1976 (11) TMI 89 - AT - Income Tax

Summary

Issues:
1. Disallowance of car expenses
2. Disallowance of shop expenses at the head office and branch
3. Disallowance of traveling expenses at the head office and branch
4. Disallowance of scooter expenses
5. Disallowance of bad debts

Analysis:

1. Disallowance of Car Expenses:
The assessee, a registered firm engaged in the sale of Jeeps and motor-cycles, appealed against the disallowance of car expenses. Initially, half of the claimed expenses were disallowed by the ITO, which was reduced to 1/3rd by the AAC. The appellant argued for a further reduction to 1/4th, emphasizing that the car was predominantly used for business purposes. Considering past allowances and minimal personal use by partners, the Tribunal found the 1/4th disallowance reasonable, allowing the appeal partially.

2. Disallowance of Shop Expenses:
The appellant contested the disallowance of shop expenses at the head office and branch. The Tribunal observed that the entire amount was business-related, with detailed entries provided as evidence. Noting the allowance in the previous year and the nature of expenses, the Tribunal deemed the disallowance unjustified and deleted it. The Tribunal clarified that expenses on items like tea and beverages for customers did not constitute entertainment expenditure.

3. Disallowance of Traveling Expenses:
Regarding the disallowance of traveling expenses at the head office and branch, the Tribunal acknowledged past disallowances but found the current disallowance excessive. Adjustments were made, reducing the disallowance amounts based on the business nature and some personal elements. The Tribunal also considered explanations for increased expenses in the branch and reduced the disallowances accordingly.

4. Disallowance of Scooter Expenses:
The objection to the disallowance of scooter expenses was based on the predominant use of scooters by employees rather than partners. Noting the absence of disallowance in the previous year and the employee usage, the Tribunal concluded that the disallowance was unwarranted and deleted it.

5. Disallowance of Bad Debts:
The last point of contention was the disallowance of bad debts claimed by the appellant. The ITO disallowed a portion of the claimed amounts, which was reduced by the AAC. The Tribunal accepted the appellant's explanation that the amounts were not bad debts but discounts or remissions against bills raised for Govt. Department supplies. Considering these as business expenses, the Tribunal allowed the entire claim, emphasizing that such expenses were incurred for business purposes.

In conclusion, the Tribunal partially allowed the appeal, addressing each objection raised by the appellant and making adjustments based on the nature of expenses and past allowances. The Tribunal emphasized the business purpose of the expenses and the lack of personal elements in most disallowed amounts.