1980 (8) TMI 123 - AT - Income Tax

Summary

Issues:
1. Cost of construction estimation discrepancy.
2. Addition of entertainment expenses.
3. Disallowance of traveling expenses.

Analysis:
1. The first issue pertains to the cost of construction discrepancy for the assessment year 1976-77. The assessee's factory construction costs were spread over three years. The assessee maintained account books showing the cost of construction for each year. However, the Valuation Cell valued the construction cost higher than the assessee's declared amount. The Income Tax Officer (ITO) added the difference to the assessee's income from undisclosed sources. The Appellate Tribunal held that unless there are cogent reasons to reject the account books, the ITO cannot rely on external valuation. The Tribunal emphasized that the ITO was not justified in making the addition without valid reasons for rejecting the account books. Therefore, the addition based on the Valuation Officer's report was deleted.

2. The second issue involves the addition of entertainment expenses amounting to Rs. 882. The Income Tax Officer disallowed this expense, stating it was related to entertainment. The assessee argued that the expenditure was incurred on staff, not customers. The CIT(A) confirmed the disallowance without considering this aspect. The Tribunal found that the disallowance was not justified based on the facts presented by the assessee. Consequently, the disallowance of entertainment expenses was not sustained.

3. The final issue concerns the disallowance of Rs. 1,000 towards traveling expenses. The disallowance was made for personal expenses of the partners. The details provided by the assessee showed that the expenses were for specific business-related trips by one of the partners. The Tribunal agreed with the assessee's contention that the disallowance for personal expenses was unwarranted. Therefore, the disallowance of traveling expenses was deemed not sustainable. As a result, the appeal was allowed in favor of the assessee.