2014 (5) TMI 350 - AT - Income Tax

Disallowance of membership fee Nature of sum paid donation OR not Held that - CIT(A) was of the view that the assessee has filed some print outs of details given on the web site of JITO as also the letters written by the organization to the Director the organization is for business man, industrialist and professionals of Jain Community only - Its membership is limited to Jains only and it is working for Philanthropic activities in education, training, health care, general up-liftment and youth development for this community - there is no finding of CIT(A) about the nature of organization with respect to JITO and thereby the fees paid by Assessee is not in the nature of membership fees but is in the nature of donation or charity the matter needs re-examination, thus, the matter is required to remitted back to the CIT(A) for re-examination Decided in favour of Assessee. Addition to the value of closing stock - Scrap sales - Held that - There is no finding by the CIT(A) about the sale of scrap by the assessee in the subsequent year - CIT(A) while confirming the addition has noted that assessee has not shown with documentary evidence the generation of scrap of 4915.28 kg in 3 days i.e. between 28.3.2011 and 31.3.2008 and had not reconciled the quantitative difference Assessee needs to be granted one more opportunity to substantiate its stand before CIT(A) thus, the matter to the CIT(A) for re-examination Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of membership fee as non-business expenditure
2. Addition of value of closing stock

Issue 1 - Disallowance of Membership Fee:
The appellant, a company engaged in manufacturing, paid Rs 11 lakhs to Jain International Trade Organization (JITO) for trade and industry development. The AO disallowed this amount as non-business expenditure, considering it a charity. CIT(A) upheld the disallowance, stating JITO was for Jain community's philanthropic activities. The appellant appealed, arguing JITO is a trade organization. The ITAT remitted the matter to CIT(A) for re-examination, emphasizing JITO's nature and the fees' purpose. The ITAT allowed the appellant's ground for statistical purposes.

Issue 2 - Addition of Value of Closing Stock:
The AO added Rs 5,79,669 to the appellant's income due to a discrepancy in scrap valuation between the stock statement and balance sheet. CIT(A) upheld the addition, noting the lack of quantitative details supporting the scrap generation. The appellant contended that the difference was due to valuation, and the scrap was sold in the subsequent year. The ITAT found no finding on the scrap sale by CIT(A) and remitted the issue for re-examination, directing the appellant to provide necessary details. The ITAT allowed the appellant's ground for statistical purposes.

In conclusion, the ITAT allowed the appeal for statistical purposes in both issues, emphasizing the need for a thorough re-examination by the CIT(A) based on the submissions and evidence provided by the appellant.