2012 (9) TMI 788 - AT - Income Tax

Ad-hoc addition on account of variation in the yield and higher wastage in comparison to previous years Assessee was engage in business of manufacturing and trading of Printed Circuit Boards Products are manufactured as per specification of customers - Held that - As the generation of wastage on cutting of large copper clad laminates into smaller pieces of PCBs which are of different sizes as per the requirements of the customers. The manufacturing process involves some wastage and no addition was made in the past on account of such low yield and also the addition has been made by AO on the basis of presumptions. Appeal decides in favour of assessee. Ad-hoc disallowance on account of carriage inward/outward AO found that some of these expenses are not fully supported with proper evidences - Vouchers since certain vouchers are of self-made Held that - Since neither the details in respect of carriage inward/outward was submitted nor any evidence was produced or claim made about the genuinuity of self-made vouchers questioned by the Assessing Officer could not be controverted by the assessee. Restrict the disallowance upto 50% of disallowed amount. Addition on account of Bad debts AO disallow the same on the basis of that the assessee had not taken any steps to recover the bad debts Held that - As the assessee submitted that these are really not bad debts but various outstandings on account of sales which should have been reversed. Issue remand back to AO. Disallowance on account of stipend to trainees - Training was given at the factory premises by the Senior Member of the factory - AO noted that no statistical data, no dates of training, no agenda of the training, no venue of the training are submitted Held that - As concluded from the facts of the case addition made by the AO on the ground that such huge expenditure under the head stipend does not look justified. Merely because the disallowance is a small percentage of the total expenditure cannot be a ground for sustaining the addition. If the claim is bogus, the entire amount has to be disallowed and if not bogus the whole amount should be allowed as deduction but no adhoc addition can be made on the basis of presumptions and surmises. Therefore disallowance of stipend is not justified. Decision in favour of assessee

Summary

Issues Involved:
1. Addition on account of yield (wastage)
2. Disallowance on account of carriage inward/outward
3. Disallowance on account of processing charges
4. Addition as bad debt
5. Disallowance on account of stipend to trainees

Detailed Analysis:

1. Addition on account of yield (wastage):
The assessee challenged the addition of Rs. 1 lakh sustained by the CIT(A) out of the Rs. 3 lakhs added by the AO due to higher wastage and lower yield in manufacturing printed circuit boards. The AO noted discrepancies in the records and lack of day-to-day maintenance, leading to an ad hoc addition. The CIT(A) partially upheld the addition, recognizing the variability in manufacturing processes but emphasizing record-keeping deficiencies. Upon appeal, the Tribunal found the addition based on presumptions and noted no similar additions in the past. Consequently, the Tribunal directed the AO to delete the Rs. 1 lakh addition, allowing the assessee's ground.

2. Disallowance on account of carriage inward/outward:
The AO disallowed Rs. 1 lakh from Rs. 59,13,485/- claimed as carriage inward/outward expenses, citing unsupported self-made vouchers. The CIT(A) upheld this disallowance, noting the lack of detailed evidence. The Tribunal acknowledged the possibility of self-made vouchers but found the disallowance excessive, reducing it to Rs. 50,000/-.

3. Disallowance on account of processing charges:
The AO disallowed Rs. 1 lakh out of Rs. 25,42,059/- claimed for processing charges due to self-made vouchers. The CIT(A) reduced this disallowance to Rs. 30,000/-, considering the assessee's insufficient attempts to justify the expenses. The Tribunal upheld the CIT(A)'s decision, finding it reasonable and dismissing the assessee's ground.

4. Addition as bad debt:
The assessee claimed Rs. 15,50,970/- as bad debt, with Rs. 8,25,039/- recovered later and offered for taxation. The AO disallowed the remaining Rs. 7,25,931/- due to lack of recovery efforts. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO for fresh adjudication, directing a reassessment after providing the assessee an opportunity to present evidence.

5. Disallowance on account of stipend to trainees:
The AO disallowed Rs. 4 lakhs out of Rs. 62,62,933/- claimed as stipend due to insufficient evidence of training. The CIT(A) upheld this disallowance, noting the excessive and disproportionate nature of the expense. The Tribunal found the disallowance unjustified, emphasizing that if the claim was bogus, the entire amount should be disallowed, and if not, the whole amount should be allowed. The Tribunal directed the deletion of the Rs. 4 lakh disallowance.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal providing relief on several grounds, emphasizing the necessity for detailed evidence and proper record-keeping in substantiating claims.