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2018 (11) TMI 1647 - AT - Income TaxUnexplained investments - disallowance for inflation of purchase price - HELD THAT - CIT(A) found that the method adopted by the AO for quantification of disallowance for inflation of purchase price and addition for unaccounted investment for purchases is not scientific. Therefore the CIT(A) considering the findings of ITAT in the case of Vijay Proteins 1996 (1) TMI 144 - ITAT AHMEDABAD-C observed that if 20% of total purchases is considered then the appellant s addition would be at 20, 30, 568/- including peak amount therefore the CIT(A) has quantified the investment in purchase by taking purchase additions @ 20% of 6, 65, 80, 561/- which worked out at 1, 33, 16, 112/- and transportation expenses @ 24.27% in the ratio of total purchases with respect to total expenses which worked out to 7, 88, 978/-. Similarly octroi @ 2.05 of purchase of 6, 65, 80, 561/- was calculated at 1, 66, 451/- and packing material considered for 5 per pack at 7, 08, 735/-. Accordingly the CIT(A) has quantified investment on purchases price at 29, 95, 775/- considered the same for addition as unexplained expenditure as against the amount of 20, 30, 568/- computed by the AO. CIT(A) further observed that in view of decision of ITAT in the case of Vijay Proteins Ltd. for AY 1991-92 where the peak amount of purchase at 10, 08, 844/- on 10.05.1997 is less than the confirmed addition hence the total addition was confirmed at 29, 95, 775/- and balance addition out of 1, 33, 16, 116/- was deleted. We find that these findings of the CIT(A) are correct as the CIT(A) has considered its findings by following the decision of Tribunal in the case of Vijay Proteins Ltd. (Supra) and allowed the set off of peak amount worked out by the AO at 10, 08, 444/-. No infirmity in the order of CIT(A) in confirming the addition at 29, 95, 75/- as against the addition made by the AO at 1, 33, 16, 112/- therefore the appeal of the Revenue in respect of Ground No.1 is dismissed. Addition on account under valuation of closing stock - HELD THAT - As gone through the orders and the findings of the CIT(A) and do not find any reason the interfere with the same. Similarly the CIT(A) after analysed details of Empty Tins and confirmed the addition of 54, 992/- on account of valuation in closing stock of Empty Tins. AO worked out closing stock of ground nut cake at 41, 382/- whereas the CIT(A) has noted that this should be at 45, 520/- accordingly the valuation in respect of this item was enhanced to 45, 520/-. Similarly addition on ground nut OGS was analysed by the CIT(A) and the stock of same was determined at 4, 31, 663/- and the addition of under valuation in respect of these items of the difference was deleted. Similarly the addition of 29, 413/- on account of under valuation in closing stock of Haxin was confirmed. Thus we find that the CIT(A) has analysed the submissions of the assessee as well as findings of the AO and after arrived at a fair reasonable valuation of closing stock hence the findings of the CIT(A) in reducing the closing stock to 5, 61, 588/- from 27, 66, 485/- is therefore upheld Addition on account of Motor Car Expenses and Depreciation - HELD THAT - CIT(A) has correctly deleted the said addition therefore no interference is required accordingly this Ground of appeal is therefore dismissed. Addition on account of telephone expenses - HELD THAT - CIT(A) has observed that the personal use of telephone by Directors of the company is imperative further the expenditure is neither authorized by AGM nor is shown as perquisite in the hands of appellant whereas the relying on the case of Hon ble Gujarat High Court in the case of Sayaji Iron and Engineering and Company 2001 (7) TMI 70 - GUJARAT HIGH COURT submitted that the disallowance upheld by the CIT(A) are required to be deleted accordingly same is deleted. Therefore this ground of appeal of the assessee is allowed Addition on account of Motor Car Expenses and Depreciation - CIT(A) confirmed the addition to the expenditure of 1/6th total car expenses accordingly the disallowance out of Motor Car Expenses were reduced from 25, 312/- to 16, 875/- - HELD THAT - Hon ble Gujarat High Court in the case of Sayaji Iron and Engineering and Company vs. CIT 2001 (7) TMI 70 - GUJARAT HIGH COURT submitted that no disallowance on account of personal use can be made in the case of company. We are therefore of the considered opinion that following the decision of Hon ble Gujarat High Court the disallowance upheld by the CIT(A) are required to be deleted accordingly same is deleted. This Ground of appeal of the assessee is therefore allowed.
