1988 (8) TMI 138 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of reward expenditure to employees.
2. Disallowance of accountancy charges.
3. Disallowance of car expenses and depreciation for personal use.
4. Disallowance of telephone expenses.
5. Disallowance of donation expenses.
6. Addition of unexplained credits to income.

Detailed Analysis:

1. Disallowance of Reward Expenditure to Employees:
The primary contention in the appeal concerns the disallowance of Rs. 1,02,000 claimed by the assessee as expenditure for rewards payable to employees for the accounting year ending on 1st March 1980. The Income Tax Officer (ITO) disallowed this amount on the grounds that there was no contractual agreement for the payment of rewards, the rewards were not actually paid, and the amounts exceeded the salaries of some employees. The CIT(A) confirmed this disallowance. The Tribunal observed that there was no established practice or definite understanding regarding the reward payments, and the rewards were discretionary. The Tribunal upheld the disallowance, stating that the decision to pay rewards after the close of the accounting year did not constitute an incurred liability during the accounting period. The Tribunal emphasized that such rewards could only be treated as expenditure when actually paid.

2. Disallowance of Accountancy Charges:
The assessee claimed Rs. 5000 as accountancy charges for the Ludhiana branch, payable to a Chartered Accountant (CA). The authorities doubted the genuineness of this expenditure, as the CA's bill was undated, and the payment was made two years later. The Tribunal upheld the disallowance, agreeing with the authorities that the delay in payment and lack of regular claims raised doubts about the genuineness of the expenditure.

3. Disallowance of Car Expenses and Depreciation for Personal Use:
The assessee contended that the disallowance of 1/6th of car expenses and depreciation for personal use was excessive. The Tribunal noted that personal use of the vehicle by an individual is imminent and upheld the disallowance as reasonable, finding no material to justify a further reduction.

4. Disallowance of Telephone Expenses:
The assessee challenged the disallowance of Rs. 2000 out of total telephone expenses of Rs. 21,320 for personal use. The Tribunal observed that the disallowance was reasonable, especially given the significant increase in telephone expenses compared to the preceding and following years. The Tribunal upheld the disallowance, noting that a telephone at the residence of the business proprietor is likely used for personal purposes as well.

5. Disallowance of Donation Expenses:
The assessee claimed expenses under the head of donations, which were disallowed by the authorities. The Tribunal upheld the disallowance, stating that donations are not allowable as expenditure. The Tribunal also noted that there was no disallowance of Rs. 2100 in the assessment order, but only Rs. 1000 out of Diwali expenses at the Kotkapura branch, which the assessee failed to justify as allowable.

6. Addition of Unexplained Credits to Income:
The ITO added Rs. 36,000 to the assessee's income, representing unexplained credits claimed as gifts from two individuals. The assessee provided gift deeds, affidavits, and a copy of the gift-tax assessment order for one donor. The ITO doubted the genuineness of the gifts due to the lack of relation between the donors and the assessee and the drafts being payable at a different location. The Tribunal found that the assessee had discharged the initial burden of proof, and the ITO failed to make proper enquiries or provide evidence to discredit the gifts. The Tribunal accepted the assessee's plea and deleted the addition of Rs. 36,000, holding that the credits were satisfactorily explained as gifts.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the disallowances related to reward expenditure, accountancy charges, car expenses, telephone expenses, and donations, but deleting the addition of unexplained credits to the income.