1996 (9) TMI 188 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of accrued interest income.
2. Inclusion of income from alleged benami concerns.
3. Disallowance of salary payment.
4. Disallowance of various expenses.
5. Interest on advances.
6. Trading addition.

Detailed Analysis:

1. Deletion of Accrued Interest Income
Asst. yr. 1987-88:
The assessee, a partnership firm, did not uniformly charge interest on overdue debts. The AO added Rs. 91,505 as notional interest income. The CIT(A) deleted this addition, and the Tribunal upheld this decision, noting that the assessee's policy of settling interest at the time of debt settlement was consistent and accepted by the Department in past and subsequent years. The AO failed to prove that the assessee had earned this interest.

Asst. yr. 1988-89:
The facts were identical to the previous year. The Tribunal upheld the CIT(A)'s deletion of Rs. 74,376 as accrued interest income, rejecting the Department's appeal.

2. Inclusion of Income from Alleged Benami Concerns
Asst. yr. 1987-88:
The AO held three concerns (Manoj Textiles, Himmat Fabrics, and Classic Fabrics) as benami concerns of the assessee and added their income to the assessee's total income. The CIT(A) directed only the declared income of these concerns to be added. The Tribunal, applying the principles from the Supreme Court case Jaydayal Poddar vs. Mst. Bibi Hazra, concluded that the concerns were not benami. The Tribunal deleted the additions, noting the small profits and short duration of these concerns' operations, which did not support the benami allegation.

Asst. yr. 1988-89:
The facts were identical to the previous year. The Tribunal upheld the deletion of the addition related to the alleged benami concerns.

3. Disallowance of Salary Payment
Asst. yr. 1987-88:
The AO disallowed Rs. 7,500 paid to Shri Bharat Kumar, a family member, doubting his involvement in the firm's work. The CIT(A) deleted this disallowance, noting his consistent service and taxation on this salary. The Tribunal upheld this decision, finding no evidence of non-service by Bharat Kumar.

Asst. yr. 1988-89:
The AO disallowed Rs. 30,275 for non-production of attendance registers. The CIT(A) sustained Rs. 9,000 disallowance for Shri Bharat Kumar, who had other business activities. The Tribunal deleted this disallowance, noting his partnership in HUF capacity and involvement in the firm's finance. The disallowance for payments to Badri Lal and Dhanraj was remanded for further investigation.

4. Disallowance of Various Expenses
Asst. yr. 1987-88:
- Shop Expenses: The AO disallowed Rs. 7,545 as entertainment expenses. The CIT(A) found these were for business purposes and deleted the disallowance. The Tribunal upheld this.
- Sales Promotion Expenses: The AO disallowed Rs. 1,971 for presentation articles. The CIT(A) allowed this as business expenses. The Tribunal upheld this.
- Petrol Expenses: The AO disallowed 1/4th of the total expenses. The CIT(A) reduced this to 1/7th. The Tribunal upheld this reasonable direction.

Asst. yr. 1988-89:
The AO made an ad hoc disallowance of Rs. 6,640. The CIT(A) deleted this due to lack of specific evidence. The Tribunal upheld this deletion.

5. Interest on Advances
Asst. yr. 1988-89:
The AO added Rs. 12,532 as interest on advances to Shri Bharat Kumar and Shri Rajendra Kumar. The CIT(A) deleted this addition, accepting the assessee's explanation. The Tribunal upheld this, noting that no interest was charged by Bharat Kumar and that interest for Rajendra Kumar was declared in the subsequent year.

6. Trading Addition
Asst. yr. 1988-89:
The AO made a trading addition of Rs. 70,355 under s. 145(1). The CIT(A) did not address this ground. The Tribunal remitted this issue to the CIT(A) for a finding.

Conclusion:
For asst. yr. 1987-88:
- Department's appeal dismissed.
- Assessee's appeal allowed.
- Assessee's cross-objections partly allowed.

For asst. yr. 1988-89:
- Department's appeal dismissed.
- Assessee's appeal allowed.
- Assessee's cross-objections partly allowed.