2020 (12) TMI 387 - AT - Income Tax

Revised return filed - difference between the income returned as per original return and the income as per revised return - refusal to accept the revised return of income and upholding the addition - HELD THAT - Unless and until the AO rejected the Revised Return on the basis of discrepancies in Books of Accounts it is not possible to make such an addition. If there is any defect in the Books of Accounts he specifically point out the same and make specific addition. Being so, when the Books of Accounts are duly audited and approved by the AGM, the assessment has to be completed on the basis of Revised Return. There is no scope of taking the difference in income declared in the original return and revised return as additional income of the assessee. We are completely in agreement with the contention of the assessee that the Assessing Officer cannot consider the income declared in the original return based on the unaudited books of accounts over the income declared in revised return based on the audited books of accounts. We direct the Assessing Officer to complete the assessment on the basis of the Revised Return based on the audited books of accounts. This ground of appeal is allowed. Disallowance being sundry charges and additional ground is that said amount has not claimed as deduction in the Return of Income - HELD THAT - It is appropriate to remit this issue to the file of Assessing Officer for reconsideration to decide whether it is revenue expenditure or capital expenditure , if it is a capital expenditure, depreciation is to be granted at applicable rate. Both additional ground and main ground are allowed for statistical purposes. Disallowance being 25% of charges of tools which are written off during the year - According to the Assessing Officer, it has to be grouped under the head Block of Assets and depreciation to be claimed at applicable rate - AO disallowed the amount and granted depreciation @ 10% - HELD THAT - Assessee has been following the Inventory Policy on valuation of loose tools which is disclosed in Schedule 18 (vii) to audited financial statements. Loose Tools are charged of consumption @ 25% p.a on the reducing balance method. The net realizable value of inventory are considered and valued at 75% of the processing value. In our opinion, the method adopted by the assessee to value the loose tools is justified. The loose tools are neither plant nor machinery nor buildings nor furniture nor fixtures and method valued by the assessee consistently accepted by the revenue authorities. Accordingly, we allow this ground of appeal of the assessee.

Summary

Issues:
1. Refusal to accept the revised return and addition of the difference between original and revised income.
2. Disallowance of 25% of purchase of tools written off.
3. Disallowance of sundry purchases.
4. Additional ground raised regarding sundry purchases not claimed as deduction.

Issue 1: Refusal to accept the revised return and income addition:
The assessee filed a revised return due to discrepancies between unaudited and audited financial statements. The Assessing Officer added the difference between original and revised income. The Tribunal held that the assessment must be based on the revised return if filed within the prescribed time. The Assessing Officer cannot consider unaudited income over audited income. The appeal was allowed in favor of the assessee.

Issue 2: Disallowance of 25% of purchase of tools written off:
The Assessing Officer disallowed 25% of charges of tools written off, grouping it under Block of Assets for depreciation. The Tribunal found that loose tools are inventories, not depreciable assets, and should be valued based on the reducing balance method. The method adopted by the assessee was accepted, and the ground of appeal was allowed.

Issue 3: Disallowance of sundry purchases:
The Assessing Officer disallowed sundry charges without examining relevant bills. The Tribunal remitted the issue back to the Assessing Officer for reconsideration to determine if the expenditure is revenue or capital. Both the main and additional grounds were allowed for statistical purposes.

Issue 4: Additional ground raised regarding sundry purchases:
The assessee raised an additional ground regarding sundry purchases not claimed as a deduction. The Tribunal remitted the issue to the Assessing Officer for reconsideration to determine the nature of the expenditure and applicable depreciation rates.

In summary, the Tribunal allowed the appeal partly, directing the assessment to be based on the revised return, accepting the valuation method of loose tools as inventories, and remitting the issue of sundry purchases back to the Assessing Officer for further examination.