2010 (12) TMI 1261 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of undervaluation of closing stock.
2. Restriction of disallowance on telephone and car expenses.
3. Deletion of addition on account of traveling, generator, and packing expenses.
4. Deletion of addition on account of advertisement expenses.

Summary:

1. Deletion of addition on account of undervaluation of closing stock:
The CIT(A) deleted the addition of Rs. 19,24,047 made by the AO on account of undervaluation of closing stock. The AO had determined the value of closing stock at Rs. 2 crores against Rs. 1,80,75,953 disclosed by the assessee, enhancing the net profit by Rs. 19,24,047. The CIT(A) observed that the assessee maintained proper bills and vouchers, and the books of account were audited without any defects pointed out by the auditors. The gross profit rate declared by the assessee was slightly better than the previous year. The AO did not find any defect in the books of accounts and made the addition without any factual basis. The Tribunal upheld the CIT(A)'s order, noting that the AO did not bring any material on record to justify the addition and the valuation of closing stock was done based on physical verification by the directors and employees.

2. Restriction of disallowance on telephone and car expenses:
The AO disallowed Rs. 1,46,347 at the rate of 25% out of telephone and car expenses, including depreciation, on the ground that the directors used them for personal purposes. The CIT(A) restricted the disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, finding the AO's disallowance at 25% to be on the higher side and made without quoting any specific instance of non-business use.

3. Deletion of addition on account of traveling, generator, and packing expenses:
The AO disallowed Rs. 51,341, which is 15% of the total expenses of Rs. 3,42,276 claimed under traveling, generator, and packing expenses, due to improper vouchers. The CIT(A) deleted the addition, noting that the AO made the disallowance without any factual findings or cogent evidence. The Tribunal upheld the CIT(A)'s order, agreeing that the AO did not establish that any part of the claim was not genuine.

4. Deletion of addition on account of advertisement expenses:
The AO disallowed Rs. 1 lakh out of advertisement expenses, alleging that all advertisements were made by Raymonds Company or on its behalf by the assessee-company. The CIT(A) deleted the disallowance, stating that the AO did not gather any material evidence to prove the claim was not genuine. The Tribunal upheld the CIT(A)'s decision, noting that the AO made the disallowance without issuing a show cause notice or providing an opportunity of being heard to the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The order was pronounced in the open Court on 30.12.2010.