1977 (2) TMI 39 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 6,176 on account of interest.
2. Addition of Rs. 10,946 as income from Dharmada collections.
3. Disallowance of Rs. 14,289 under the head rasoi expenses.
4. Addition of Rs. 8,109 as income from market fee collections.

Issue-wise Detailed Analysis:

1. Addition of Rs. 6,176 on account of interest:
The assessee, a registered firm, objected to the addition of Rs. 6,176 made on account of interest. The ITO added this amount because the firm did not charge interest on the debit balance of Rs. 63,361 in Tara Chand Jain's account, which was set off against the credit balance in Phool Chand Dhan Kumar's account. The ITO calculated interest on the debit balance at Rs. 8,060 and deducted the interest of Rs. 1,883 provided in the accounts, resulting in the addition of Rs. 6,176. The AAC confirmed this addition, stating that the correct income of the firm was not reflected. However, the Tribunal found no evidence that borrowed funds were diverted for personal use by the partner and noted that the credit balance was higher than the debit balance. The Tribunal concluded that the assessee's practice of setting off the debit balance against the credit balance was justified and deleted the addition.

2. Addition of Rs. 10,946 as income from Dharmada collections:
The assessee collected Rs. 16,341 as Dharmada, out of which Rs. 5,395 was spent, leaving a credit balance of Rs. 10,946. The ITO treated these collections as taxable revenue receipts, a decision upheld by the AAC. The assessee argued that Dharmada collections are not income but are held in trust for charitable purposes, citing the Allahabad High Court's rulings. The Tribunal agreed with the assessee, noting that the collections were made as part of a customary trade practice and were intended for charity. The Tribunal held that these receipts were not taxable as revenue receipts and directed their exclusion from the assessment.

3. Disallowance of Rs. 14,289 under the head rasoi expenses:
The assessee claimed Rs. 14,289 as rasoi expenses, which the ITO disallowed, considering them as entertainment expenditure and noting the lack of vouchers. The AAC partially agreed, allowing Rs. 9,000 and disallowing Rs. 5,289. Both the assessee and the Revenue appealed this decision. The Tribunal found that rasoi expenses were essential for the assessee's business and not entertainment expenditure, as they were incurred for the staff and veoparies. However, due to unvouched expenses, the Tribunal deemed a disallowance of Rs. 1,500 appropriate, reducing the disallowed amount.

4. Addition of Rs. 8,109 as income from market fee collections:
The assessee collected Rs. 8,109 as market fee but did not pay it to the Mandi Samiti, leading to litigation. The ITO treated this amount as income under Section 41(1) of the IT Act, a view upheld by the AAC. The assessee argued that the amount was never allowed as a deduction, the litigation was ongoing, and the collection occurred in a previous year. The Tribunal agreed with the assessee, noting that the amount was collected in 1969 and not in the year under appeal. Since the liability had not ceased and the amount was never deducted, the Tribunal concluded that it could not be taxed as income and deleted the addition.

Conclusion:
The Tribunal allowed the assessee's appeal in part, deleting the additions of Rs. 6,176 and Rs. 8,109 and reducing the disallowance under rasoi expenses to Rs. 1,500. The appeal by the Revenue was dismissed.

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