2015 (7) TMI 1201 - AT - Income Tax

Addition alleging short / incorrect accounting of stock - Held that - The issue in dispute is squarely covered by the decision of ITAT, Hyderabad in assessee s own case for AY 2009-10 wherein held the assessee is maintaining the stock of material on behalf of others and only charging fixed amount for this service, and as such, apparently, there is no need to admit the same in their books as stock in trade, he confirmed the same holding that the assessee did not specify how the balance figures are shown in the books of VSSC and what is the effect of this confirmation. This reasoning given by the CIT(A) cannot be accepted because VSSC has certified the stock under consideration belongs to it and in no way the ownership of the stock pertains to the assessee. Just because the stock is kept with the assessee the same cannot be treated as the stock of the assessee, as it belongs to a third party, viz. VSSC in this case. We agree with the assessee s contentions on this issue and direct the Assessing Officer to delete the said addition. Addition u/s 14A - Held that - the principle laid down by different High Courts are to the effect that unless assessee has earned exempt income in a particular FY, provisions of section 14A will not apply. In view of the aforesaid, we do not find any merit in the ground raised by the department. Accordingly, we dismiss the same by upholding the order of ld. CIT(A) on this issue. See case of Cheminvest Ltd., reported in (2015 (9) TMI 238 - DELHI HIGH COURT )

Summary

Issues Involved:
1. Deletion of addition of an amount made by AO alleging short/accounting of stock.
2. Deletion of addition made by AO under section 14A of the Act.

Issue 1: Deletion of Addition of Stock:
The appeal by the Department is against the CIT(A)'s order for the AY 2011-12. The Department raised two issues, with the first issue concerning the deletion of an addition of Rs. 1,12,35,202 made by the AO alleging incorrect accounting of stock. The AO observed that the assessee, a Govt. undertaking, set up a metal bank for procuring raw materials against specific sale orders. The AO added the value of material held on behalf of customers to the income of the assessee. However, the CIT(A) deleted this addition, citing a similar decision by ITAT for AY 2009-10 in the assessee's case. The ITAT held that the stock did not belong to the assessee, as confirmed by the customer, and thus, the addition was unjustified. The ITAT dismissed the Department's appeal, upholding the CIT(A)'s decision.

Issue 2: Deletion of Addition under Section 14A:
The second issue raised in the appeal was against the deletion of an addition of Rs. 4,92,319 made by the AO under section 14A of the Act. The AO disallowed this amount as expenditure incurred for earning exempt income. The assessee argued that as no exempt income was earned during the relevant period, no disallowance should apply. The CIT(A) agreed with the assessee, citing decisions by different High Courts that support the view that unless exempt income is earned, no disallowance under section 14A should be made. The ITAT upheld the CIT(A)'s decision, dismissing the Department's appeal based on the principle that section 14A does not apply in the absence of exempt income.

In conclusion, the ITAT Hyderabad upheld the CIT(A)'s decisions in both issues, ruling in favor of the assessee and dismissing the Department's appeal. The judgments were based on established legal principles and precedents, emphasizing the importance of ownership and actual earnings of exempt income in determining additions and disallowances under the Income Tax Act.