1979 (8) TMI 104 - AT - Income Tax

Summary

Issues:
1. Estimation of possible leakage in trading account leading to lumpsum addition.
2. Reduction of addition in 'Arhar Dal' account.
3. Disallowance of messing expenses.
4. Addition on account of low withdrawals in Partners' account.

Estimation of possible leakage in trading account leading to lumpsum addition:
The assessee, a firm dealing in grains and acting as commission agents, declared a net income for the relevant assessment year. The Income Tax Officer (ITO) noticed a lower yield in 'Chana Dal' and 'Arhar Dal' compared to previous years and made a lumpsum addition of Rs. 6,000. The learned Additional Commissioner of Income Tax (AAC) reduced this addition to Rs. 2,000, specifically in the 'Arhar Dal' account, considering the yield not satisfactory. The assessee's counsel argued that the lower yield was due to milling old stock infested by insects, which typically results in lower yield compared to fresh purchases. The Appellate Tribunal found the explanation reasonable, deleted the addition of Rs. 2,000, and concluded that there was no justification for the sustained addition.

Reduction of addition in 'Arhar Dal' account:
The AAC reduced the addition in the 'Arhar Dal' account to Rs. 2,000, acknowledging the explanation provided by the assessee's counsel regarding the lower yield due to milling old stock infested by insects. The Tribunal accepted the explanation, noting that there was no concession by the assessee's counsel, and deleted the addition as there was no justification for it.

Disallowance of messing expenses:
The AAC confirmed an addition of Rs. 3,000 on account of messing expenses incurred by the assessee for providing food, tea, etc., to customers and constituents. The assessee argued that this expenditure was for business purposes and should not be disallowed under section 37(2) of the Income Tax Act. Citing relevant case laws, the Tribunal agreed with the assessee, stating that the expenditure was legitimate business expenditure and deleted the addition of Rs. 3,000.

Addition on account of low withdrawals in Partners' account:
The ITO made an addition of Rs. 2,000 for each of the five partners of the firm due to low withdrawals from their accounts. The AAC sustained an addition of Rs. 6,500, citing high household expenses estimated by the ITO. The Tribunal held that the addition was misconceived as the partners' withdrawals from the firm were at their discretion, and the firm was not liable to explain how partners met their household expenses. Therefore, the Tribunal deleted the addition, emphasizing that no basis existed for such an addition in the firm's case.

In conclusion, the Tribunal allowed the appeal, overturning the additions made by the lower authorities and ruling in favor of the assessee on all grounds.