2013 (2) TMI 529 - AT - Income Tax

Undervaluation of Closing Stock Assessee is an authorized dealer of Hero Honda Motors Ltd. at Patiala AO found that the assessee was maintaining quantitative tally of vehicles but no stock register was maintained in respect of spare parts - AO was of the view that the assessee had undervalued its stock Held that - various models of the motor cycles were differently priced and there was no merit in adopting an average cost for the different models of motor cycles - Further pointed out that the valuation of the closing stock is made after including the incidental cost i.e. freight and insurance, CST etc. Some of the supporting bills for the valuation of stock of spare parts are placed at pages 85 to 90 of the paper book The valuation worked out by the assessee is further backed by the bills maintained by the assessee - there is no merit in the addition of Rs. 5,04,235/- as no defect in the working of closing stock In favour of assessee. Addition of purchases of stationery & printed material - Addition of Rs.1,00,000/- out of purchases of stationery & printed material in Mohali Branch - No value of stock was left at the end of the year. Held that - Having regard to the entirety of the facts and circumstances of the case, disallowance of Rs.50,000/- is fair and reasonable - Appeal of the assessee is partly allowed. Rent paid for guest-house Firm is maintaining a guest house at Mohali for the stay of officer of Maruti Udyog Ltd. and has paid rent Held that - Having regard to the fact situation of the case and the evidences filed by the assessee, not found any justification in the addition made - In favour of ssessee. Addition on the ground of personal element Assessee had shown Staff Tea Expenses at Rs.3,59,739/-, House Keeping Expenses at Rs.1,52,117/- and General Expenses at Rs.13,44,597/- AO made disallowance on account of personal use by the assessee Held that;- The addition made by the AO, on the ground of personal element in use of such services by the partners and in view of un-vouched expenses, cannot be brushed aside. However, keeping in view the factum of reasonableness of such expenses, the addition made by the isconfirmed to the extent of Rs.80,000 - Assessee gets partial relief.

Summary

Issues:
1. Valuation of stock of motor cycles and spare parts.
2. Addition on account of purchases of stationery and printed material.
3. Disallowance of rent paid for maintaining a guest house.
4. Disallowance of various expenses claimed under different heads in the Profit & Loss Account.

Valuation of Stock of Motor Cycles and Spare Parts:
The appeal addressed the addition of Rs.7,37,022 on account of under-valuation of stock of motor cycles and spares. The ITAT Chandigarh referred to the previous order in the assessee's case, where it was concluded that the valuation method adopted by the Assessing Officer was not justified. The CIT(A) had upheld the addition made by the AO regarding spare parts but deleted the addition concerning motor cycles. The ITAT upheld the CIT(A)'s decision, stating that the valuation of motor cycles was correctly done by the assessee, considering the variable costs of different models. Consequently, the ground of appeal was decided in favor of the assessee.

Addition on Account of Purchases of Stationery and Printed Material:
The assessee contested the addition of Rs.1,00,000 on purchases of stationery and printed material in the Mohali Branch. The CIT(A) upheld the addition after considering the remand report. The ITAT, after reviewing the facts, decided that a disallowance of Rs.50,000 was fair and reasonable, thereby partially allowing the appeal.

Disallowance of Rent Paid for Maintaining a Guest House:
Regarding the disallowance of Rs.1,26,667 for rent paid for maintaining a guest house at Mohali, the CIT(A) affirmed the AO's decision, stating that there was no justification for the guest house. However, the ITAT disagreed and deleted the impugned addition after examining the evidence filed by the assessee.

Disallowance of Various Expenses Claimed in the Profit & Loss Account:
The appeal challenged the confirmation of the addition of Rs.1,00,000 on various expenses claimed in the Profit & Loss Account. The AO disallowed the expenses due to personal use by partners and un-vouched expenses. The CIT(A) upheld the additions, considering the personal element in the use of services by partners. The ITAT upheld the addition to the extent of Rs.80,000, providing partial relief to the assessee and partially allowing this ground of appeal.

In conclusion, the ITAT Chandigarh ruled in favor of the assessee on the valuation of stock of motor cycles, partially allowed the appeal on purchases of stationery and printed material, deleted the disallowance of rent paid for maintaining a guest house, and provided partial relief on the disallowance of various expenses claimed in the Profit & Loss Account.