2015 (1) TMI 1302 - AT - Income Tax

Addition of excise duty to closing stock - Held that - We find that ld. CIT(A) after relying on the decision cited in the order has held that Assessee must show the effect of section 145A by following the inclusive method i.e. by including all taxes, dues, cess etc in the closing stock. He has further held that excise duty which is added to the closing stock has to be allowed u/s. 43B of the Act on payment basis. Before us, Revenue has not brought any material on record to controvert the findings of Ld. CIT(A) nor has brought any contrary binding decision in its support,. We therefore find no reason to interfere with the order of Ld. CIT(A). Thus this ground of Revenue is dismissed. - Decided in favour of assessee Disallowance made u/s. 40(a)(2)(b) - disallowance of excess interest paid - AO was of the view that during the relevant period of general rate of interest for loans was around 12% per annum and therefore the interest paid at 18% was excessive to the extent of 6% - Held that - We find that while deleting the addition Ld. CIT(A) has noted that AO s conclusion that the market rate on which the funds could be borrowed was 12% was not based on any material on record. He has further given a finding that Assessee had paid 18% interest to both related parties as well as the outside parties. Before us, no material has been placed on record by Revenue to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of Revenue is dismissed. Addition made on account of disallowance u/s. 40(a)(ia) - non deduction of tds - form No. 15G filed by Shri Gupta for non-deduction of TDS was invalid - Held that - We find that while deleting the addition Ld. CIT(A) has noted that assessee had obtained form no. 15G from Shri Kamlesh Gupta and therefore there was no liability on the part of assessee to deduct TDS. Before us, Revenue has brought any material on record to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of revenue is dismissed. Confirming the addition made u/s. 68 - Held that - We find that while confirming the addition, Ld. CIT(A) has noted that assessee had not made any attempt to rectify the mistake of the year shown in the Form nor had filed any evidence to show that the loan was taken during the year from those parties. Before us, no material has been placed on record by the Assessee to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the findings of Ld. CIT(A). - Decided against assessee

Summary

Issues Involved:
1. Deletion of addition of excise duty to closing stock.
2. Disallowance of excess interest paid under Section 40A(2)(b) of the Income Tax Act.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.
4. Confirmation of addition under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Excise Duty to Closing Stock:
The first issue pertains to the deletion of the addition of excise duty to the closing stock. During the assessment, the Assessing Officer (AO) observed that the assessee valued the closing stock excluding Excise and VAT, which led to an understatement of closing stock and profit. The AO added Rs. 5,62,693 to the closing stock value as per Section 145A of the Income Tax Act, which mandates the inclusion of taxes in the stock valuation. The CIT(A) partially allowed the appeal, directing the AO to verify if the excise duty was paid before the due date of filing the return and to delete the addition accordingly. The Tribunal upheld CIT(A)'s decision, noting that the Revenue failed to provide contrary evidence or binding decisions.

2. Disallowance of Excess Interest Paid under Section 40A(2)(b):
The second issue involves the disallowance of excess interest paid to related parties under Section 40A(2)(b). The AO disallowed Rs. 3,61,872, concluding that the interest rate of 18% was excessive compared to the market rate of 12%. The CIT(A) deleted the disallowance, noting that the AO did not provide evidence for the market rate and that the assessee paid 18% interest to both related and outside parties. The Tribunal agreed with CIT(A), as the Revenue did not present material evidence to contradict CIT(A)'s findings.

3. Disallowance under Section 40(a)(ia):
The third issue concerns the disallowance of Rs. 1,41,200 under Section 40(a)(ia) due to non-deduction of tax at source on interest paid to Kamlesh Gupta. The AO found the Form No. 15G submitted by Gupta invalid, leading to the disallowance. CIT(A) deleted the addition, stating that obtaining Form No. 15G absolved the assessee from the TDS liability. The Tribunal upheld CIT(A)'s decision as the Revenue failed to provide contrary evidence.

4. Confirmation of Addition under Section 68:
The fourth issue is the confirmation of the addition of Rs. 37,200 under Section 68 for unexplained cash credits. The AO added the amount as unexplained cash credits from Vyas Upendrakumar Someshwar and Vyas Mehul Upendrakumar, noting discrepancies in the year mentioned in the loan confirmations. CIT(A) confirmed the addition, highlighting the assessee's failure to rectify the year mentioned or provide evidence of the loans being taken in the relevant year. The Tribunal upheld CIT(A)'s decision due to the lack of evidence from the assessee to contradict CIT(A)'s findings.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection (CO), upholding the CIT(A)'s decisions on all issues.