2011 (10) TMI 523 - AT - Income Tax

Under valuation of stock - Held that - Assessing Officer was not justified in disturbing the method of valuation of closing stock adopted by the assessee. Accordingly we hold that the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition more especially as the finding of the learned Commissioner of Income-tax (Appeals) remained uncontroverted. This ground of the Department fails. Addition on account of breakage claimed - addition under section 40(a)(ia) - non deduction of TDS on various payments for and on behalf of nonresident shipping company -

Issues Involved:
1. Deletion of addition made on account of under-valuation of stock.
2. Deletion of addition made on account of breakage claimed by the assessee.
3. Deletion of addition made under section 40(a)(ia) for non-deduction of TDS on freight payments.
4. Deletion of addition made under section 40(a)(ia) for non-deduction of TDS on clearing and forwarding charges.
5. Deletion of addition made under section 40(a)(ia) for non-deduction of TDS on ocean freight payments.
6. Deletion of addition made on account of excess claim of depreciation on plant and machinery.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Under-Valuation of Stock:
The first issue pertains to the deletion of an addition of Rs. 50,64,037 made by the Assessing Officer (AO) due to alleged under-valuation of stock. The AO observed that the closing stock was valued using the average FIFO method, but the director stated it was valued using the average cost method. The AO adopted a different valuation method, resulting in the addition. The Commissioner of Income-tax (Appeals) (CIT(A)) found that the AO's decision was based on an incomplete reading of the director's statement and incorrect application of Accounting Standard 2 (AS2). The CIT(A) noted that the assessee had consistently followed the same valuation method in previous years, which was accepted by the Department. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the CIT(A)'s reasoning and noting that the AO disturbed the valuation without cogent reasons. The Tribunal confirmed the deletion of the addition.

2. Deletion of Addition on Account of Breakage Claimed by the Assessee:
The second issue involves the deletion of an addition of Rs. 36,47,709 made by the AO on account of breakage claimed at 12.70% during the year, compared to 7.94% in the previous year. The AO restricted the breakage claim to 7.94%, considering the higher breakage claim as excessive. The CIT(A) found that the AO's decision was based on inappropriate comparisons and did not consider the specific circumstances of the assessee's operations, such as the commencement of in-house processing. The Tribunal agreed with the CIT(A)'s findings, noting that the AO did not provide adequate justification for restricting the breakage claim and confirmed the deletion of the addition.

3. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of TDS on Freight Payments:
The third issue concerns the deletion of an addition of Rs. 6,31,036 made by the AO under section 40(a)(ia) for non-deduction of TDS on freight payments. The AO disallowed the payment, arguing that a professionally managed company should deduct TDS on such payments. The CIT(A) found that there was no evidence of a contract with the truck owners, and the payments were made to different trucks on different trips. The Tribunal upheld the CIT(A)'s decision, noting that the payments did not exceed the threshold for TDS and there was no written agreement, confirming the deletion of the addition.

4. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of TDS on Clearing and Forwarding Charges:
The fourth issue relates to the deletion of an addition of Rs. 22,92,664 made by the AO under section 40(a)(ia) for non-deduction of TDS on clearing and forwarding charges. The AO disallowed the payment, assuming a contract between the assessee and the clearing agents. The CIT(A) found that the payments included both service charges and reimbursements, and there was no basis for the AO's assumption of a contract. The Tribunal agreed with the CIT(A)'s findings, noting that the payments were routine business expenses and did not fall under section 194C, confirming the deletion of the addition.

5. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of TDS on Ocean Freight Payments:
The fifth issue involves the deletion of an addition of Rs. 13,04,132 made by the AO under section 40(a)(ia) for non-deduction of TDS on ocean freight payments. The AO disallowed the payment, arguing that the shipping agents were not agents of non-resident shipping companies. The CIT(A) found that the payments were made to agents of non-resident shipping companies, who collected their commission from the shipping companies. The Tribunal upheld the CIT(A)'s decision, noting that the AO ignored evidence and certificates provided by the assessee, confirming the deletion of the addition.

6. Deletion of Addition on Account of Excess Claim of Depreciation on Plant and Machinery:
The final issue pertains to the deletion of an addition of Rs. 1,56,202 made by the AO on account of excess claim of depreciation on plant and machinery. The AO restricted the depreciation claim, assuming nil use of assets acquired during the year. The CIT(A) found that the assessee had not claimed depreciation on assets not put to use and had correctly claimed depreciation as per the Income-tax Rules. The Tribunal agreed with the CIT(A)'s findings, noting that the AO misread the audit report and confirmed the deletion of the addition.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal found no infirmity in the CIT(A)'s findings and confirmed the deletions of the additions made by the AO. The order was pronounced in the open court on October 21, 2011.

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