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2023 (6) TMI 41 - AT - Income TaxAddition on account of excess consumption of Raw Material - CIT-A deleted the addition - HELD THAT - Assessee was subject to VAT and Excise and both departments has accepted the financial result of the assessee. AO was not justified in making addition by rejecting of books of accounts u/s 145(3) of the Act. CIT(A) has noted that in the remand proceedings, no adverse comments were offered by AO. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. Thus no reason to interfere with the order of CIT(A) on this issue and thus the ground of Revenue is dismissed. Addition on account of foreign exchange fluctuation - aggregate foreign exchange loss to be without any basis and accordingly, disallowed the same - CIT-A deleted the addition - HELD THAT - CIT(A) while deciding the issue has given a categorical finding that with respect to the loss it was on account of capital goods and the assessee had made the adjustment to the cost of assets and had not claimed any expense on account of foreign exchange fluctuation on capital goods - as noted that in the remand report, AO has not given any adverse finding on the submissions made by assessee. Find force in the conclusion of CIT(A) that since assessee has not claimed any expenses the disallowance by AO was not sustainable, Before us, Revenue has not pointed to any fallacy in the findings of CIT(A) and thus the ground of Revenue is dismissed. Disallowance of Guest House Expenses - Addition partly deleted by CIT(A) - HELD THAT - As per CIT-A disallowance made at 50% by AO to be on higher side and restricted the disallowance to 20%, no fallacy in the findings of CIT(A) has been pointed out by Revenue nor is the assessee aggrieved by partial relief granted by CIT(A). No reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Disallowance of repair and maintenance expenses - AO noted that assessee has failed to produce the copies of the bills to substantiate its claim of expenses - As possibility of debiting expenses of capital nature cannot be ruled out considered 25% of Repair and maintenance not allowable - CIT-A allowed claim - HELD THAT - CIT(A) while deleting the addition has given a finding that AO has made the disallowance without pointing out any defects in the books of accounts of the assessee and that the expenses were incurred for the purpose of business and allowable u/s 37(1) - He therefore deleted the addition made by AO. No fallacy in the findings of CIT(A) has been pointed out by Revenue. No reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Addition made on account of royalty payment - AO noted that the agreement filed by the assessee was not made on stamp paper and therefore according to AO it had no legal sanctity - As noted agreement entered by assessee was for Technical Support Agreement and not for the Royalty or for the technical know-how for which royalty was paid, therefore held the payment of royalty to be without any cogent basis, thus disallowed 10% of the royalty payment - HELD THAT - CIT(A) while deleting the addition has noted that AO had allowed royalty expenditure to 90% and disallowed 10%. He noted that the royalty payment made by assessee was not found to be bogus and since the assessee had furnished necessary evidence for making royalty payment, the adhoc disallowance could not be made. He thus deleted the addition made by AO. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. We find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Addition on account of Job work expenses - AO noted that assessee did not file any deposits of expenses nor produced copy of the bills and vouchers - Addition deleted by CIT(A) - HELD THAT - CIT(A) after considering the details and remand report furnished by assessee has given a finding that during the course of remand proceedings, AO had verified the details of expenses that were filed by assessee and he has accepted the payments made and had also given a finding that assessee had deducted TDS on contractual payment. Considering the totality of the facts, CIT(A) directed that the addition be deleted. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
Issues Involved:
1. Addition on account of excess consumption of raw material. 2. Addition on account of foreign exchange fluctuation. 3. Addition on account of guest house expenses. 4. Addition on account of repair and maintenance expenses. 5. Addition on account of royalty payment. 6. Addition on account of job work expenses. Summary: 1. Excess Consumption of Raw Material: The AO added Rs. 5,68,22,267/- citing excess raw material consumption, rejecting the assessee's books under section 145(3). The CIT(A) deleted the addition, noting the assessee provided detailed CENVAT registers, excise reconciliation, and month-wise raw material consumption. The consumption percentage was lower than previous years, and VAT and Excise departments accepted the financial results. The Tribunal upheld CIT(A)'s decision, finding no fault in the CIT(A)'s findings. 2. Foreign Exchange Fluctuation: The AO disallowed Rs. 94,28,002/- of foreign exchange loss, claiming it was beyond the financial year and lacked narration. The CIT(A) deleted the addition, stating the loss was adjusted in the cost of assets as per section 43A and not claimed as an expense. The Tribunal upheld CIT(A)'s decision, noting no adverse findings from the AO in the remand report. 3. Guest House Expenses: The AO disallowed 50% of guest house expenses (Rs. 18,11,088/-) due to lack of supporting evidence and potential use by directors. The CIT(A) reduced the disallowance to 20% (Rs. 7,24,435/-), noting the absence of bills and vouchers. The Tribunal upheld CIT(A)'s decision, finding no reason to interfere. 4. Repair and Maintenance Expenses: The AO disallowed 25% (Rs. 43,23,320/-) of repair and maintenance expenses, suspecting capital nature expenses. The CIT(A) deleted the addition, stating the AO pointed out no defects in the books and the expenses were for business purposes under section 37(1). The Tribunal upheld CIT(A)'s decision. 5. Royalty Payment: The AO disallowed 10% (Rs. 23,29,368/-) of royalty expenses, questioning the agreement's validity and quantification. The CIT(A) deleted the addition, noting the AO accepted the agreement and royalty payment as genuine in the remand report. The Tribunal upheld CIT(A)'s decision. 6. Job Work Expenses: The AO disallowed Rs. 12,00,000/- of job work expenses due to lack of supporting documents. The CIT(A) deleted the addition, noting the actual job work charges were Rs. 1,82,20,156/- and the AO found the expenses acceptable in the remand report. The Tribunal upheld CIT(A)'s decision. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of the additions made by the AO on all grounds.
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