2016 (12) TMI 677 - AT - Income Tax

Addition for alleged under-valuation of closing stock - Held that - As submitted by assessee that screening & crushing expenditure was also incurred in the next year and therefore, no cost was included on that account also. This explanation of assessee was rejected by the AO, but in view of this factual position that in the tax audit report for the year ending 31.3.2008, it was reported by the auditors that assessee is valuing its closing stock at cost on FIFO basis, it has to be accepted that if closing stock at the end of the present year is without any processing such as screening, crushing etc. and without shifting; the screening, crushing and shifting charges cannot be added to the valuation of closing stock in the present year and therefore, if the total amount of cost of production in the present year after excluding plot rent is considered, it will amount to valuation of closing stock at a cost including such charges also i.e., screening, crushing and shifting charges, whereas the closing stock was without screening, crushing and shifting. Hence, we are of the considered opinion that in the facts and circumstances of the present case as discussed above, the addition made by the AO in valuation of closing stock is not proper and justified and hence we delete the same - Decided in favour of assessee Disallowance of JD Plot rent - Held that - AO himself has accepted that the plot was used for the purpose of sister concern M/s. Obulapuram Mining Co., and goods are in fact sold by the assessee to this sister concern and delivery at this plot was an important aspect for affecting this sale as per the assessee. Hence, the facts are not in dispute and under these facts, the judgment of the Hon ble Apex Court rendered in the case of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT ) is applicable as per which, if the expense has incurred expenses for business expediency and third party also gets some benefit in the process, then also, the expenditure is allowable. Respectfully following the judgment of the Hon ble Apex Court and considering the facts of the present case as discussed above, we are of the considered opinion that the expenses incurred by the assessee on account of rent of the plot in question is an allowable business expenditure and therefore, we delete this disallowance - Decided in favour of assessee

Summary

Issues:
1. Valuation of closing stock consistency
2. Disallowance of JD Plot rent

Valuation of Closing Stock Consistency:
The appellant appealed against the order of CIT (Appeals) upholding the assessment order for the assessment year 2009-10. The grounds raised by the appellant included challenges to the valuation of stock and the disallowance of JD Plot rent. The appellant argued that the method of valuation of stock had not changed, and the closing stock consisted only of raw stock. The appellant contended that the valuation was technical and required expert opinion. The appellant also disputed the finding that they had not consistently followed the same valuation method. The Appellate Tribunal noted that the method of valuation must be consistent. The Tribunal analyzed the valuation methods used by the appellant for the years 2008-09 and 2009-10. It was observed that the closing stock for the present year was unfinished and meant for shifting, hence certain charges were not included in the valuation. The Tribunal concluded that the addition made by the Assessing Officer was not justified and deleted the same.

Disallowance of JD Plot Rent:
Regarding the disallowance of JD Plot rent, the appellant argued that the plot was used for storing business stock and was essential for the business. The appellant relied on a license agreement between the appellant and Chennai Port Trust, which specified the export requirements. The appellant contended that the rent paid was for commercial expediency and should be allowed as a business expenditure. The Revenue Department supported the disallowance, citing non-fulfillment of export conditions. The Tribunal found that the plot was used for business purposes as it stored products sold by the appellant to a sister concern for export. The Tribunal held that the rent was an allowable business expenditure, following the judgment in S.A. Builders v. CIT. The Tribunal deleted the disallowance of JD Plot rent.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee, emphasizing the consistency in valuation of closing stock and the business purpose of the JD Plot rent, as supported by the relevant agreements and commercial expediency.