1995 (4) TMI 99 - AT - Income Tax

Summary

Issues:
1. Disallowance of a lump sum of Rs. 10,000 out of tyre expenses.
2. Disallowance of a sum of Rs. 14,737 on account of rent of director-employees.
3. Disallowance of Rs. 610 out of general expenses.
4. Disallowance of Rs. 65,509 under s. 40A(5)(c) on account of payments made to employees.
5. Addition of Rs. 95,286 disallowed by the AO under the head customers claim.

Analysis:

1. The first issue pertains to the disallowance of a lump sum of Rs. 10,000 out of tyre expenses claimed by the assessee. The Assessing Officer disallowed this amount on an estimate basis, citing excessive expenditure on tyres for a newly acquired truck. The assessee contended that the truck required specific tyres due to its load-bearing nature, and the number of tyres consumed was comparable to other trucks. The ITAT held that the explanation provided by the assessee, supported by evidence, was valid, and there was no justification for the disallowance. Consequently, the addition of Rs. 10,000 was deleted.

2. The second issue revolves around the disallowance of Rs. 14,737 on account of rent paid to director-employees. The Assessing Officer disallowed this amount under s. 40A(5)(c), but the assessee argued that it fell within the limits prescribed under s. 40(c) of the IT Act. The ITAT referred to various High Court judgments and concluded that in the case of directors who are also employees, the provisions of s. 40(c) apply while computing the company's income. Therefore, the ITAT allowed the appeal and held that the amount of Rs. 14,737 should be included for working out limits under s. 40(c) of the Act.

3. The third issue concerns the disallowance of Rs. 610 out of general expenses, attributed to cash gifts on staff members' marriage. The ITAT determined that these expenses were business-related and, therefore, allowable under s. 37, resulting in the allowance of this amount.

4. The fourth issue involves the disallowance of Rs. 65,509 under s. 40A(5)(c) for payments made to employees, including house rent allowances. The ITAT noted that house rent allowance forms part of salary and should be included for computing disallowances under s. 40A(5). Citing relevant High Court judgments, the ITAT allowed this ground of appeal as well.

5. The final issue pertains to the addition of Rs. 95,286 disallowed by the Assessing Officer under the head customers claim. The ITAT upheld the decision of the learned CIT(A) to delete this addition, as it was found to be in accordance with the assessee's regular accounting practices since the inception of the business. The ITAT dismissed the appeal of the Revenue, endorsing the findings of the CIT(A).