2011 (2) TMI 546 - HC - Income Tax

Security expenses - The expenditure on account of security was paid to Haryana Government, Police Department for providing security to the working directors of the company and this could not involve element of personal nature or the expenditure could not be said to be of capital nature but was an expenditure wholly and exclusively incurred for the business purposes - Thus, allowed u/s 37(1) of the I.T. Act and disallowance is accordingly, deleted Undervaluation of Stock - The nature of entry tax or LADT being as such it has nothing to do with the goods, it cannot become part of stock as it did not relate to it and hence, was not worked out by the appellant company or disclosed in the books of account - Hence, section 145A is not applicable - As per the case of M/s Lakhani India Ltd. in appeal No. 36/06-07 vide order dated 29.03.2007 for the assessment year 2003-04. Following this order, the addition on a/c of undervaluation of closing stock on the basis of effecting entry tax is, therefore, deleted. Disallowance on account of use of car - The disallowance on account of personal use of car was also deleted by holding that there was no element of personal nature in such expenses and it could only be added in the hands of the directors alone - Therefore, the disallowance out of car expenses worked out by the AO, is deleted.

Summary

Issues Involved:
1. Appeal by revenue under Section 260A of the Income Tax Act, 1961 against the Tribunal's order for the assessment year 2003-04.
2. Questions of law regarding various additions made by the Assessing Officer.
3. Tribunal's decision on security expenses, undervaluation of stock, and car expenses.
4. Concession by the revenue on certain issues based on the decision of the Apex Court.
5. Tribunal's findings on the disputed expenses and the absence of illegality or perversity.

Analysis:

1. The appeal by the revenue under Section 260A of the Income Tax Act, 1961 was filed against the order of the Income Tax Appellate Tribunal for the assessment year 2003-04. The substantial questions of law raised included the deletion of additions made by the Assessing Officer regarding security expenses, late deposit of employees' contributions, under valuation of stock, and car expenses.

2. The Tribunal's decision on the security expenses, undervaluation of stock, and car expenses was crucial. The Tribunal examined the nature of these expenses and the purpose for which they were incurred. Regarding security expenses, the Tribunal found that the expenditure was wholly and exclusively for business purposes, paid to the Haryana Government Police Department for providing security to the working directors of the company. This expense was considered legitimate and allowable under section 37(1) of the Income Tax Act.

3. On the issue of undervaluation of stock, the Tribunal ruled that there was no undervaluation as the entry tax did not relate to the goods and was not part of the stock. Therefore, section 145A was deemed inapplicable, and the addition made by the Assessing Officer was deleted based on previous similar findings.

4. The Tribunal also addressed the disallowance on account of car expenses, stating that any disallowance for personal use of cars should be attributed as a perquisite in the hands of the directors and not the company. Consequently, the disallowance of car expenses was deleted by the Tribunal.

5. The revenue conceded on certain issues, acknowledging that questions related to late deposit of employees' contributions and employer's contributions were settled by the decision of the Apex Court. The Tribunal's findings on the disputed expenses were upheld, with the Tribunal not finding any illegality or perversity in their decisions. Therefore, the High Court dismissed the appeal, concluding that no substantial question of law arose for consideration in this case.