1981 (1) TMI 148 - AT - Income Tax

Issues Involved:

1. Disallowance of establishment charges.
2. Disallowance of conveyance expenses and quarterly taxes as personal expenses.
3. Addition related to the cost of construction of a building.
4. Addition of agricultural income credited to the capital account.
5. Claim of payment to M/s Kareem Aleem & Company as trade expenses.

Detailed Analysis:

1. Disallowance of Establishment Charges:

The assessee claimed establishment charges of Rs. 86,723 and Rs. 46,955 for assessment years 1972-73 and 1973-74, respectively. The Income Tax Officer (ITO) disallowed Rs. 10,000 each for both years, which was reduced to Rs. 5,000 on appeal. The authorities found no proper details or proof for the payments, and this lack of evidence was not contested before the Tribunal. Consequently, the Tribunal upheld the disallowance for both years.

2. Disallowance of Conveyance Expenses and Quarterly Taxes:

The ITO disallowed 1/4th of the conveyance expenses and quarterly taxes, amounting to Rs. 15,800 and Rs. 1,116 for 1972-73, and Rs. 11,952 and Rs. 1,829 for 1973-74, as personal expenses. The assessee failed to show that all vehicles were used for business purposes. The Tribunal noted a similar disallowance upheld for the assessment year 1971-72 and found no reason to deviate from this view, thus rejecting the appeal on this point.

3. Addition Related to the Cost of Construction of a Building:

The ITO added Rs. 1,10,000 and Rs. 54,000 for the construction of a building at Nowroji Road for assessment years 1972-73 and 1973-74, respectively. The assessee's revised return included Rs. 30,000 based on a valuer's report estimating the total outlay at Rs. 90,000. The ITO, however, referred to the Valuation Cell, which valued the property at Rs. 1,64,000 and considered the construction period to be two years. The Tribunal found that the ITO did not verify the construction period and accepted the assessee's claim for a three-year spread of construction costs. The Tribunal allowed relief of Rs. 55,000 for the assessment year 1972-73.

4. Addition of Agricultural Income Credited to the Capital Account:

For the assessment year 1972-73, the ITO added Rs. 15,000 out of Rs. 50,000 credited as agricultural income, citing a lack of detailed sales records. The first appellate authority upheld this addition. The Tribunal noted that the same AAC accepted Rs. 43,230 as reasonable agricultural income for the assessment year 1970-71. Given the lack of detailed investigation by the authorities, the Tribunal considered Rs. 45,000 as reasonable, granting relief of Rs. 10,000 to the assessee.

5. Claim of Payment to M/s Kareem Aleem & Company as Trade Expenses:

The assessee claimed Rs. 55,000 paid to M/s Kareem Aleem & Company as a trade expense. The ITO disallowed this as a capital expenditure, and the AAC upheld the disallowance, stating that the payment was for acquiring goodwill and trade marks, which are capital assets. The Tribunal agreed, noting that the payment was for acquiring exclusive rights to use trade marks and was part of the capital outlay. The Tribunal found no merit in the assessee's claim and dismissed the appeal on this point.

Conclusion:

The appeal for the assessment year 1972-73 was partly allowed, granting relief of Rs. 55,000 for the construction cost and Rs. 10,000 for agricultural income. The appeal for the assessment year 1973-74 was dismissed.

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