1980 (6) TMI 76 - AT - Income Tax

Summary

Issues:
1. Disallowance of entertainment expenses.
2. Disallowance of traveling expenses.
3. Addition under section 41(2) for sale of a burnt motor.

Analysis:
1. The first issue pertains to the disallowance of entertainment expenses claimed by the assessee as business expenditure. The Income Tax Officer (ITO) disallowed the entire amount as entertainment expenses, which the ld. AAC partially allowed. The Tribunal reviewed the details provided and concluded that the expenditure was largely for the staff members, not solely for entertainment purposes. The Tribunal held that only a portion should be disallowed as entertainment expenses, with the rest being legitimate business expenditure on providing tea and food to staff members.

2. The second issue involves the disallowance of traveling expenses by the ITO, which the ld. AAC upheld. The Tribunal found the disallowance to be excessive and decided to restrict it to a lower amount, similar to the disallowance made in the previous year. The Tribunal considered the nature of the expenditure and reduced the disallowance accordingly.

3. The final issue concerns the addition under section 41(2) for the sale of a burnt motor. The ITO estimated the written down value (WDV) of the motor and included the difference as profit under section 41(2). The ld. AAC upheld this inclusion, but the Tribunal disagreed. Citing relevant case law, the Tribunal determined that section 41(2) applies when an identifiable asset is sold with known original cost and WDV. As the burnt motor was part of a larger machinery sale, and its original cost and WDV were not separately available, the Tribunal concluded that the addition of Rs. 5,000 was not justified in law and directed its deletion.

In conclusion, the Tribunal partially allowed both appeals, adjusting the disallowances of entertainment and traveling expenses while deleting the addition under section 41(2) for the sale of the burnt motor.