2015 (11) TMI 1680 - AT - Income Tax

Claim for applying the provisions of section 44AF - Held that - As observed from the Trading and Profit 39.82 lakhs is credited on account of sales the same is a net amount after deducting expenditure incurred by the assesese on turnover tax and VAT. Since what has to be taken into consideration for applicability of section 44AF is gross turnover and the same is more than 40 lakhs as is evident from the Profit 181/- per kg. Moreover the assessee by his own admission was dealing with wide variety of aluminium products and in the absence of any product wise details maintained by him it is difficult to apply the rate of one product to value the closing stock of the assessee. It is also worthwhile to note here that the rate of 99.65 per Kg. was indicated by the assessee himself as the scrap value of products and it is therefore difficult to accept the claim of the assessee that the market value of the aluminium products dealt with by him was only 111/- per kg. On the other hand the method followed by the Assessing Officer for valuation of closing stock in my opinion is more scientific as he has taken into consideration the average cost of opening stock as well as the average cost of products purchased by the assessee during the year under consideration and by following FIFO method he has determined the value of closing stock of the assessee which in the facts and circumstances of the case cannot be found with any fault. - Decided against assessee. Deduction claimed by the assessee on account of expenses incurred on reconstruction of house/godown - Held that - As submitted by the the assessee a similar deduction claimed by the assessee however is allowed by the Assessing Officer himself in the earlier years as well as in the subsequent years even in the assessment completed under section 143(3) and since the ld. D.R. has not been able to dispute this position we decide this issue in favour of the assessee. Addition on account of rent - disallowance made by the authorities as the building being under construction the same could not have been used by the assessee for the purpose of business - Held that - As rightly contended by the assessee the expenditure in question was undoubtedly incurred by the assessee for the purpose of his business in order to retain his right over the building for use of the same in future for the purpose of business. Accordingly we delete the disallowance. - Decided in favour of the assessee. Addition on account of expenses incurred by the assessee for maintenance of elevators - Held that - As it is observed that the said expenses were incurred by the assessee in respect of his residential house and in the absence of any evidence produced by the assessee to show that his residential house was used for the purpose of business find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on this issue.- Decided in favour of the revenue. Disallowance of 10% made out of car expenses and depreciation claimed by the assessee - Held that - In the absence of any record maintained by the assessee to show that the car was exclusively used for the purpose of business disallowance to the extent of 20% out of the car expenses and depreciation was made by the Assessing Officer for involvement of personal element. On appeal ld. CIT(Appeals) found the same to be excessive and restricted the same to 10%. The disallowance sustained by the ld. CIT(Appeals) to the extent of 10% of the car expenses and depreciation is fair and reasonable and upholding his impugned order on this issue I dismiss Ground of the assessee s appeal.

Summary

Issues involved:
1. Valuation of closing stock of aluminium
2. Disallowance of expenses claimed by the assessee
3. Applicability of section 44AF for calculating business profit
4. Disallowance of rent and maintenance expenses
5. Disallowance of car expenses and depreciation

Valuation of closing stock of aluminium:
The assessee, engaged in trading aluminium products, faced scrutiny due to under-valuation of closing stock. The Assessing Officer rejected the valuation method used by the assessee and determined the closing stock value on his own using FIFO method. The Tribunal upheld this decision, considering the average cost of opening stock and purchases. The Tribunal found the Assessing Officer's method more scientific and dismissed the appeal on this issue.

Disallowance of expenses claimed by the assessee:
Various expenses claimed by the assessee, including building reconstruction cost, rent, maintenance of elevator, and car expenses, were disallowed by the Assessing Officer. The Tribunal allowed the deduction claimed for building reconstruction cost, rent, and disallowed elevator maintenance expenses due to lack of evidence for business use. The disallowance of car expenses and depreciation was reduced from 20% to 10% by the Tribunal.

Applicability of section 44AF for calculating business profit:
The assessee sought to apply section 44AF for calculating business profit. However, the Tribunal found that the gross turnover exceeded the threshold for section 44AF applicability, based on the Profit & Loss Account, and dismissed the appeal on this ground.

Disallowance of rent and maintenance expenses:
The Tribunal allowed the deduction claimed for rent expenses, emphasizing that the expenditure was incurred for future business use. However, expenses incurred for maintenance of elevators in the residential house were disallowed due to lack of evidence of business purpose.

Disallowance of car expenses and depreciation:
The Tribunal upheld the disallowance of 10% of car expenses and depreciation, finding it fair and reasonable considering the lack of evidence for exclusive business use of the car.

In conclusion, the Tribunal partly allowed the appeal, allowing deductions for building reconstruction cost and rent, while upholding the disallowance of elevator maintenance expenses and car expenses to some extent.