2017 (12) TMI 298 - AT - Income Tax

Suppression of closing stock - Held that - It is evident that the Assessing Officer without calling for an explanation from the assessee to reconcile the difference has made the addition alleging suppression of closing stock. However, before the first appellate authority, the assessee has reconciled the difference with supporting evidence which was sent for verification of Assessing Officer. - Decided against revenue Addition on account of inflated purchases - Held that - As seen, on the basis of a monthly statement filed by the assessee, the Assessing Officer has made the addition alleging purchase suppression. However, before the first appellate authority, the assessee has reconciled the difference and the learned Commissioner (Appeals) after examining the reconciliation statement having found that it is on the basis of the books of account of the assessee has deleted the addition. Further, it is evident on record, the first appellate authority has sent the evidences filed in the paper book for the examination of the Assessing Officer. Therefore, the allegation of the Learned Departmental Representative that the Assessing Officer was not given opportunity to examine additional evidence is unacceptable. It is further to be noted, the Learned Departmental Representative has not been able to controvert the factual finding of the first appellate authority that the reconciliation submitted by the assessee is on the basis of books of account. - Decided against revenue Suppression of production resulting in unaccounted sales - Held that - Commissioner (Appeals) having examined the documentary evidences brought on record being satisfied with the claim of the assessee has deleted the addition. As far as the contention of the Learned Departmental Representative that learned Commissioner (Appeals) has deleted the addition on the basis of addition evidence is concerned, we are unable to accept the same. As could be seen from the impugned order of the learned Commissioner (Appeals), the documentary evidences furnished by the assessee before the first appellate authority in a paper book were sent to the Assessing Officer for his examination and comments. It also emerges from record that during the remand to the Assessing Officer, the assessee has made ground wise submissions before the Assessing Officer by referring to the relevant supporting documents. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised. Addition on account of sale of waste biscuits / biscuit powder / broken biscuit - Held that - As could be seen, other income shown by the assessee is from sale of broken biscuits, and powder biscuits. While burnt biscuits are of no use, broken biscuits are re usable in manufacturing process and they have been sold at ₹ 26 per kg. Whereas, biscuit powder is not fit for human consumption, hence, sold at ₹ 1.48 per kg. These facts have been demonstrated through documentary evidence including Central Excise registers before the first appellate authority. Notably, the learned Commissioner (Appeals) after verifying the production records, Excise records, has found that the uniform rate cannot be applied to regular biscuit and burnt / broken / power biscuits. It is a fact on record that the evidences produced by the assessee were sent for examination of the Assessing Officer in remand and before the Assessing Officer the assessee has made detailed submissions justifying its claim. Thus, the learned Commissioner (Appeals) having recorded a purely factual finding based on documentary evidence and which could not be controverted by the Department Disallowance of expenditure on foreign travel - Held that - As could be seen from the facts on record, the specific allegation of the Assessing Officer is, except the board resolution and few fax messages, the assessee has failed to bring on record supporting documentary evidence to demonstrate the purpose of foreign travel undertaken by the directors and executives. As in assessee s own case for immediately preceding assessment year, i.e., 1995 96, the Tribunal has upheld 50% disallowance of foreign travel expenses in respect of the very same persons. Therefore, respectfully following the aforesaid order of the Tribunal, we restore the disallowance made by the Assessing Officer. This ground is allowed. Unutilised MODVAT credit - Held that - The issue stands decided in favour of the assessee by the decision of the Hon ble Supreme Court in CIT v/s Indo Nippon Chemicals Co. Ltd., 2003 (1) TMI 8 - SUPREME Court . Ad hoc disallowance made by the Assessing Officer on account of suppressed sale of confectionary - Held that - Commissioner (Appeals) has recorded a factual finding that most of the discrepancies found by the Assessing Officer are on account of maida which is not a raw material for confectionary. That being the case, there is no justification for even sustaining a part of ad hoc disallowance made by the Assessing Officer in respect of confectionary. Therefore, we delete the addition sustained by the learned Commissioner (Appeals). Disallowance of deduction claimed on account of spoilt and damaged goods - CIT-A sustained the disallowance @ 5% out of the deduction claimed on account of mouthwash and toothbrush - Held that - We are of the opinion that assessee s claim of deduction on account of spoilt and damaged goods insofar as it relates to biscuits and confectionaries is allowable, since, assessee itself manufactures such items. However, as far as mouthwash and toothbrush are concerned, the assessee has not manufactured such products, therefore, the assessee could have returned such damaged goods to the manufacturer and claimed reimbursement. In view of the aforesaid, accepting the reasoning of the first appellate authority we dismiss the grounds raised by the Department as well as by the assessee. Addition made with regard to suppressed production resulting in suppressed sales of biscuits - Held that - As compared to the yield of Mumbai unit in the preceding assessment years as noted above, the assessee has shown a higher yield for the Mumbai unit in the impugned assessment year. Therefore, on over all consideration of facts and circumstances of the case, we are of the considered opinion that rejection of books of account and addition made on estimate basis alleging suppression of sale is not in accordance with law. Therefore, even a part of addition made by the Assessing Officer cannot be sustained. Accordingly, we delete the addition made by the Assessing Officer fully. Disallowance of deduction claimed under section 80I and 80IA - Held that - As in assessee s own case for assessment year 1995 96, we find that the Tribunal has upheld the disallowance of deduction claimed under section 80I and 80IA of the Act. Respectfully following the aforesaid decision of the Tribunal, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing the ground raised. Disallowance of depreciation on guest house - Held that - The issue has been decided against the assessee by the Tribunal in the preceding assessment years as well as by the decision of the Hon ble Supreme Court in Britannia Industries Ltd. v/s CIT(2005 (10) TMI 30 - SUPREME Court). Disallowance of depreciation on certain plant and machinery - Held that - The machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity. Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee s claim of depreciation. Moreover, the fact that in the subsequent assessment year, assessee s claim of depreciation on such machinery has been allowed has not been controverted by the learned Departmental Representative. Therefore, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commissioner (Appeals)

