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TMI Blog1986 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... us. The ITO got suspicious about the genuineness of the payment as well as its need and required the assessee to prove its necessity for making the payment and as to how it could be allowed. In reply it was said that the payment was made for the use of the premises of Ice Machinery Mart No. 3, Darya Ganj,New Delhiand also their machinery atGwalior. The payment was made for a period of 5 months in support of which a bill made out by Ice Machinery Mart dt.30th Dec., 1978was produced. This payment was for a period of Aug., to Dec., 1978 at the rate of Rs. 5,000 per month. The ITO considered this payment as too high to be accepted as reasonable. For the reasons that no records of user of the different machineries were maintained, production of compressors was not shown in the month of Nov., and Dec., even though charges were paid, that Ice Machinery Mart itself did not show in its accounts as much of depreciation as the payment, the ITO considered that a payment of Rs. 5,000 per month for use of machinery, that too for a period of 3 months Aug., to Oct., would be reasonable. On this basis he allowed only Rs. 1,500 and disallowed the balance of Rs. 23,500. 3. Aggrieved by this disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... user of the machineries. But so long as wages were paid, it could not be said that there was no user of machines even if there was no production of compressors. This apart, when the machinery of Ice Machinery Mart was taken on hire, it is for the assessee company to utilise the machinery for its business purposes either fully or partially. The Department had accepted the position that the machinery of Ice Machinery Mart was taken on lease for a period of 5 months and there was no dispute on that point, the dispute centring round only against the reasonableness of the hire charges to be paid. The Department also allowed hire charges for a period of 3 months at the rate of Rs. 1,000 per month. In this position it cannot be taken that the Department had established that the machinery taken on hire was not utilised by the assessee or needed by it. It is also immaterial whether Ice Machinery Mart had claimed as much depreciation on the use of its machinery as is equal to the amount of labour charge it received by hiring out that machinery. That is totally besides the point. The claim of depreciation in income tax matter would depend upon the written down value of the machinery and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Directors of the assessee company is not sufficient to disallow the claim by applying the provisions of s. 40(c) although that may be a very strong ground to create suspicion. That suspicion should have led the ITO to probe the matter deeper. The necessity, the market conditions and the record of the assessee being in favour of the assessee's contention, we are of the view that the disallowance is inappropriate. We therefore, delete it and direct that the sum of Rs. 25,000 paid by the assessee to Ice Machinery Mart should be allowed as a deduction. 6. The next ground relates to the disallowance of Rs 950 out of travelling expenses. Under this head the assessee claimed that the Managing Director went to Jaipur andAjmerand incurred a sum of Rs. 950 on those trips. The ITO disallowed the sum of Rs. 950 mainly on ground that the necessity of the trip to Jaipur andAjmerwas not explained. The CIT(A) also confirmed the disallowance on a appeal for the very same reason. The ld. counsel for the assessee new points out that both the ITO and the CIT(A) were informed that the purpose of the visit to Jaipur andAjmerwas for sale of compressors to Hindustan Machinery Tools. In order to carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of any positive evidence, we are unable to agree with the assessee's contention. We therefore confirm this disallowance. 9. The next ground relates to the non-isolation of the addition of Rs. 12,390 as deemed interest. The ITO noticed in the course of examination of accounts that the assessee company had advanced a sum of Rs. 1,03,523 to Ice Machinery Mart a concern in which the Managing Director was interested. No interest was charged on this amount. The assessee claimed that this was not a loan given under the financial arrangement but it was outstanding debit balance resulted as a consequence of business dealing and therefore the question of charging any interest did not arise. It was also pointed out that the amount was advanced in the course of business but not out of any borrowed fund. The ITO however, pointed out that this outstanding sum was shown in the balance sheet under the head 'loans and advances' and could not have been therefore a trading debt. He was further of the view that the company should have charged interest. Since no interest was charged, he calculated interest at 12 per cent on this sum, which worked out to Rs. 12,390 and included the same as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter for further investigation. That apart, for the asst. yr. 1980-81 when a similar addition of about Rs. 11,900 was made, the CIT(A) deleted the same by pointing out that the accounts of the sister concern were running accounts with whom the assessee had business dealings. No interest was charged either by the assessee to the sister concern or vice versa. In the light of this, we are unable to sustain the order of the CIT(A) setting aside the assessment and directing the ITO to carry out certain investigations on the basis of the auditor's certificate, when the auditor's certificate did not call for any further investigation. It is also to be borne in mind that this sum of Rs. 1,03,253 had not come out of borrowed funds nor was there any such allegation in the order of the ITO either. This addition is therefore, not called for and the CIT(A) should have deleted it. We therefore direct that this addition be deleted. 12. In the last ground, objection is taken to the disallowance of Rs. 10,000 in respect of which the ground raised suggests that this sum was disallowed in the assessment of Ice Machinery Mart and for that reason, should have been allowed as a deduction in compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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