2011 (5) TMI 947 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition made on account of suppression of production and sales.
2. Deletion of addition made due to non-deduction of tax at source on transportation expenses.
3. Deletion of disallowance made on account of freight.
4. Deletion of addition made on account of inland haulage charges.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Suppression of Production and Sales:

The revenue challenged the deletion of Rs. 5,69,561/- made on account of suppression of production and sales by rejecting the book results. The AO observed that the manufacturing process prescribed is very simple where the chances of loss or shortage are quite remote. The assessee itself had confessed that the maximum shortage would be 1.25% of the total raw material used for production. The AO concluded that the assessee suppressed the production of 39,861 Kg and worked out the value of suppressed production at Rs. 5,69,561/-.

The learned Counsel for the assessee argued that the AO misinterpreted the facts and that the 1.25% shortage was transit loss, not production loss. The Counsel explained the detailed manufacturing process, highlighting that various stages involve inevitable losses. The learned CIT(A) considered the submissions and material on record, finding that the AO's conclusions were not based on correct facts and that no specific defect in the books of accounts was pointed out. The CIT(A) noted that the AO had accepted similar book results in the subsequent assessment year without making any addition. The CIT(A) thus deleted the addition, a decision upheld by the Tribunal, which found no justification to interfere with the CIT(A)'s order.

2. Deletion of Addition Due to Non-Deduction of Tax at Source on Transportation Expenses:

The revenue challenged the deletion of Rs. 6,36,235/- out of a total disallowance of Rs. 7,82,665/-. The AO disallowed the expenses under the provisions of sec. 40(a)(ia) of the Act for non-deduction of tax at source. The learned Counsel for the assessee argued that payments were made to NRI shipping companies or their agents, to which the provisions of Sec. 195 or any other TDS provisions do not apply, supported by CBDT Circular No. 723 dated 19-10-1995.

The learned CIT(A) found that the payments amounting to Rs. 6,36,235/- were made to NRI shipping companies or their agents and were not hit by the provisions of sec. 195 of the Act. Therefore, the CIT(A) deleted the disallowance to the extent of Rs. 6,36,235/-, a decision upheld by the Tribunal, which noted the applicability of Board Circular No. 723 and found no merit in the revenue's appeal.

3. Deletion of Disallowance Made on Account of Freight:

The revenue challenged the deletion of disallowance of Rs. 3,16,099/- made on account of freight paid to M/s. Trans World Shipping Services without deducting taxes. The learned CIT(A) found that this issue was similar to the one discussed in the second issue, where payments were made to NRI shipping companies or their agents. By following Board Circular No. 723, the CIT(A) deleted the addition, a decision upheld by the Tribunal.

4. Deletion of Addition Made on Account of Inland Haulage Charges:

The revenue challenged the deletion of addition of Rs. 1,16,020/- made on account of inland haulage charges paid to M/s. Trans World Shipping Services without deducting taxes. The learned CIT(A) found this issue similar to the second issue, where payments were made to NRI shipping companies or their agents. By following Board Circular No. 723, the CIT(A) deleted the addition, a decision upheld by the Tribunal.

Conclusion:

The Tribunal upheld the CIT(A)'s order, finding no justification to interfere with the deletion of additions made by the AO on account of suppression of production and sales, non-deduction of tax at source on transportation expenses, freight, and inland haulage charges. The Tribunal noted that the AO had accepted similar book results in subsequent years and that the CIT(A)'s findings were based on a proper appreciation of facts and material on record. The departmental appeal was dismissed.