Summary

Issues Involved:
1. Deletion of addition of ?3,43,237 due to alleged suppression of closing stock.
2. Deletion of addition of ?24,89,077 on account of alleged inflated purchases.
3. Deletion of addition of ?23,05,600 due to alleged suppression of production resulting in unaccounted sales.
4. Deletion of addition of ?2,29,64,845 on account of sale of waste biscuits/biscuit powder/broken biscuit.
5. Restriction of disallowance of entertainment expenses to ?50,000.
6. Deletion of addition of ?20,57,746 on account of disallowance of foreign travel expenditure.
7. Deletion of addition of ?1,11,71,412 on account of unutilized MODVAT credit.
8. Ad-hoc disallowance of ?10 lakh on account of suppressed sale of confectionery.
9. Part disallowance of deduction claimed on account of spoilt and damaged goods.
10. Addition made with regard to suppressed production resulting in suppressed sales of biscuits.
11. Disallowance of deduction claimed under section 80I and 80IA.
12. Disallowance of depreciation on guest house.
13. Disallowance of depreciation of ?14,18,541 on certain plant and machinery.
14. Levy of interest under section 234B.

Detailed Analysis:

1. Deletion of Addition of ?3,43,237:
The Revenue challenged the deletion of the addition of ?3,43,237 due to alleged suppression of the closing stock of raw materials. The Assessing Officer (AO) added this amount, alleging a discrepancy in the valuation of closing stock. The Commissioner (Appeals) found that the difference was due to an incorrect rate of cheese in the stock register. The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the reconciliation statement was verified and found satisfactory.

2. Deletion of Addition of ?24,89,077:
The Revenue contested the deletion of ?24,89,077, alleging inflated purchases. The AO found discrepancies in the consumption of raw materials. The Commissioner (Appeals) accepted the reconciliation provided by the assessee, which was based on the books of account. The Tribunal agreed with the Commissioner (Appeals), noting that the evidence was examined by the AO during remand proceedings.

