2016 (12) TMI 1666 - AT - Income Tax

Excise duty on closing stock of Alcohol - Held that - It can be seen that the assessee neither excise duty was paid by the assessee nor the duty was incurred. Therefore, Section 145A will not be applicable, but as regards the basis of accounting concept the assessee has not followed proper procedure as excise duty was not mentioned in closing stock of alcohol. While excise duty payable should be compared of production cost, closing stock should include element of such duties. This matter needs to be taken into consideration and is remanded back to the Assessing Officer. Proper opportunity and hearing may be given to the assessee. Valuation of closing stock - Held that - In any case no adjustment can be made the only closing stock without any adjustment in opening stock cost of the earlier season was ₹ 1,122 per quintal against current seasons ₹ 1,127/- is duly accepted by the lower authorities. Besides the said closing stock to current year is opening stock of subsequent year and hence the same was verified properly by the CIT(A). There is no need to interfere with the same. This ground of the Revenue is dismissed. Disallowance of depreciation - Held that - Assessing Officer has not disputed the purchase of machinery and also verified the purchase with reference to purchase bills issued by Seller Company. Mere presumption by the Assessing Officer that since the machinery was old it could not be put to use without major repairs does not sustain. Thus the contention of the assessee that the machinery installed was open to verification and that if the AO had any doubt spot enquires could have been made. Thus, the CIT(A) rightly deleted this addition. Treating the incentive on sale of levy sugar as revenue receipts as against capital receipts claimed by the assessee is not correct. It is capital receipt. Penalty u/s 271(1)(c) - inaccurate particulars of income on account of interest to Financial Institutions - Held that - Assessee has not concealed any particulars of income or furnished any inaccurate particulars of income. The Assessing Officer was incorrect in holding that the assessee furnished inaccurate particulars of income on account of interest to Financial Institutions by conversion of same into Term Loan and by issue of Zero Coupon Bonds. The assessee has furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept is claim in the Return or not. Merely because the Assessing Officer made addition on account of unpaid interest in respect of term loan amounting to ₹ 7,95,42,474/- as interest paid to financial institution was converted into term loan but was claimed as actual payment within the ambit of Section 43B by the assessee. This cannot be termed as concealment of income or furnishing of inaccurate particulars of income and will not attract the provisions of Section 271(1)(c) of the Act. The Explanation 1 of Section 271(1)(c) of the Act will not be applicable in the present case.

Issues Involved:

1. Non-inclusion of excise duty in the closing stock of alcohol.
2. Under-valuation of closing stock of sugar.
3. Disallowance of depreciation claimed on old machinery.
4. Treatment of incentive on sale of levy sugar as revenue receipts.
5. Provision made for storage fund claimed as revenue expenditure.
6. Disallowance of miscellaneous expenses.
7. Deletion of penalty imposed under Section 271(1)(c) of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Non-inclusion of Excise Duty in the Closing Stock of Alcohol:
The Assessing Officer (AO) added excise duty to the closing stock of alcohol, citing Section 145A of the Income Tax Act, 1961, and the Supreme Court's ruling in CIT vs. British Paints Ltd. The CIT(A) deleted the addition, but the Tribunal found that the assessee neither paid nor incurred excise duty, making Section 145A inapplicable. However, the Tribunal noted that proper accounting procedures were not followed, remanding the issue back to the AO for reconsideration.

2. Under-valuation of Closing Stock of Sugar:
The AO added ?5,71,81,580 to the income of the assessee, arguing the closing stock of sugar was undervalued compared to other mills. The CIT(A) deleted the addition, accepting the assessee's valuation method per AS-2 issued by the Institute of Chartered Accountants of India. The Tribunal upheld the CIT(A)’s decision, noting that no adjustments could be made to the closing stock without corresponding adjustments to the opening stock.

3. Disallowance of Depreciation on Old Machinery:
The AO disallowed ?4,58,161 claimed as depreciation on old machinery, arguing it was not put to use. The CIT(A) allowed the claim, and the Tribunal upheld this decision, stating that the AO’s presumption about the machinery's usability was not sustainable without proper verification.

4. Treatment of Incentive on Sale of Levy Sugar as Revenue Receipts:
The AO treated the incentive on the sale of levy sugar as revenue receipts, while the assessee claimed it as a capital receipt. The CIT(A) deleted the addition, referencing the assessee’s case for the Assessment Year 2000-01, where the incentive was deemed a capital receipt. The Tribunal upheld the CIT(A)’s decision, confirming the incentive as a capital receipt.

5. Provision for Storage Fund Claimed as Revenue Expenditure:
The AO added ?3,34,413, disallowing the provision for the storage fund as revenue expenditure. The CIT(A) deleted the addition, referencing judicial precedents that allowed such provisions as business expenditures. The Tribunal upheld the CIT(A)’s decision, noting the issue was covered by previous rulings in the assessee's favor.

6. Disallowance of Miscellaneous Expenses:
The AO disallowed ?1,25,000 in miscellaneous expenses on an ad hoc basis. The CIT(A) partly deleted this addition, and the Tribunal upheld the CIT(A)’s decision, stating that the disallowance was made purely on estimates without specific instances of doubt.

7. Deletion of Penalty under Section 271(1)(c):
The AO imposed a penalty under Section 271(1)(c) for an addition of ?7,95,42,474 related to unpaid interest converted into a term loan. The CIT(A) deleted the penalty, and the Tribunal upheld this decision, noting that the assessee did not conceal income or furnish inaccurate particulars. The Tribunal emphasized that mere disallowance of a claim does not warrant a penalty under Section 271(1)(c).

Conclusion:
The Tribunal's judgment resulted in the partial allowance of the Revenue's appeal for statistical purposes and the dismissal of the assessee's cross-objections. The Tribunal remanded the issue of excise duty inclusion back to the AO for reconsideration, while upholding the CIT(A)’s decisions on other matters, including the valuation of closing stock, depreciation claims, and the deletion of penalties.

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