2014 (10) TMI 871 - AT - Income Tax

Rejection of books of accounts - Held that - In the Remand Report the contentions of the assessee that the AO was not justified in rejecting the books of accounts was accepted by the AO. The AO also accepted the contention that he has not been able to point out any discrepancy in the books of accounts and stock record produced by the assessee before him. Thus, in our view, the First Appellate Authority had no other option but to reject the action of AO in rejecting the books of accounts. - Decided against revenue Valuation of finished goods - Held that - The AO in para (ii)(a) of his remand report specifically mentioned that he has examined copy of the ledger account on packing material, stock record etc. The AO was not able to point out any discrepancy in the claim of the assessee that the cost of finished goods does not include the cost of packing material. In the absence of any adverse finding by the AO, in the remand report, the First Appellate Authority was right in accepting this claim of the assessee.- Decided against revenue Scrap @ 48.93% allowed by CIT(A) - Held that - In the remand report the AO has, on the issue of generation of scrap, accepted the fact that the assessee has produced complete details of the scrap generated and scrap sold. The AO also obtained necessary confirmations from the parties to whom the scrap was sold. The AO also accepted the fact that the percentage of scrap fixed by the excise authorities was only, for the purpose of giving incentives to the assessee and has no effect on the actual facts of the case.The assessee had submitted various letters to the excise authorities for revision of the norms of scrap fixed by them. In view of the above observations by the AO in the remand report, we find no infirmity in the order of the First Appellate Authority - Decided against revenue Addition made on account of business promotion expenses - CIT(A) deleted the addition - Held that - AO had made an adhoc disallowance without specifying any details. The assessee had produced complete details of these expenses during the course of remand proceedings. In view of the above, we do not find any infirmity in the order of the First Appellate Authority.- Decided against revenue Addition made on account of incentive and commission expenses - CIT(A) deleted the addition - Held that - The appellant has been paying this commission every year. During the year it has paid commission. The disallowance in view of the above details and the nature of the services rendered by the recipient was not justified.- Decided against revenue

Issues involved:
1. Rejection of books of accounts by assessing officer under section 145 of the Income Tax Act.
2. Valuation of finished goods and inclusion of packing material cost.
3. Treatment of excess scrap generated by the appellant.
4. Deletion of addition made on account of business promotion expenses.
5. Deletion of addition made on account of incentive and commission expenses.
6. General grounds of appeal.

Issue 1: Rejection of books of accounts
The assessing officer rejected the books of accounts of the appellant under section 145 of the Income Tax Act, alleging non-maintenance of stock registers and production records. The First Appellate Authority, after considering the remand report and objections of the assessee, granted relief as the AO failed to point out any discrepancies in the records produced. The Tribunal upheld the decision, stating that the AO had no valid reason to reject the books of accounts, thereby dismissing ground no.1 of the Revenue.

Issue 2: Valuation of finished goods
The Revenue challenged the acceptance by the First Appellate Authority of the claim that the cost of finished goods did not include the cost of packing material. The AO, in the remand report, did not find any discrepancies in the claim made by the assessee. Consequently, the Tribunal upheld the decision, dismissing ground no.2 of the Revenue.

Issue 3: Treatment of excess scrap
The Revenue contested the allowance of 48.93% scrap claimed by the appellant. The AO accepted the details provided by the assessee regarding scrap generation and sales, and confirmed the percentage of scrap fixed by the excise authorities was for incentive purposes only. The Tribunal found no fault in the First Appellate Authority's decision, hence dismissing ground no.3 of the Revenue.

Issue 4: Business promotion expenses
The Revenue objected to the deletion of an addition made on account of business promotion expenses. The AO failed to identify any errors in the explanation provided by the assessee during the remand proceedings. As complete details were furnished by the assessee, the Tribunal upheld the decision, dismissing ground no.4 of the Revenue.

Issue 5: Incentive and commission expenses
The Revenue challenged the deletion of an addition made on account of incentive and commission expenses. The First Appellate Authority found that the payments were made for commercial expediency and were justified based on the services rendered. As the Ld.Sr.D.R. could not refute this factual finding, the Tribunal dismissed ground no.5 of the Revenue.

Issue 6: General grounds of appeal
The Tribunal expressed concern over the frivolous appeals filed by the Revenue, especially when the AO had accepted the contentions of the assessee during remand proceedings. The Tribunal awarded costs to the assessee and dismissed the appeal of the Revenue.

This judgment addressed various issues related to the rejection of books of accounts, valuation of finished goods, treatment of excess scrap, business promotion expenses, and incentive and commission expenses. The Tribunal upheld the decisions of the First Appellate Authority based on the lack of discrepancies found by the assessing officer and the justification provided by the assessee. Additionally, the Tribunal criticized the Revenue for filing frivolous appeals and awarded costs to the assessee.

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