2012 (12) TMI 282 - AT - Income Tax

Addition - difference between the sales as per books and sales as per stock statements submitted to bank - suppressed sales Held that - Assessee placed on record, copy of general ledger, bank statement, delivery challan, consignment note of transporter, which the CIT(A) considered as fresh evidence and rejected them by holding that there existed no reason by which the appellant was prevented in producing them before the AO - certain details filed by the assessee before the CIT(A) had neither been filed at the assessment stage, nor before the CIT(A) (before the remand report) nor before the AO at the remand stage. To give fair and equitable chance to both sides, we think it proper that the issue must be examined by the AO from the perspective of all the evidence, including new and fresh evidence placed before the CIT(A) - grounds allowed for statistical purposes Addition on account of disallowance of amount written off in respect of discarded stocks alleged that assessee in its account had shown unserviceable and unusable finished stock Held that - Assessee had claimed that the materials had been discarded - write off on account of discarded material allowed by giving benefit to the assessee that the goods have been discarded five years back, the same can never be traced or even found at the present moment. Even in the books the assessee has treated the same as discarded and therefore written them off - direct the AO to allow the claim of write off as discarded materials Disallowance of depreciation - disallowance of depreciation claimed on building and furniture Held that - Even if the unit is closed for production activity, some activity or even the usage of the factory and furniture and fixture, even by the chowkidar, who is employed to keep a watch and upkeep of the premises would be there - accounts are maintained by the assessee - direction to the AO to allow the depreciation as per law to the assessee ground allowed for statistical purposes Non-consideration of additional ground of appeal - claim for allowance of set off of brought forward losses Held that - Assessee had filed additional ground of appeal. This ground, though filed well in advance has not been adjudicated. He, therefore, prayed that this issue has to go back to the file of the revenue authorities - ground is allowed for statistical purposes.

Issues Involved:
1. Addition of Rs. 11,81,900/- as suppressed sales.
2. Addition of Rs. 13,00,000/- for discarded stock.
3. Disallowance of depreciation of Rs. 1,79,376/-.
4. Non-consideration of setoff of brought forward losses of Rs. 40,12,263/-.

Issue-wise Detailed Analysis:

1. Addition of Rs. 11,81,900/- as Suppressed Sales:

The appellant contested the addition of Rs. 11,81,900/- as suppressed sales, which arose from a discrepancy between the sales reported in the books and the sales as per stock statements submitted to the bank. The Assessing Officer (AO) found a difference of Rs. 11,81,900/- in the sales figures and concluded that this amount represented suppressed sales. The appellant argued that the discrepancy was due to a clerical error where the sale of fixed assets was mistakenly included in trading sales. The AO rejected this explanation and added the amount to the income of the appellant.

The Commissioner of Income Tax (Appeals) [CIT(A)] sustained the AO's addition, noting that the appellant failed to produce the stock register and did not provide sufficient evidence to support the claim of clerical error. The CIT(A) also rejected new evidence presented by the appellant during the remand proceedings, considering it fresh evidence that should have been submitted earlier.

The Income Tax Appellate Tribunal (ITAT) found that the AO and CIT(A) had not adequately considered the evidence provided by the appellant, including the excise return and sale invoice of machinery. The ITAT observed that the AO's reliance on the suppression of sales was misplaced and directed the AO to re-examine the issue, considering all the evidence, including the new evidence presented before the CIT(A). The ITAT set aside the CIT(A)'s order and allowed the grounds for statistical purposes.

2. Addition of Rs. 13,00,000/- for Discarded Stock:

The appellant claimed a write-off of Rs. 13,00,000/- for unserviceable and unusable finished stock at its Nashik unit. The AO rejected the claim, arguing that PVC insulated wire cables could not be easily damaged by rain and that the appellant failed to provide sufficient details regarding the discarded stock.

The CIT(A) upheld the AO's decision, noting that the appellant did not produce the stock register or specify the mode of disposal of the discarded stock. The CIT(A) also questioned why the Chartered Engineer's (CE) report was not presented earlier.

The ITAT found that the revenue authorities had not challenged the veracity of the CE's report and that the appellant had provided sufficient evidence to support the claim of discarding the stock. The ITAT allowed the write-off of Rs. 13,00,000/- and set aside the CIT(A)'s order on this issue.

3. Disallowance of Depreciation of Rs. 1,79,376/-:

The AO disallowed the depreciation claimed by the appellant for the Nashik unit, arguing that no manufacturing or business activities were carried out from this factory. The CIT(A) restored the issue to the AO to verify the exact depreciation claimed and disallow the same.

The ITAT found that the CIT(A)'s direction to disallow depreciation was incorrect, as some activity or usage of the factory and furniture and fixture would still occur, even if the unit was closed for production. The ITAT modified the CIT(A)'s direction and instructed the AO to allow depreciation as per law.

4. Non-Consideration of Setoff of Brought Forward Losses of Rs. 40,12,263/-:

The appellant raised an additional ground of appeal regarding the setoff of brought forward losses amounting to Rs. 40,12,263/-. The CIT(A) did not adjudicate this ground.

The ITAT directed the AO to allow the setoff of brought forward losses as per law and recompute the income/loss of the appellant accordingly. This ground was allowed for statistical purposes.

Conclusion:

The ITAT allowed the appeal filed by the appellant, directing the AO to re-examine the issues related to suppressed sales and depreciation, allow the write-off for discarded stock, and consider the setoff of brought forward losses. The appeal was treated as allowed for statistical purposes.

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