1988 (10) TMI 78 - AT - Income Tax

Issues Involved:

1. Addition of Rs. 4,37,080 sustained by CIT(A) against the addition of Rs. 5,78,650 made by the ITO.
2. Disallowance of salary paid to Shri Sumer Mal.
3. Disallowance of Rs. 11,547 out of repairs treated as capital expenditure.
4. Disallowance of 1/4th of car expenses.
5. Disallowance of Rs. 1,500 out of general charges.
6. Disallowance of Rs. 3,000 out of travelling expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 4,37,080 Sustained by CIT(A):

The main dispute revolves around the addition of Rs. 4,37,080 sustained by CIT(A) against the addition of Rs. 5,78,650 made by the ITO. The addition was based on discrepancies between the quantities and values of stocks shown to the bank and those recorded in the assessee's books of account. The assessee contended that the addition was based on statements furnished to the bank, which were inflated to obtain higher loan facilities. The bank confirmed that the account in question was a hypothecation account, not a pledge account, meaning the goods remained in the custody of the borrower. The Tribunal found that the assessee had inflated stock quantities to secure higher loans, and the evidence, including checks by the Sales-tax Department and the bank, supported the assessee's claim that the inflated stocks did not actually exist. Consequently, the addition of Rs. 4,37,080 was ordered to be deleted.

2. Disallowance of Salary Paid to Shri Sumer Mal:

The CIT(A) disallowed Rs. 1,500 per month for three months out of the salary paid to Shri Sumer Mal Jain, who was the father of three partners and husband of the fourth partner. The salary was increased from Rs. 500 to Rs. 2,000 per month. The Tribunal found the increased remuneration reasonable, considering Shri Sumer Mal Jain's role in advising the firm and providing personal guarantees and mortgages. Therefore, the disallowance was deemed improper.

3. Disallowance of Rs. 11,547 Out of Repairs Treated as Capital Expenditure:

The assessee claimed Rs. 11,547 as repairs, which the lower authorities treated as capital expenditure. The Tribunal reviewed the details and found that the expenses included purchases of bricks and cement and labor charges. It upheld the lower authorities' decision to treat the expenses as capital in nature but allowed the assessee to claim depreciation according to the provisions of s. 32(1)(a) of the IT Act, 1961.

4. Disallowance of 1/4th of Car Expenses:

The Tribunal reviewed the details of car expenses and found that the disallowance of 1/4th of car expenses was properly made. Therefore, the disallowance was confirmed.

5. Disallowance of Rs. 1,500 Out of General Charges:

The Tribunal found that the disallowance of Rs. 1,500 out of general charges was properly made based on the details reviewed. Thus, the disallowance was confirmed.

6. Disallowance of Rs. 3,000 Out of Travelling Expenses:

The Tribunal reviewed the details of traveling expenses and found that the disallowance of Rs. 3,000 was properly made. Therefore, the disallowance was confirmed.

Conclusion:

In conclusion, the Tribunal partly allowed the assessee's appeal, specifically deleting the addition of Rs. 4,37,080 and reversing the disallowance of salary paid to Shri Sumer Mal Jain. However, it upheld the disallowances related to repairs, car expenses, general charges, and traveling expenses.

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