2012 (7) TMI 315 - AT - Income Tax

Disallowance of purchases - goods were available in the bonded warehouse - Held that - The AO s objection that assessee has not taken physical delivery of Insulated Kraft Paper is imaginary as the goods were in bonded warehouse which technically is in the custody of the assessee. Therefore, this objection of the Assessing Officer is not correct. No mention of insulating paper in the closing stock was also not correct as the raw materials were shown at the value of Rs. 88,37,636/- whereas work-in-progress was Rs. 69,13,407/- and the total stock under head inventory was shown at Rs. 1,59,22,271/-. The details of raw material show that an amount of Rs. 84,15,144/- pertains to insulating paper, which included the imported stock (72,056 KGs valued Rs. 81,79,352), thus no basis on which AO came to the conclusion that the stock was not shown in closing stock - in favour of assessee.

Summary

Issues:
Disallowance of purchases of Insulated Kraft Paper amounting to Rs. 35,36,234.

Analysis:

Issue 1: Disallowance of purchases of Insulated Kraft Paper
The dispute revolved around the disallowance of purchases worth Rs. 35,36,234 of Insulated Kraft Paper by the Assessing Officer. The goods were imported from two suppliers of Sweden and were available in the bonded warehouse. The Assessing Officer contended that since the assessee had not physically received the goods by year-end, the debit to the purchase account was incorrect. Additionally, the Assessing Officer claimed that no evidence was provided to prove that these purchases were included in the closing stock or sales. However, the CIT (A) disagreed and deleted the disallowance, stating that once the purchases were charged to the Profit and Loss Account and included in the closing stock, they should have been either shown as sold or in stock. The CIT (A) emphasized that the Assessing Officer's stance was flawed as there could not be a third possibility beyond sales or stock, such as theft or destruction. The ITAT upheld the CIT (A)'s decision, highlighting that the goods were indeed shown in the closing stock under the 'inventory' head in the balance sheet. The ITAT criticized the Assessing Officer for not comprehending the details of the purchases and their presence in the closing stock, ultimately supporting the CIT (A)'s order.

Conclusion:
The ITAT dismissed the revenue appeal, criticizing the unnecessary appeal on factual grounds. The tribunal pointed out that the revenue authorities should exercise prudence before pursuing appeals on issues that are purely factual in nature. The ITAT refrained from imposing costs on the assessee but emphasized the need for revenue authorities to thoroughly evaluate records before initiating appeals, highlighting the importance of applying wisdom and discretion in such matters.