2012 (10) TMI 89 - AT - Income Tax

Addition on the basis of suppression of production AO made addition based on certain norms prevalent in the industry - Nature of machinery utilized - Aging factor of the machinery - Assessee was following undisputedly the same method of accounting for the last no. of years Held that - Revenue has not pinpointed any discrepancy on the physical quantitative recording of facts in the books of accounts. Therefore reason for rejection & suppression of production not justified. Decide in favour of assessee. Disallowance of interest expenses Assessee has given advance to borrower at interest rate which is lower than rate of interest paid on borrowed fund Held that - As the assessee has suffered interest @15% from its borrowing and the same fund is advanced charging lesser interest @12%. There should not have had any difficulty in receiving such interest from open market. Assessee failed to submit any cash flow or fund management statements to substantiate its claim that interim surplus of cash is advanced to earn interest to minimize expenditure on account of interest. Decides in favour of revenue. Disallowance on account of deferred revenue expenditure AO made addition of 4/5th cable charges paid to electricity department by assessee Held that - As onetime payment made was neither resulted in creation of an asset nor the amount is refundable. Non-payment lead to disconnection of electricity supply and disrupt the business of the assessee. Therefore amount spent by the assessee towards cable amount to be revenue expenditure in nature and is allowable for deduction for the year in which it is incurred. Decide in favour of assessee.

Summary

Issues:
1. Rejection of books of account
2. Addition of Rs.13,21,439 for suppressed production
3. Addition of Rs.54,367 for interest expenses
4. Addition of Rs.1,98,107 for electricity expenses

Rejection of Books of Account:
The appellant, a firm engaged in manufacturing, contested the rejection of its books of account by the CIT(A). The AO noted discrepancies in recording production and raw material consumption, leading to the addition of Rs.13,21,439 for suppressed production. The appellant argued for consistency in accounting methods over 25 years. The ITAT found no fresh facts to warrant book rejection and deletion of the addition, as discrepancies could stem from various factors like machinery and produce variations.

Addition for Suppressed Production:
The AO added Rs.13,21,439 due to alleged suppression of maida production. The CIT(A) upheld this addition, citing discrepancies in production ratios. The ITAT, noting the appellant's long-standing accounting method and lack of fresh discrepancies, deleted the addition, finding the book rejection and addition unjustified.

Addition for Interest Expenses:
The AO disallowed Rs.54,367 for lower interest charged on advances to T.N. Associates compared to the interest paid on loans. The CIT(A) confirmed this disallowance. The ITAT concurred, finding the appellant's explanations insufficient and agreeing with the revenue's stance on the interest rate disparity.

Addition for Electricity Expenses:
The AO disallowed Rs.1,98,107 of cable charges as differed revenue expenditure. The CIT(A) affirmed this decision. The ITAT disagreed, noting the non-refundable nature of the cable charges and allowed the deduction, deeming it a revenue expenditure. Consequently, the addition for electricity expenses was deleted.

In conclusion, the ITAT partially allowed the appeal, deleting the additions for suppressed production and electricity expenses but dismissing the addition for interest expenses.