns.
3. Difference in rolling charges paid to sister concerns.
4. Disallowance of depreciation in respect of machinery.
5. Inclusion of service charges under the head 'entertainment expenditure.'
6. Disallowance on account of personal use of vehicle.

Detailed Analysis:

1. Addition of Rs. 10,00,000 in the Trading Account:
The ITO rejected the book results of the assessee and applied the provisions of Section 145, estimating the sales and making an addition of Rs. 10,00,000 in the trading account. This was based on discrepancies found in the stock registers, specifically the mismatch in the quantities dispatched from Shahdara godown to Ghaziabad godown. The ITO also noted differences in rolling charges paid to two sister concerns, which were not satisfactorily explained by the assessee.

2. Discrepancy in the Quantity of Goods Dispatched Between Godowns:
The ITO found discrepancies in the quantities recorded in the godown registers. On 3rd March 1982, the Ghaziabad godown register showed a receipt of 98.850 MT from Shahdara, but the Shahdara register only showed a dispatch of 75.510 MT. The assessee explained that the remaining 23.340 MT was dispatched from another register that was not traceable. The CIT(A) sustained an addition of Rs. 1,12,782 for this discrepancy, as the assessee failed to produce the supporting register. However, the Tribunal found that other evidence, such as sale books and purchase vouchers, supported the assessee's claim that the total quantity of 98.850 MT was indeed sold to Rathi Udyog Ltd. Therefore, the addition was deleted.

3. Difference in Rolling Charges Paid to Sister Concerns:
The ITO noted that the assessee paid different rolling charges to two sister concerns: Rs. 550 per MT to Rathi Udyog Ltd. and Rs. 625 per MT to G.D. Rathi. The assessee explained that the difference was due to the varying diameters of the bars rolled. The CIT(A) found that the ITO's conclusion was based on insufficient information and that the rolling charges paid were justified. The Tribunal agreed with the CIT(A), noting that the rolling charges paid to other concerns were even higher, and there was no evidence to disprove the assessee's explanation.

4. Disallowance of Depreciation in Respect of Machinery:
This ground was not pressed by the assessee and was dismissed.

5. Inclusion of Service Charges Under the Head 'Entertainment Expenditure':
The ITO disallowed Rs. 22,324 under Section 37(2A), which included Rs. 25,411 paid to Shri B.L. Chopra for sales promotion services. The CIT(A) upheld this disallowance, noting the absence of a written agreement or evidence of services rendered. The Tribunal agreed with the CIT(A), finding no basis to allow the claim under Section 37(2A).

6. Disallowance on Account of Personal Use of Vehicle:
The ITO disallowed one-fourth of the vehicle maintenance expenses, as the directors did not own personal vehicles, implying personal use of company vehicles. The CIT(A) confirmed this disallowance. The Tribunal found no reason to interfere with this decision, as the personal use of the vehicle was not denied by the assessee.

Conclusion:
The appeal by the Department was dismissed, and the appeal by the assessee was partly allowed. The Tribunal deleted the addition of Rs. 1,12,782 related to the discrepancy in the quantity of goods dispatched but upheld the other disallowances made by the CIT(A).

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