2011 (11) TMI 833 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 20 lakhs on account of excess stock.
2. Addition of Rs. 8,92,950/- u/s 14A for interest on borrowed funds.
3. Addition of Rs. 12,93,750/- as notional income from house property.
4. Penalty u/s 271(1)(c) for concealment of income.

Summary:

1. Addition of Rs. 20 lakhs on account of excess stock:
The assessee, engaged in the manufacture of coffee, filed a return declaring Rs. 11,03,650/-. A survey u/s 133A revealed excess stock valued at Rs. 19,98,796/-. The AO added Rs. 20 lakhs to the income, citing lack of evidence from the assessee. The CIT(A) upheld this addition. The ITAT agreed with the assessee's contention that evaporation and wastage costs should be considered, and remitted the matter back to the AO for verification and appropriate relief.

2. Addition of Rs. 8,92,950/- u/s 14A for interest on borrowed funds:
The AO disallowed Rs. 8,92,950/- as interest on borrowed funds used for investments, citing section 14A. The CIT(A) confirmed this. The ITAT noted that the issue is covered by the jurisdictional High Court's decision in Godrej & Boyce Co. Ltd., which mandates a reasonable basis for determining related expenditure. The matter was remitted back to the AO for fresh adjudication in light of this judgment.

3. Addition of Rs. 12,93,750/- as notional income from house property:
The AO treated 15% of a lease deposit from a sister concern as notional rent, adding Rs. 12,93,750/- to the income. The CIT(A) confirmed this. The ITAT found the issue covered by a prior decision in the assessee's own case for AY 2001-02, which held that the amount received was not for leasing out property. The matter was remitted back to the AO to determine the Annual Letting Value (ALV) as per the Maharashtra Rent Control Act or Municipal ratable value, whichever is higher.

4. Penalty u/s 271(1)(c) for concealment of income:
The AO levied a penalty of Rs. 12,45,010/- for concealment of income, which the CIT(A) reduced to Rs. 5,94,745/-. The ITAT noted that since the quantum additions were remitted back for fresh adjudication, the penalty on these non-existent additions cannot stand. The penalty was canceled, with the AO allowed to proceed further post the quantum appeal decision.

Conclusion:
The appeals were allowed for statistical purposes, with matters remitted back to the AO for fresh adjudication. The penalty was canceled, subject to the outcome of the quantum appeal.