TMI Blog1995 (11) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... or that reason that the figure 10720 had been shown in the bank statement declaring it as relating to M.S. sheets only. It was only a variation in the description of the stock which was reflected in the stock statement and there was nothing objectionable to reject the stock position shown in the books of account. The AO further noticed that the value of the parts manufactured by the assessee had been shown at Rs. 3,57,462 but it was difficult to ascertain the correctness of this valuation. Similarly, the value of raw-material had been shown at Rs. 3,22,077 but in the absence of the weight of the materials, its valuation also could not be verified. The closing stock had thus not been properly valued. It was further noticed that the assessee had shown excessive wastage and scrap. No stock register had been maintained nor the manufacturing details were available. Since the scrap should not be available exceeding 10% the result shown by the assessee was held to be totally unreliable. Therefore, the books of account were rejected. The AO thereafter proceeded to make an addition of Rs. 50,000 in the trading account. 3. The assessee went in appeal with the plea that sales had been show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting had been followed for a number of years and had been accepted by the Revenue, that method could not be rejected without valid reason in a particular year. The learned counsel for the assessee has, on the strength of these decisions, submitted that no ad hoc addition could be made unless specific defect was found in the books of account. The learned first appellate authority accepted the plea and deleted the addition. 4. The learned Departmental Representative has submitted that various defects had been found by the ITO and, therefore, the book results were rightly rejected. The assessee did not maintain any stock register giving details of different items nor manufacturing details had been furnished. There was no evidence on record to show that different items, namely, sheets, plates and flats were items of similar nature. It is, therefore, contended that the addition had been rightly made in the trading account. 5. The learned counsel for the assessee has, in reply, submitted that there were as many as 8 different items of stock and in the stock statement, the stock of sheets, plates and flats had been combined and categorised in one category called M.S. sheets. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the harvester and, therefore, there was no occasion for the assessee to give it on hire to anyone else. The learned CIT(A) accepted the plea of the assessee and deleted the addition. 9. The learned Departmental Representative submitted that the buyer was not produced and it was not probable to presume that the harvester was kept idle during the harvesting season. 10. The learned counsel for the assessee has, in reply, submitted that there was no evidence to indicate any receipt of income in this year. Since the assessee was under an obligation to retain the harvester in good condition after the sale transaction had been finalised on 15th May, 1985, the assessee could not give it on hire at all. It is said to be pure assumption on the basis of which hiring income had been adopted at Rs. 75,000. Affidavit of Shri Baldev Singh was also filed in support. 11. We have considered the rival contentions and we are in agreement with the learned counsel that the harvester had been agreed to be sold in May, 1985 and certain advance money had also been received in that month. Therefore, under the agreement, the assessee was not free to give that harvester on hire. The delivery of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. It was observed that the matter should be examined from the point of view of a prudent businessman. In the case of Voltamp Transformers (P) Ltd. vs. CIT (1981) 23 CTR (Guj) 312 : (1981) 129 ITR 105 (Guj), the Gujarat High Court had also an occasion to examine a disallowance of commission paid to sole selling agent. It was noticed in that case that sales had increased due to the effort of the agent and it was in that context held that the payment of commission was reasonable. The first appellate authority accepted the plea and deleted the addition. 14. The learned Departmental Representative has relied on the order of the AO. 15. The learned counsel for the assessee has, in reply, submitted that mostly these were the old balances on which interest had been paid @ 24% as in the preceding assessment year. Copies of accounts of the creditors have been placed on record to show that except in a few cases, in the cases of all the creditors, there were old opening balances on which interest had been paid @ 24%. Since the assessee had shown increased profit in this year, higher borrowings on higher interest were necessary in the interest of business. Loans from private parties wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the extent of 1/4th (at Rs. 13,443). In appeal, the CIT(A) restricted the disallowance to 1/4th of the expenditure on cars only. 19. The learned counsel for the assessee has submitted that there was no justification to make any disallowance in respect of staff welfare expenditure unless it was found that these expenditures were in the nature of entertainment expenditure. In the absence of any evidence on record, ad hoc disallowance of Rs. 5,000 is said to be not justified. The learned Departmental Representative has relied upon the order of the CIT(A). 20. We have considered the rival contentions and we are in agreement with the learned counsel for the assessee that disallowance of Rs. 5,000 was not based on any definite material on record. Expenditure incurred in connection with tea and snacks provided to the employees during working hours was an allowable expenditure and was not to be treated as entertainment expenses in view of the Expln. 2 below s. 37(2A). Therefore, disallowance of Rs. 5,000 on an ad-hoc basis is found to be not justified. It is, therefore, deleted. As regards disallowance sustained by the CIT(A), we are of the view that reasonable relief has alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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