1980 (4) TMI 159 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 22,000 in the trading account.
2. Disallowance of Sales-tax liability of Rs. 3,075.50.
3. Disallowance of Rs. 7,420 out of motor expenses.

Analysis:
1. The appellant, a proprietary concern deriving income from forest gum sales, contested additions and disallowances in the assessment for the year 1975-76. The Income Tax Officer (ITO) applied the proviso to s. 145(1) due to unvouched expenses, increasing the gross profit rate from 10.5% to 12.5% and adding Rs. 22,000 to the trading account. The Appellate Authority Commissioner (AAC) upheld this decision, citing unvouched payments to agents and hamali expenses. However, the appellant argued that proper books were maintained, sales were vouched, and the business was wholesale. The appellant's historical profit rates were presented, and it was contended that the 10.5% profit rate was reasonable. The Income Tax Appellate Tribunal (ITAT) found the addition excessive, reducing it to Rs. 5,000 to cover identified defects, considering the maintained books and production oversight by forest authorities.

2. The ITO disallowed sales-tax liability of Rs. 3,075, stating it did not relate to the current business year. The AAC upheld this disallowance, asserting the liability was not relevant to the current year. The appellant argued that the liability stemmed from prior years when the same business was conducted, with the amount paid in the relevant year. Referring to a legal precedent, the appellant claimed the liability should be allowed. The ITAT directed a reassessment by the AAC based on the presented facts and legal considerations.

3. Concerning the disallowance of Rs. 7,420 from conveyance expenses, the ITO and AAC disallowed 1/4th of the claimed amount due to alleged personal use of vehicles. The appellant contended that both vehicles were solely used for business purposes, with the bulk petrol purchase justified by long-distance business travel. The ITAT found the disallowance excessive, reducing it to 1/6th considering the predominant business use of the vehicles.

In conclusion, the ITAT partially allowed the appeal, reducing the trading account addition and conveyance expenses disallowance while directing a reassessment of the sales-tax liability issue.