2006 (9) TMI 357 - AT - Income Tax

Summary

Issues:
- Disallowance under section 37(2A) of the Act
- Disallowance under rule 6D
- Valuation of closing stock under section 145(1) of the Act

Issue 1: Disallowance under section 37(2A) of the Act
The Appellate Tribunal addressed the disallowance of Rs. 40,000 under section 37(2A) of the Act. The Tribunal noted that the disallowance was based on accepted past history and lack of details. However, considering the past acceptance of a 10% ad hoc disallowance, the Tribunal remitted the matter to the Assessing Officer to restrict the disallowance to 10% of canteen expenses. Consequently, Ground No. 1 was allowed for statistical purposes.

Issue 2: Disallowance under rule 6D
Regarding the disallowance of Rs. 51,097 under rule 6D, the Tribunal upheld the disallowance based on a judgment in the case of CIT v. Arrow India Ltd. The Tribunal dismissed Ground No. 2 in this regard.

Issue 3: Valuation of closing stock under section 145(1) of the Act
The primary grievance of the assessee was the rejection of the method of valuation of stock under section 145(1) of the Act. The Assessing Officer noted a change in the method of valuation by the assessee, resulting in understated profits. The CIT(A) directed the Assessing Officer to determine the value of closing stock through continuous determination of weighted average. The Tribunal, after considering various legal positions and arguments, allowed Ground No. 3, directing the Assessing Officer to accept the method of accounting for valuation of stock as adopted by the assessee for both assessment years. This decision was based on the premise that as long as all historical costs are included, the chosen method of accounting should be accepted.

In conclusion, both appeals filed by the assessee were partly allowed based on the specific issues discussed and the corresponding decisions made by the Appellate Tribunal.