2003 (5) TMI 218 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on trolleys.
2. Addition in trading account by rejecting the book version under Section 145 of the Act.
3. Disallowance of expenses under the head "quantity discount."
4. Disallowance of professional fees under Section 40A(2) of the Act.

Issue-wise Detailed Analysis:

1. Depreciation on Trolleys:
The assessee claimed 100% depreciation on the cost of 125 trolleys fabricated by M/s Shiv Engineering Works and M/s Pradeep Engineering Works. The AO disallowed this claim, deeming the fabrication sham and bogus. The CIT(A) reversed this decision, stating that the fabrication was justified based on the evidence provided, including statements from the fabricators and procurement details. However, the Tribunal found that the CIT(A) did not adequately rebut the AO's reasons for disallowance, such as the non-existence of fabricators and lack of necessary machinery. The Tribunal thus upheld the AO's disallowance of the depreciation claim, noting the assessee failed to prove the actual use of the trolleys in business.

2. Addition in Trading Account:
The AO added Rs. 1,85,39,180 to the trading account, citing discrepancies in sales records, GP rate, and other financial statements. The CIT(A) deleted this addition, but the Tribunal found neither the AO's lump sum addition nor the CIT(A)'s complete deletion appropriate. The Tribunal emphasized the need for specific additions based on unrecorded sales and unexplained discrepancies. It restored the matter to the AO for a fresh order, directing that any addition should be limited to the actual amount of discrepancies after giving the assessee an opportunity to explain.

3. Disallowance of Expenses under "Quantity Discount":
The AO disallowed Rs. 5,50,990 claimed as quantity discount to M/s C.L. Gupta & Sons, arguing it was not allowed to other bulk buyers. The CIT(A) deleted this disallowance, accepting the assessee's explanation that the discount was based on an agreement and was in the interest of business. The Tribunal upheld the CIT(A)'s decision, noting the discount was supported by an agreement and no evidence suggested the transaction was sham or excessive.

4. Disallowance of Professional Fees:
The AO disallowed Rs. 7,400 paid as professional fees under Section 40A(2), deeming it unreasonable. The CIT(A) deleted this disallowance, finding the fees neither unreasonable nor excessive. The Tribunal upheld the CIT(A)'s decision, as no evidence was presented to prove the fees were unreasonable or excessive.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the AO's disallowance of depreciation on trolleys and directed a fresh assessment of the trading account addition. It confirmed the CIT(A)'s deletion of disallowances related to quantity discount and professional fees.