2010 (12) TMI 1193 - AT - Income Tax

Summary

Issues Involved:

1. Addition to the value of closing stock.
2. Disallowance of depreciation on BMW motor cycle.
3. Errors in not considering revised return and assessing excess income.
4. Levy of interest under sections 234B and 234C without adjusting cash seized towards advance tax.

Issue-wise Detailed Analysis:

1. Addition to the Value of Closing Stock:

The Assessing Officer (AO) added Rs. 1.77 crores to the value of the closing stock. The assessee argued that the AO ignored wastage, damaged stock, and the trade practice of describing materials as 'random slabs'. The AO also failed to consider the physical stock taken on 31.3.2007 and used a gross profit basis for valuation instead of cost. The CIT(A) upheld the AO's decision, stating that the assessee did not provide evidence to substantiate its contentions and that the stock found was not reflected in the books of account. However, the Tribunal found the AO's reasoning conflicting and lacking credible evidence, thus ruling that the addition of Rs. 1,77,96,879/- was not justified and required deletion.

2. Disallowance of Depreciation on BMW Motor Cycle:

The AO disallowed the depreciation claim of Rs. 1.02 lakhs on a BMW motor cycle, asserting it was not connected to the business. The CIT(A) agreed, noting the vehicle was purchased in the partner's name. The assessee contended the vehicle was used for business purposes and disclosed under fixed assets. The Tribunal remitted the issue back to the AO to determine if the vehicle was used exclusively for business purposes. If so, the depreciation claim should be allowed, but with a 1/3rd disallowance for potential personal use by the partner.

3. Errors in Not Considering Revised Return and Assessing Excess Income:

The AO did not telescope the cash available with the partner against investments/payments by the assessee and did not consider the revised return furnished on 16.12.2008. The CIT(A) upheld the AO's decision, stating the income had to be determined based on evidence found during the search. The Tribunal noted that the AO failed to consider the revised return and the principle of telescoping. The Tribunal directed the AO to extend the benefit of telescoping the deficit stock of Rs. 3 crores in the case of the sister concern in the hands of the assessee and to take appropriate action after affording a reasonable opportunity to the assessee.

4. Levy of Interest Under Sections 234B and 234C Without Adjusting Cash Seized Towards Advance Tax:

The AO charged interest under sections 234B and 234C, which the CIT(A) upheld, stating the interest was mandatory. The assessee argued that it had requested the adjustment of seized cash towards advance tax. The Tribunal found the CIT(A)'s reasoning lacking and directed the AO to consider the assessee's request and the ruling of the Delhi High Court while giving effect to the order.

Conclusion:

The assessee's appeal was partly allowed, with specific directions to the AO to re-examine certain issues and extend the benefit of telescoping and appropriate adjustments as per the Tribunal's findings. The Tribunal emphasized the need for credible evidence and proper consideration of the assessee's contentions and revised return.