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2022 (9) TMI 1545 - AT - Income TaxDisallowance on account of interest - disallowance of interest expenses, the assessee stated that they have not charged interest from Gharda Chemicals Ltd., against amount outstanding - HELD THAT - We find that Ld. CIT(A) granted relief to assessee by following the decision of Tribunal in assessees own case in 2013 (8) TMI 518 - ITAT AHMEDABAD for AY 2009-10 dated 19.07.2013. We find that similar set of fact, similar disallowance was made by Assessing Officer in AY 2009-10, on appeal before Ld. CIT(A) the disallowance was confirmed on account of interest free credit. On further appeal before Tribunal, the disallowance to holding Co. was deleted. Considering the decision of Tribunal on similar set of fact on similar ground of appeal in AY 2009-10, therefore respectfully following the binding precedent, we affirm the order of Ld. CIT(A). Addition on account of closing stock and finished goods viz., MPB Quinalphos - reply of assessee was not accepted by Assessing Officer by taking view that assessee has not furnished the used stock of work-in-progress of MPB as also Quinalphos have been valued, work-in progress of MPB has been furnished as on 31.03.2014 - AO on perusal of details in respect of opening stock and closing stock summary of work-in-progress of finished products, this finished stock was valued less than that of opening stock - HELD THAT - We find that the assessee is consistently changing their stand with regard to valuation of opening and closing stock of finished goods viz; MPB and Quinalphos. While making submission before us, the ld AR for the assessee submits that the details given in her written submissions are final and she is ready to explain before the assessing officer that there is no inconsistency in the stand of the assessee on the opening and closing stock of finished goods viz; MPB and Quinalphos. We find that there is variation in the stand of the assessee, therefore, we restore this issue of opening and closing stock of finished goods i.e. MPB and Quinalphos to the file of assessing officer to consider the submissions of the assessee, as submitted before us and pass the order in accordance with law. Needless to direct that before passing the order, the assessing officer shall allow reasonable opportunity to the assessee of being heard. In the result, Ground No. 1 in assessees appeal is allowed for statistical purpose. Undervaluation of closing stock of various finished goods - substantial increase of quantum of damaged goods - HELD THAT - No doubt that certain percentage of product/ goods produce by the assessee is bound to damage or expired by efflux of time or by other factor effecting the chemical composition of such pesticides. It is also common feature that neither the expired chemical nor the damaged goods of assessee can secure the price in the market, moreover, most of the product of the assessee may prove hazardous to the environment, even if in the damaged position is not disposed in control manner. Thus, we are of the view that in such circumstances the assessee may be allow certain percentage of cost of damaged product. However, we find that the assessee has not provided the quantity of such damaged or unsaleable product and valued it without justifying with the comparable cases. Similarly, we also find that the assessing officer has also not brought any contrary evidence on record to disbelieve the contention of the assessee. Therefore, to avoid the possibility of revenue leakage, we are of the view that the disallowance to the extents of 25% (25% of 2.227 Crore), on account of undervaluation of closing stock would be sufficient to meet the end of justice. Thus, remaining disallowance is deleted. The assessing officer is directed accordingly. Nature of expenses - repairs and maintenance charges - revenue or capital expenditure - HELD THAT - We find that the assessing officer while treating the expenses as capital in nature has not given any basis of his observation if his observation is based on any material or evidence and is basically general in nature. We find that the ld. CIT(A) while deleting the addition clearly held that the assessing officer has not brought any material on record to prove that some of those items are independent machine or apparatus, which can be used independently for manufacturing activities. Further, the assessing officer has not explained the technical aspect of the items to prove that the replaced items are independent machine which could be used independently. The ld CIT(A) concluded that finding of the assessing officer is not based on any material or evidence and are general in nature, thus he is not correct in treating such expenditure as capital in place of revenue.
Issues Involved:
1. Valuation of opening and closing stock of finished goods (MBP and Quinalphos). 2. Undervaluation of closing stock of various finished goods. 3. Disallowance of interest expenses related to interest-free credit to a holding company. 4. Treatment of repairs and maintenance expenses as capital expenses. Detailed Analysis: 1. Valuation of Opening and Closing Stock of Finished Goods (MBP and Quinalphos): The assessee was accused of not properly valuing the opening and closing stock of finished goods, specifically MBP and Quinalphos, leading to an addition of Rs. 16,40,988/- and Rs. 15,31,168/- respectively. The assessee explained that there was a clerical error in the stock statement and provided revised figures. The Assessing Officer (AO) did not accept the explanation, citing discrepancies and unsupported claims. The CIT(A) upheld the AO's addition, noting that the assessee's methodology for stock valuation was inconsistent with standard practices. The Tribunal, however, restored the issue to the AO for reconsideration after allowing the assessee to present their revised figures. 2. Undervaluation of Closing Stock of Various Finished Goods: The AO observed that the closing stock of 17 items was undervalued, leading to an addition of Rs. 2,22,74,370/-. The assessee argued that damaged or near-expiry goods were valued at 5% of the cost as per their accounting policy, which was consistent with industry standards and statutory requirements. The AO and CIT(A) found the percentage of damaged goods unusually high and unsupported by evidence. The Tribunal partially agreed with the AO but reduced the disallowance to 25% of the total addition, acknowledging the possibility of some damaged goods while noting the lack of concrete evidence from both sides. 3. Disallowance of Interest Expenses Related to Interest-Free Credit to a Holding Company: The AO disallowed Rs. 2,14,33,000/- (AY 2011-12) and Rs. 2,40,58,000/- (AY 2012-13) in interest expenses, arguing that the assessee diverted interest-bearing funds to its holding company without charging interest. The CIT(A) and Tribunal both referenced earlier Tribunal decisions in favor of the assessee, noting that the funds were part of regular business transactions and no direct nexus was established between borrowed funds and the interest-free loans. The Tribunal dismissed the Revenue's appeal, citing consistency with previous rulings. 4. Treatment of Repairs and Maintenance Expenses as Capital Expenses: The AO treated Rs. 21,24,160/- of repairs and maintenance expenses as capital expenditure, arguing that the replacements provided an enduring benefit. The CIT(A) disagreed, stating that the AO did not provide evidence that the replacements were independent machines. The Tribunal upheld the CIT(A)'s decision, noting that the AO's findings were general and unsupported by material evidence. The Tribunal affirmed that the expenses were correctly treated as revenue expenditures. Conclusion: The Tribunal's judgment addressed multiple issues related to stock valuation, interest disallowance, and the nature of repair expenses. The Tribunal provided a balanced approach by restoring some issues for reconsideration while upholding the CIT(A)'s decisions on others, ensuring a fair assessment based on consistent legal principles and evidence.
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