2011 (2) TMI 1442 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(Appeals) regarding addition in closing stock u/s 145A, impact of MODVAT on profitability, and disallowance u/s 14A of the I.T. Act.

Addition in closing stock u/s 145A:
The appeal was filed by the Revenue challenging the deletion of addition in closing stock u/s 145A by CIT(A). The Revenue contended that the decision in CIT Vs. Indonippon Chemical Co. is not applicable to the assessee's case. However, CIT(A) relied on the audited statement showing no impact on profitability due to MODVAT and directed the AO to delete the addition, which was allowed. The ITAT found no infirmity in CIT(A)'s findings on this issue.

Impact of MODVAT on profitability:
The assessee, a private limited company manufacturing Audio Magnetic Tapes, faced additions u/s 145A and u/s 14A of the I.T. Act. CIT(A) deleted these additions. Regarding the addition u/s 145A, CIT(A) considered the consistent valuation method of opening and closing stock by the appellant and directed the AO to delete the addition based on audited statements. The ITAT upheld CIT(A)'s decision on this issue.

Disallowance u/s 14A:
CIT(A) restricted the disallowance made by the AO u/s 14A to &8377; 4,67,936 based on Rule 8D, as against the initial disallowance of &8377; 8,80,470. The ITAT noted that Rule 8D cannot be applied for the assessment year 2005-06, but as the assessee did not dispute the disallowance, the ITAT found no fault in CIT(A)'s order. The appeal of the Revenue was dismissed, and the order was pronounced on 25th February, 2011.