2016 (1) TMI 777 - AT - Income Tax

Addition of undervaluation of stock - Held that - Apart from the submission that the quality of oil is substandard, no evidence in its support has been filed by Assessee. Further, Assessee has also not placed any material to support her contention the oil was indeed sold subsequently at the realizable value considered by the Assessee for the purpose of valuation. In such circumstances, we find no reason to interfere with the order of AO - Decided against assessee Disallowance of 50% of sales promotion expenses - Held that - Assessee s submission that the expenses have been incurred for supplying 1 liter mineral water bottle to the customers who have got their fuel tanks filled for more than ₹ 1,000, almost all the expense has been incurred by account payee cheque and the expenses have not been found to be bogus not supported by any evidence and at the same time, the aforesaid submissions of the Assessee have also not been controverted by Revenue. Further, Revenue has also not placed any evidence on record to demonstrate that the expense is not for business purpose. Considering the fact that the submissions of both the parties are not supported by any evidence, the disallowance being made by A.O on adhoc basis, the passing of a cryptic order of ld. CIT(A), we are of view that in the present case considering the fact that the matter is more than 7 years old and no useful purpose would be served in remanding the matter back. In such a situation, we are of the view that the ends of justice shall be met if the disallowance is restricted to ₹ 25,000/- as against ₹ 2,20,000/- made by A.O. - Decided partly in favour of assessee. Disallowance of tanker and house- keeping expenses - Held that - Considering the nature of expense and the finding of A.O, we are of the view that ld. CIT(A) was justified in reducing the disallowance to 20% as against 50% made by A.O. We thus find no infirmity in the order of ld. CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Valuation of closing stock - Undervaluation
2. Disallowance of 50% of sales promotion expenses
3. Disallowance of tanker and house-keeping expenses

Valuation of Closing Stock - Undervaluation:
The appeal was against the CIT(A)'s order confirming the addition of undervaluation of closing stock. The AO valued the stock of oil at a higher rate than the Assessee's valuation. The Assessee claimed the oil was of substandard quality and not saleable, justifying the lower valuation. However, the AO rejected this claim as the Assessee failed to provide evidence supporting the quality and age of the oil. The CIT(A) upheld the AO's decision, stating that no verifiable evidence was submitted by the Assessee regarding the lower valuation. The ITAT dismissed the Assessee's appeal as no evidence was presented to support the claim of substandard quality or subsequent sale at the realizable value considered by the Assessee.

Disallowance of 50% of Sales Promotion Expenses:
The appeal challenged the disallowance of 50% of sales promotion expenses by the AO, which was confirmed by the CIT(A). The expenses were claimed for providing mineral water bottles to customers who refilled their fuel tanks. The Assessee failed to provide complete details of the customers, leading to the disallowance. The ITAT partially allowed the appeal, reducing the disallowance to Rs. 25,000 from the original amount of Rs. 2,20,000. The ITAT found that both parties' submissions lacked evidence, and considering the age of the matter, restricted the disallowance amount.

Disallowance of Tanker and House-Keeping Expenses:
The AO disallowed a percentage of tanker cleaning and house-keeping expenses claimed by the Assessee due to lack of verifiable evidence. The CIT(A reduced the disallowance percentage from 50% to 20%. The Assessee contended that the expenses were genuine and incurred for business purposes. The ITAT upheld the CIT(A)'s decision, stating that the reduction to 20% was justified based on the nature of expenses and the AO's findings. Therefore, this ground of the Assessee was dismissed.

In conclusion, the ITAT partially allowed the Assessee's appeal concerning the disallowance of sales promotion expenses, reducing the disallowance amount. However, the ITAT upheld the decisions regarding the valuation of closing stock and the disallowance of tanker and house-keeping expenses. The judgment was pronounced on 30-10-2015.