Issues Involved:
1. Deletion of addition made on account of unexplained investments. 2. Deletion of addition made on account of undervaluation of closing stock. 3. Deletion of addition made on account of motor car expenses and depreciation. 4. Confirmation of addition on account of investment in purchase price. 5. Confirmation of addition on account of undervaluation of stock. 6. Confirmation of addition on account of telephone expenses. 7. Confirmation of addition on account of motor car expenses and depreciation. Detailed Analysis: 1. Deletion of Addition on Account of Unexplained Investments: The Revenue challenged the deletion of ?1,33,16,112/- added as unexplained investments. The Assessing Officer (AO) found that the assessee had not made purchases from M/s. Santoshi Bhandar as claimed, and thus made an addition of ?1,33,16,112/- for unaccounted investments. The CIT(A) confirmed the rejection of the books of accounts but found the AO's method of quantifying disallowance as unscientific. Following the ITAT's decision in the case of Vijay Proteins Ltd., the CIT(A) recalculated the inflation of purchase price, reducing the addition to ?29,95,775/-. The ITAT upheld the CIT(A)'s findings, concurring that the method adopted by the CIT(A) was more appropriate and scientific. 2. Deletion of Addition on Account of Undervaluation of Closing Stock: The AO added ?2,37,66,485/- for undervaluation of closing stock. The CIT(A) observed that the AO did not consider the value of gunny bags and quality allowance differences, which were separately accounted for in the Profit and Loss Account. After examining the facts, the CIT(A) reduced the addition to ?5,61,588/-. The ITAT upheld the CIT(A)'s findings, agreeing that the valuation method adopted by the CIT(A) was correct and reasonable. 3. Deletion of Addition on Account of Motor Car Expenses and Depreciation: The AO disallowed ?8,437/- for motor car expenses and depreciation. The CIT(A) deleted this addition, and the ITAT found no reason to interfere with this decision, thereby dismissing the Revenue's appeal on this ground. 4. Confirmation of Addition on Account of Investment in Purchase Price: The assessee challenged the addition of ?29,95,775/- confirmed by the CIT(A). The ITAT upheld the CIT(A)'s decision, noting that the CIT(A) had correctly followed the ITAT's decision in the case of Vijay Proteins Ltd. and had appropriately quantified the investment in purchase price. 5. Confirmation of Addition on Account of Undervaluation of Stock: The assessee also challenged the confirmation of ?5,61,588/- for undervaluation of stock. The ITAT upheld the CIT(A)'s decision, agreeing with the detailed analysis and findings provided by the CIT(A). 6. Confirmation of Addition on Account of Telephone Expenses: The CIT(A) confirmed the addition of ?32,224/- for telephone expenses, citing personal use by the Directors. However, the ITAT deleted this addition, following the Gujarat High Court's decision in the case of Sayaji Iron and Engineering and Company, which held that no disallowance on account of personal use can be made in the case of a company. 7. Confirmation of Addition on Account of Motor Car Expenses and Depreciation: The CIT(A) reduced the disallowance of motor car expenses and depreciation from ?25,312/- to ?16,875/-. The ITAT deleted this addition, again following the Gujarat High Court's decision in the case of Sayaji Iron and Engineering and Company, which held that no disallowance for personal use can be made in the case of a company. Conclusion: The ITAT dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. The final order was pronounced in the open court on 26.11.2018.
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