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Issues:
1. Disallowance of salary expenses 2. Disallowance of shop expenses Analysis: 1. The first issue revolves around the disallowance of salary expenses by the Income Tax Officer (ITO) amounting to Rs. 5,162 and Rs. 5,820 for two consecutive assessment years. The ITO disallowed these expenses on the basis that the assessee did not maintain proper records of employees and their salaries. The ITO questioned the legitimacy of the employees' existence due to the turnover of staff and lack of employee identification. However, the Appellate Authority Commissioner (AAC) found that the firm had only four partners, one of whom was elderly, another was ill, and the third was unable to manage the business alone. The AAC concluded that the salary expenses were justified considering the nature of the business and the necessity of junior employees in a cloth merchant's shop. The Appellate Tribunal upheld the AAC's decision, emphasizing the common practice of employing low-paid workers in such businesses and the corresponding rise in wages over time. 2. The second issue pertains to the disallowance of shop expenses by the ITO, including expenses related to traveling for cloth purchases. The ITO argued that since gross profit was estimated, no additional expenses should be allowed. However, the AAC disagreed, stating that the traveling expenses were minimal and should be debited to the Profit & Loss Account. The Appellate Tribunal concurred with the AAC's reasoning, highlighting that the gross profit rates applied were not net profit rates and that running a shop inherently involves various expenses like electricity bills. Given the substantial income disclosed by the assessee and the historical allowance of similar expenses, the Appellate Tribunal found no merit in the ITO's disallowance of shop expenses. Consequently, the appeals challenging the disallowance of shop expenses were dismissed.
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