3. Deletion of Addition of ?23,05,600:
The AO added ?23,05,600, alleging suppression of production and unaccounted sales based on information from contract manufacturing units. The Commissioner (Appeals) deleted the addition after the assessee reconciled the difference with documentary evidence. The Tribunal upheld this decision, noting that the evidence was sent to the AO for examination.

4. Deletion of Addition of ?2,29,64,845:
The AO added ?2,29,64,845, alleging that waste biscuits were sold at a low rate. The Commissioner (Appeals) deleted the addition, accepting the assessee's explanation that burnt and powder biscuits were sold at a lower rate. The Tribunal upheld this decision, noting that the evidence was examined by the AO during remand proceedings.

5. Restriction of Disallowance of Entertainment Expenses:
The AO disallowed ?1 lakh out of entertainment expenses. The Commissioner (Appeals) restricted the disallowance to ?50,000, following the reasoning of the predecessor. The Tribunal directed the AO to restrict the disallowance to ?75,000, following the Tribunal's decision for the previous year.

6. Deletion of Addition of ?20,57,746:
The AO disallowed 50% of foreign travel expenses due to lack of supporting evidence. The Commissioner (Appeals) deleted the disallowance, following the Tribunal's decision for earlier years. The Tribunal restored the AO's disallowance, following its decision for the previous year.

7. Deletion of Addition of ?1,11,71,412:
The AO disallowed unutilized MODVAT credit. The Commissioner (Appeals) deleted the addition, following the decision of the Hon'ble Jurisdictional High Court. The Tribunal upheld this decision, noting that the issue was decided in favor of the assessee by the Hon'ble Supreme Court.

8. Ad-hoc Disallowance of ?10 Lakh:
The AO made an ad-hoc disallowance of ?10 lakh for suppressed sale of confectionery. The Commissioner (Appeals) reduced the disallowance to ?2 lakh. The Tribunal deleted the addition, noting that the discrepancies were mainly due to maida, which is not a raw material for confectionery.

9. Part Disallowance of Deduction for Spoilt and Damaged Goods:
The AO made an ad-hoc disallowance of 5% for spoilt and damaged goods. The Commissioner (Appeals) sustained the disallowance for goods not manufactured by the assessee. The Tribunal upheld this decision, noting that the assessee could have returned the damaged goods to the manufacturer.

10. Addition for Suppressed Production:
The AO added ?12,10,44,000 for suppressed production resulting in suppressed sales. The Commissioner (Appeals) reduced the addition to ?3 crore. The Tribunal deleted the entire addition, noting that the yield shown by the assessee was higher than in previous years and that the books of account were properly maintained and verified.

11. Disallowance of Deduction under Section 80I and 80IA:
The AO disallowed the deduction under section 80I and 80IA, noting that the assessee did not claim it in the return of income. The Commissioner (Appeals) upheld the disallowance. The Tribunal upheld this decision, following its decision for previous years.

12. Disallowance of Depreciation on Guest House:
The AO disallowed depreciation on the guest house. The Commissioner (Appeals) upheld the disallowance. The Tribunal upheld this decision, following its decision for previous years and the Hon'ble Supreme Court's decision.

13. Disallowance of Depreciation of ?14,18,541:
The AO disallowed depreciation on certain plant and machinery, noting that the assessee could not prove its use. The Commissioner (Appeals) upheld the disallowance. The Tribunal deleted the disallowance, noting that the machine was purchased, commissioned, and formed part of the fixed asset in the relevant financial year.

14. Levy of Interest under Section 234B:
The Tribunal noted that the levy of interest under section 234B is consequential and directed the AO to give consequential effect while re-computing the income of the assessee.

Conclusion:
Both the appeals were partly allowed, with specific directions and findings on each issue raised by the Revenue and the assessee.