2004 (3) TMI 357 - AT - Income Tax

Disallowance of salary paid to karta of the HUF during the year - Held that - The karta of the HUF has received salary for the services rendered for the purposes of the business of the firm. We are convinced that in case the karta had not provided the services in question, then the assessee-HUF would have to employ another person for the services. In our opinion, there is no justification for the impugned disallowance of the salary paid to the karta as such. The karta is stated to have duly shown the income in his return, who has been duly assessed as well. The learned authorised representative relied on the decision of the Supreme Court reported in Jugal Kishore Baldeo Sahai vs. CIT (1967) 63 ITR 238 (SC). The facts of the assessee s case are duly covered by the ratio of the said decision and as such the salary paid is allowable. The ground is rejected. Method of accounting - disallowance of bank bilty commission and interest - HELD THAT - The assessee in the relevant year has paid the bank bilty commission and interest in respect of the purchase/bills documents as pertaining to the earlier year on their retirement/payment in the relevant year. The same were debited in the books of account on their actual payment in accordance with the consistent method of accounting followed by the assessee. The assessee had also submitted complete details of such bank bilty commission and interest before us in the form of paper book. When the assessee is debiting the bank bilty commission and interest in accordance with the accepted accounting principles and that no such disallowance has been made in the past and when the assessee has debited the expenditure on its actual charging by the bank on retirement of the documents, there seems to be no justification in the impugned disallowance. In our opinion, the CIT(A) was fully justified in deleting the disallowance/addition. We confirm the action of the learned CIT(A) in this regard and reject the ground taken by the Revenue. In the result, the appeal is dismissed.

Summary

Issues Involved:
The appeal by the Department against the order passed by the CIT(A) for asst. yr. 1994-95 involving trading additions, disallowance of salary paid to the karta of the HUF, disallowance of interest, brokerage, and more.

Trading Addition Issue:
The AO made a trading addition of Rs. 1,90,279 due to various reasons like lack of stock register maintenance, unlinked purchases with sales, and incorrect ledger entries. The CIT(A) deleted the addition under s. 145(2) but the Tribunal found the AO rightly applied s. 145(2) but should have considered the past g.p. rate. The Tribunal rejected the appeal, upholding the CIT(A)'s decision.

Disallowance of Salary Issue:
The AO disallowed a salary of Rs. 45,000 paid to the karta of the HUF, citing lack of a valid agreement. The Tribunal found a valid agreement existed, the salary was reasonable, and the services were essential for the business. Relying on legal precedent, the Tribunal rejected the disallowance of the salary paid to the karta.

Notional Interest Addition Issue:
The AO added notional interest of Rs. 93,102 on interest-free advances made by the assessee to relatives. The Tribunal agreed with the CIT(A) that the advances were made out of business consideration, and the interest-free nature was justified. The Tribunal upheld the CIT(A)'s decision, rejecting the addition of notional interest.

Brokerage Payment Issue:
The AO disallowed brokerage payment of Rs. 12,880 without valid reasons. The Tribunal found that the brokerage was paid in the relevant year, supported by evidence, and no such disallowance was made in the past. The Tribunal upheld the CIT(A)'s decision to delete the disallowance.

Bank Bilty Commission and Interest Disallowance Issue:
The AO disallowed bank bilty commission and interest of Rs. 51,127 related to purchase invoices of the earlier year. The Tribunal found the debiting of these expenses in accordance with accounting principles and past practices. The Tribunal upheld the CIT(A)'s decision to delete the disallowance.

In conclusion, the Tribunal dismissed the appeal by the Department, affirming the decisions made by the CIT(A) on the various issues raised in the case.