2014 (1) TMI 916 - AT - Income Tax

Deletion made on account of suppressed production Proportionate wages not paid to the production Held that - The addition made on the basis of arithmetic comparison of monthly production with monthly wages could not be sustained - The wages are paid by the assessee on per day basis, and not linked to production - The production depends on variety of reasons, i.e. the work order received from the customers, quality of grey material, designing etc. - The assessee has produced the wage register along with its account books and no discrepancy therein could be established on behalf of the Revenue - The higher payment of wages in a particular month by the assessee, may be a good reason to provoke inquiry in this regard, but itself is not sufficient to make any addition/disallowance Thus, the CIT(A) is justified in holding that the basis taken by the AO is misplaced and the books of accounts produced by the assessee are not rejected by the AO - No arithmetic formula to co-relate the wages with the production and estimate the suppression on account of variation in wages, is sustainable Decided against Revenue. Deletion made on account of discount/rate difference expenses Supporting evidence not failed Held that - The assessee is the best judge for its affairs, and it is the decision of the assessee to provide discount to its customers depending upon the nature and extend of the defect in the product after the job work is done, and the discount allowed may differ from person to person -The complete details were filed by the assessee in this regard and the method of accounting had been constantly followed year after year - The CIT(A) has recorded that all the required details were provided by the assessee in the form of books of accounts, bills and vouchers along with names and addresses, contact details, the amount of job work done and discount/claim/rate difference allowed to each of the customers - The CIT(A) has further recorded that without examining these details and evidences and without making independent inquiry and also without rejecting the books of accounts, the AO has disallowed the expenses - In earlier years also such claims of expenses under the same head have been made by the assessee which have been accepted by the department - in what manner business has to be conducted by the assessee, the AO cannot decide order of the CIT(A) upheld Decided against Revenue.

Summary

Issues:
1. Addition of Rs.8,85,249 on account of suppressed production.
2. Deletion of the addition of Rs.18,80,685 made on account of disallowance of discount/rate difference expenses.

Issue 1: Addition of Rs.8,85,249 on account of suppressed production:
The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs.8,85,249 due to alleged suppressed production. The Revenue contended that wages paid were not proportionate to production in February 2008 compared to other months. The assessee argued that wages were not linked to production and were paid on a per day basis, depending on various factors like work orders and material quality. The Tribunal found that the addition based on the comparison of monthly production and wages was not valid. The wages were paid daily and not tied to production levels. The Tribunal noted that the AO did not find any discrepancies in the wage register or accounts provided by the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the AO's basis for the addition was unfounded, and no correlation formula between wages and production was sustainable.

Issue 2: Deletion of the addition of Rs.18,80,685 on account of disallowance of discount/rate difference expenses:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs.18,80,685 regarding disallowance of discount/rate difference expenses. The Revenue argued that there was no fixed criterion for providing discounts to customers, leading to the disallowance. The assessee explained that discrepancies arose when customer expectations did not align with the completed job work, resulting in claims against the assessee. The Tribunal found the AO's reasoning for disallowance insufficient, as the assessee had provided detailed information, including ledger entries and customer details, supporting the discounts given. The Tribunal noted that the AO did not reject the assessee's accounts or identify significant discrepancies. The CIT(A) emphasized that the AO cannot dictate how the assessee conducts its business. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee had adequately substantiated the discount claims, and the method of accounting had been consistent over the years.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues.