1978 (7) TMI 188 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 2,779 as entertainment expenses.
2. Disallowance of Rs. 21,258 as payment to a Director.
3. Disallowance of Rs. 7,013 as travelling expenses.
4. Disallowance of Rs. 500 relating to Vishwakarma Puja expenses.
5. Disallowance of Rs. 22,211 relating to bad debt.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 2,779 as entertainment expenses:
The assessee debited Rs. 19,517 related to association dues, including Rs. 5,645 for club bills, which the ITO treated as entertainment expenses. After deducting credits, Rs. 2,779 was disallowed. The AAC confirmed this disallowance, agreeing with the ITO. The assessee argued that these expenses were for business meetings at the club, citing past allowances and a precedent from CIT, Gujarat-II vs. Patel Brothers & Co. However, the Tribunal upheld the disallowance, stating that the expenses were indeed for entertainment at the club.

2. Disallowance of Rs. 21,258 as payment to a Director:
The ITO disallowed Rs. 21,258 paid as commission to Director Shri N.D. Kamani, citing no such expenses in previous years and questioning the necessity. The AAC upheld this, noting the director's reasonable salary of Rs. 18,000 and the established market for the company's products. The assessee argued that the commission was justified due to increased sales and previous allowances of similar expenses. The Tribunal, acknowledging the director's contribution, deemed the commission excessive but allowed 50% (Rs. 10,629), disallowing the remaining Rs. 10,629.

3. Disallowance of Rs. 7,013 as travelling expenses:
The ITO disallowed Rs. 7,013 out of Rs. 57,013 claimed as travelling expenses for directors, suspecting non-business use. The AAC upheld this disallowance. The assessee contended that all expenses were for business purposes and the disallowance was based on suspicion without specific instances. The Tribunal deleted the disallowance of Rs. 7,013, agreeing with the assessee's argument.

4. Disallowance of Rs. 500 relating to Vishwakarma Puja expenses:
The ITO disallowed Rs. 1,527 out of Vishwakarma Puja expenses, which the AAC reduced to Rs. 500, considering it necessary. The assessee argued that these expenses were for labor welfare, citing a previous Tribunal decision allowing similar expenses in full. The Tribunal, following its earlier decision, deleted the disallowance of Rs. 500.

5. Disallowance of Rs. 22,211 relating to bad debt:
The assessee claimed Rs. 22,211 as a bad debt, stating it was an advance to Acta Engineering Corp., which became irrecoverable. The ITO disallowed this, stating the claim was time-barred. The AAC upheld the disallowance, noting the debt became time-barred before the relevant accounting year. The Tribunal agreed, stating the debt should have been claimed in the asst. yr. 1973-74 and rejected the claim for the asst. yr. 1976-77. The Tribunal advised the assessee to claim the amount under s. 36(2)(iv) r/w s. 155(6) for the asst. yr. 1973-74.

Conclusion:
The appeal was allowed in part, with specific disallowances upheld or modified as detailed above.

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