2012 (11) TMI 549 - AT - Income Tax

Interest on Advance against Sister Concern for Non - Business Purposes - Held that - Addition of Rs. 16,510/- (12% of Rs.1,37,577/-) made on account of interest on amount outstanding against the sister concerns of the assesseee considering it advance for non business purposes has to be disallowed Onus is on the assessee to prove the advance for Business purpose - appeal of the revenue is allowed. Disallowance of Rs.7,68,000/- made on account of interest not declared by the assessee on undisclosed investment of Rs.64 lacs not declared in the books of account - that the impugned addition is consequential in nature and hence, in view of the findings recorded by the ld. CIT(A) and decision of the ITAT in assessee s own case for assessment year 2006-07, the ground of appeal is dismissed. Addition of Rs.4,08,835/- on account of loss of stock - ssessee failed to prove genuineness of the claim - Held that - Considering totality of circumstances in which claim of loss has been made does not point out to anything other than genuine business loss and therefore the same is allowed - deductible loss Order of CIT(A) is confirmed. Addition of Rs.18,200/- made u/s 14A Held that - Having regard to the exigency of business and the non-optional investment to be made by the assessee on the direction of the Punjab government, the impugned addition cannot be made, as held by the CIT(A ) - ground of appeal of appeal of the revenue is dismissed. Addition of Rs.2,84,420/- made on account of interest capitalized on proportionate basis, pertaining to the pre-operative period - fund borrowed for the purchase of machinery Held that - following the decision on identical issue in assessee s own case, this ground of appeal of the revenue is dismissed. Assessee s claim worth Rs. 7,09,457/- in respect of reducing the income Valuation of Closing Stock - CIT(A) considered that if an addition on consistent application of method of accounting is made in any particular year, then allowance for depletion in closing stock worked out on the basis of some accounting method, deserves to be allowed. Accordingly, the claim of the assessee was allowed by the CIT(A) - No infirmity in the findings of the CIT(A), and therefore, the same are upheld. Ground of appeal of the revenue is dismissed - In the result, appeal of the revenue is partly allowed.

Issues Involved:
1. Deletion of addition on account of interest on amount outstanding against sister concerns.
2. Deletion of disallowance of interest on undisclosed investment.
3. Deletion of addition on account of loss of stock.
4. Deletion of addition made under Section 14A on exempt income.
5. Deletion of addition on account of interest capitalized on proportionate basis.
6. Allowance of assessee's claim regarding valuation of closing stock.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Interest on Amount Outstanding Against Sister Concerns:
The Revenue contended that the CIT(A) erred in law and on facts in deleting the addition of Rs.16,510/- made on account of interest on the amount outstanding against the sister concern of the assessee, considering it an advance for non-business purposes. The Tribunal noted that this issue had been adjudicated in the assessee's own case in ITA No. 920/Chd/2009 and ITA No. 1293/Chd/2010, where it was decided against the assessee. Respectfully following the said decision, the Tribunal adjudicated this issue against the assessee, allowing the Revenue's ground of appeal.

2. Deletion of Disallowance of Interest on Undisclosed Investment:
The Revenue argued that the CIT(A) erred in deleting the disallowance of Rs.7,68,000/- made on account of interest not declared by the assessee on undisclosed investment of Rs.64 lacs. The Tribunal found that this issue was covered against the Revenue in the assessee's own case in ITA No. 1293/Chd/2010. The Tribunal, following its previous decision, dismissed this ground of appeal of the Revenue.

3. Deletion of Addition on Account of Loss of Stock:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs.4,08,835/- on account of loss of stock as the assessee failed to prove the genuineness of this claim. The Tribunal noted that the assessee claimed the loss due to the implementation of new software (SAP) which led to the discovery of the stock loss on physical verification. The CIT(A) allowed the loss, considering it a genuine business loss. The Tribunal, after considering the factual matrix, did not find any ground to interfere with the CIT(A)'s finding and upheld the deletion.

4. Deletion of Addition Made Under Section 14A on Exempt Income:
The Revenue argued that the CIT(A) erred in deleting the addition of Rs.18,200/- made under Section 14A on the income claimed as exempt to tax. The Tribunal noted that the investment was made under the direction of the Punjab Government for business purposes, and no exempt income was derived from this investment during the year. The CIT(A) deleted the addition, and the Tribunal upheld this decision, dismissing the Revenue's ground of appeal.

5. Deletion of Addition on Account of Interest Capitalized on Proportionate Basis:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs.2,84,420/- made on account of interest capitalized on a proportionate basis pertaining to the pre-operative period. The Tribunal noted that this issue was covered in the assessee's appeal in ITA No. 1293/Chd/2010. Following its previous decision, the Tribunal dismissed this ground of appeal of the Revenue.

6. Allowance of Assessee's Claim Regarding Valuation of Closing Stock:
The Revenue argued that the CIT(A) erred in allowing the assessee's claim worth Rs.7,09,457/- in respect of reducing the income due to the valuation of closing stock. The AO disallowed the claim on the ground that it was not made in the revised return, citing the judgment of the Hon'ble Supreme Court in the case of Goetez (India) Ltd. vs CIT. The CIT(A) allowed the claim, noting that the department had been accepting the addition on account of adjustment made in the valuation of closing stock. The Tribunal found no infirmity in the CIT(A)'s findings and upheld the decision, dismissing the Revenue's ground of appeal.

General Grounds:
Ground Nos. 7 & 8 were general in nature and did not require separate adjudication. Accordingly, they were dismissed.

Conclusion:
In the result, the appeal of the Revenue was partly allowed.

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