2013 (11) TMI 524 - AT - Income Tax

Disallowance due to shortage of material Held that - Shortage is inherent in the chemical business due to evaporation loss of highly inflammable materials, weigh bridge differences etc - Disallowance made by the Assessing Officer is on the basis of surmises and conjectures - CIT(A) has noted that the disallowances was restricted by predecessor at lump sum amounts for various assessment years - Noted that the orders of predecessors for A.Ys. 1998-99 1999-2000 have been confirmed by Hon. Tribunal - Thus following the order of predecessors, restricted the disallowance to Rs. 50,000/- - In the present case, out of the claim of Rs. around 31 lakhs. CIT(A) has restricted the disallowance to Rs. 50,000/- which appears to be reasonable considering the disallowances made in the past. Accrual of income - interest on sundry debtors Held that - Amount has been classified as other debtors the same are not in the nature of debtors. The transactions with the aforesaid parties are not with respect to the sales but are with respect to financial transactions - Assessing Officer has worked out the interest at 12% on the total outstanding of Rs. 1,65,65,363/-. Since the Assessee has already charged interest from Sarojben Shah and Shah Investments as evident from the copy of ledger placed on record, the charging of interest from those parties again would amount to duplication - With respect to advance from H.M. Shah, it is submitted that he is an employee of Assessee and the advance was given to him for carrying due business dealing at Bharuch. This submission of the Assessee could not controverted by Revenue - Interest could have been charged by the Assessing Officer on the so called debtors after excluding balance of the aforesaid three parties namely Sarojbeh Shah, Shah Finance and Investments and H.M. Shah, Bharuch - Assessing Officer is therefore directed to re-work the interest in view of the aforesaid facts.

Summary

Issues involved:
1. Disallowance on account of shortage/rate difference
2. Addition on account of interest computed on sundry debtors

Issue 1: Disallowance on account of shortage/rate difference:
- The Assessee, engaged in the transportation business, filed a return for A.Y. 2006-07 declaring income of Rs. 51,30,120/-. The assessment determined total income at Rs. 1,06,30,840/-. The dispute arose regarding the claim for shortage and rate difference of Rs. 31,17,898/-, with total shortage being Rs. 52,87,513/-. The Assessing Officer disallowed Rs. 10,13,891/- as he found the entire claim unreasonable due to lack of checks and only partial waiver by contractees. CIT(A) restricted the disallowance to Rs. 50,000/- based on past precedents. The Assessee appealed, arguing that shortage is common in the business due to evaporation and weigh bridge differences. However, the tribunal upheld the CIT(A)'s decision, considering the past disallowances and finding the restriction reasonable.

Issue 2: Addition on account of interest computed on sundry debtors:
- The Assessing Officer noted interest debited at Rs. 36,02,805/-, including Rs. 19,68,938/- paid to a relative without charging interest on the total due amount. An addition of Rs. 19,87,843/- was made on the total sundry debtors of Rs. 1,65,65,363/-. CIT(A) confirmed this addition, stating the Assessee failed to justify not charging interest from the relative. The Assessee argued that non-interest bearing funds were available and interest was already charged from other debtors. The tribunal observed that interest was charged from some debtors and directed the Assessing Officer to rework the interest by excluding certain parties. Consequently, the appeal was partly allowed.

In conclusion, the tribunal upheld the disallowance on shortage/rate difference due to past precedents and restricted the addition of interest on sundry debtors after considering the justification provided by the Assessee.