2010 (1) TMI 1215 - AT - Income Tax

Summary

Issues Involved:
1. Valuation and addition of closing stock of Bagasse.
2. Disallowance of vehicle running expenses.
3. Addition on account of sale of scrap.
4. Estimation of production of Bagasse.
5. Classification of nursery farm income as business income instead of agricultural income.
6. Disallowance of expenses relating to earlier years.

Summary:

1. Valuation and Addition of Closing Stock of Bagasse:
The first issue raised by the assessee was the confirmation by the CIT(A) of the AO's action in estimating and adding the value of closing stock of Bagasse to the income of the assessee. The AO observed that the appellant, a company engaged in manufacturing and trading of sugar, did not show the value of Bagasse in the trading account despite adopting a mercantile system of accounting. The AO computed the value of Bagasse at Rs. 25,58,055/- and made a net addition of Rs. 9,75,502/- to the total income. The CIT(A) confirmed this addition. The Tribunal found that not showing any valuation for closing stock violated the fundamental accounting assumption of accrual. However, since the AO valued the Bagasse based on market value without finding the cost, the Tribunal remitted the issue back to the AO for fresh examination.

2. Disallowance of Vehicle Running Expenses:
The assessee raised an additional ground regarding the disallowance of Rs. 50,000/- out of vehicle running expenses. The assessee's counsel submitted that relief was granted u/s 154 by the CIT(A), and hence, the issue was not pressed. The Tribunal dismissed this issue as not pressed.

3. Addition on Account of Sale of Scrap:
The revenue's appeal involved the deletion of an addition of Rs. 15 lacs on account of the sale of scrap. The AO noted lower sales of scrap compared to earlier and subsequent years and estimated unaccounted sales of Rs. 15 lacs based on substantial expenditure on repairs and maintenance. The CIT(A) deleted the addition, stating that the AO did not provide concrete evidence of sales outside the books. The Tribunal upheld the CIT(A)'s order, finding the AO's inference devoid of cogency.

4. Estimation of Production of Bagasse:
The assessee's appeal for AY 2005-06 involved the AO's estimation of Bagasse production at 34% of sugar cane crushed, leading to an addition of Rs. 81,24,991/- to the income. The AO based this on the previous year's yield and discrepancies in stock records. The CIT(A) confirmed the addition. The Tribunal remitted the issue back to the AO, noting that the AO ignored instances of lower yield and did not address the practical difficulties in maintaining stock records for Bagasse.

5. Classification of Nursery Farm Income as Business Income:
The AO treated the net income of Rs. 1,87,332/- from Cane Nursing Farm as business income instead of agricultural income. The CIT(A) confirmed this. The Tribunal found that the income from growing and selling cane was agricultural income and set aside the orders of the authorities below, deciding the issue in favor of the assessee.

6. Disallowance of Expenses Relating to Earlier Years:
The AO disallowed Rs. 18,08,336/- being previous year expenses claimed by the assessee, stating that the liabilities were determined and crystallized during the year. The CIT(A) confirmed this. The Tribunal upheld the disallowance, noting that the assessee did not provide necessary evidence to prove that the expenses crystallized during the current year.

Conclusion:
Both the assessee's appeals were partly allowed for statistical purposes, and the revenue's appeal was dismissed.