2014 (3) TMI 693 - AT - Income Tax

Confirmation of notional addition Excise duty added in the value of the closing stock of finished goods Held that - The decision of English Electric Co. India Ltd. 1999 (2) TMI 24 - MADRAS High Court followed a liability cannot be converted into an asset - If the assessee is to show in the accounts the liability incurred by it in relation to excise duty that is to be done by showing separately the extent of liability incurred in that year towards payment of excise duty - The liability, if so exhibited, would become an item which would have to be deducted for the purpose of arriving at the profit for the year - It is only when such deduction is given that the amount may be added to the value of the closing stock - Decided in favour of Assessee. Disallowance of printing and stationary expenses Held that - The contention of the AO that the increase in expenditure under the head printing and stationery as compared to the earlier years were not proportionate with the increase in sales during the year, is not sustainable in law - the CIT(A) has recorded a finding that full supporting evidence were not produced before the AO the disallowance is restricted to 40,000/- as against Rs.85,722/- sustained by the CIT(A) Decided partly in favour of Assessee. Disallowance of conveyance expenses Held that - The CIT(A) has recorded that maximum expenses were incurred in cash and are fully verifiable - but, the CIT(A) in his order has also recorded a contradictory finding that all claims were not verifiable - no case of disallowance could be made out by the Revenue Decided in favour of Assessee. Disallowance because of difference in closing balance Bogus purchases Held that - After considering the volume of the business conducted by the assessee and the fact that the difference in the accounts does not pertain to this year, it has been held that no case of disallowance for the relevant assessment year could be made out by the Revenue Decided in favour of Assessee. Disallowance of sales promotion expenses Held that - The disallowance out of sales promotion expenses at the rate of 10% thereof was made on the plea that the assessee could not furnish any details of the sales made through these parties and the basis for incurring the expenditure - the genuineness of the expenditure was not doubted by the Revenue - Considering volume of the business of the assessee, and that the reasoning of the AO regarding the sales made through these parties for whom these expenditure were incurred being untenable, and that the ad hoc disallowance was made - the disallowance made is not justified Decided in favour of Assessee.

Summary

Issues:
1. Reopening of assessment without providing reasons.
2. Notional addition of excise duty in closing stock.
3. Disallowance of depreciation on dies.
4. Disallowance of printing and stationery expenses.
5. Disallowance of repairs and maintenance expenses.
6. Treatment of prior period expenses.
7. Disallowance of conveyance expenses.
8. Difference in closing balance of creditors account.
9. Disallowance of sales promotion expenses.
10. Disallowance of provision for gratuity.

Analysis:

1. Reopening of Assessment:
- The appellant challenged the reopening of assessment without providing reasons, but this ground was dismissed as not pressed by the counsel.

2. Notional Addition of Excise Duty:
- The appellant contested the addition of excise duty in the closing stock of finished goods. The Tribunal ruled in favor of the appellant, citing precedents and allowed this ground.

3. Disallowance of Depreciation on Dies:
- The issue of depreciation on dies was raised, but the appellant did not press this ground, resulting in its dismissal.

4. Disallowance of Printing and Stationery Expenses:
- The appellant argued against the disallowance of printing and stationery expenses. While the AO's reasoning was deemed unsustainable, the Tribunal partially allowed this ground by restricting the disallowance amount.

5. Disallowance of Repairs and Maintenance Expenses:
- The appellant challenged the disallowance of repairs and maintenance expenses, which was allowed as the AO failed to provide valid reasons for the disallowance.

6. Treatment of Prior Period Expenses:
- The issue of treating expenses as prior period expenses was raised but not pressed by the appellant, leading to its dismissal.

7. Disallowance of Conveyance Expenses:
- The appellant disputed the disallowance of conveyance expenses, and the Tribunal ruled in favor of the appellant, finding no valid reasons for the disallowance.

8. Difference in Closing Balance of Creditors Account:
- The discrepancy in the closing balance of creditors' account was contested by the appellant, and the Tribunal allowed this ground considering the business volume and lack of relevance to the assessment year.

9. Disallowance of Sales Promotion Expenses:
- The disallowance of sales promotion expenses was challenged by the appellant, and the Tribunal found the disallowance unjustified due to lack of verification by the Revenue, thereby allowing this ground.

10. Disallowance of Provision for Gratuity:
- The disallowance of the provision for gratuity was disputed by the appellant. The Tribunal directed the AO to verify the contribution to the gratuity fund and approved by the Commissioner, indicating a need for further examination.

In conclusion, the Tribunal partially allowed some grounds while dismissing others based on the merits of each issue raised by the appellant in the assessment years 1998-1999, 1999-2000, and 2006-2007.