1995 (12) TMI 87 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of additions due to differences in valuation of closing stock for assessment years 1984-85 and 1986-87.
2. Disallowance of the value of dies consumed during the previous years.
3. Disallowance under Section 43B of the Income Tax Act.
4. Non-admittance of the claim for deduction under Section 80J and/or 80HHA.
5. Levy of interest under Section 217.

Issue-wise Detailed Analysis:

1. Confirmation of Additions Due to Differences in Valuation of Closing Stock:

The first common ground in these two appeals relates to the confirmation of additions of Rs. 2,19,599 for the assessment year 1984-85 and Rs. 3,74,190 for the assessment year 1986-87 on account of differences in the valuation of closing stock. The Assessing Officer (AO) observed discrepancies between the closing stock values shown in the books of account and those submitted to the bank. The AO made additions based on these discrepancies, which were confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

The assessee argued that excise duty was paid on all purchases of raw material and debited to separate accounts. The valuation of stock in the books was made at cost net of excise, a method consistently followed since the assessment year 1978-79 and accepted by the Department in the past. The learned Departmental Representative contended that the method of accounting set out in the "Guidance Note on Accounting Treatment for Excise Duties" by the Institute of Chartered Accountants of India (ICAI) should apply, which includes excise duty as an element of cost for inventory valuation.

The Tribunal noted that the assessee did not debit the excise duty paid on purchases as an expenditure but treated it as an advance payment to be set off against the excise duty payable on sales. This method had been consistently followed and accepted in prior years. The Tribunal concluded that the additions of Rs. 2,19,599 for the assessment year 1984-85 and Rs. 3,74,190 for the assessment year 1986-87 could not be sustained and directed the AO to cancel these additions.

2. Disallowance of the Value of Dies Consumed During Previous Years:

The second common ground relates to the disallowance of Rs. 1,31,538 for the assessment year 1984-85 and Rs. 3,33,000 for the assessment year 1986-87, being the value of dies consumed during the previous years. The assessee argued that the consumption of dies was written off based on a method uniformly followed from year to year. The CIT(A) held that the method of valuation of dies was not scientific and proper, and the value of dies in use could not be reduced arbitrarily.

The Tribunal agreed with the CIT(A) that the method followed by the assessee was not scientific. However, it found merit in the alternative argument that some deduction should be allowed for the wear and tear of dies, which are eligible for depreciation as plant under Section 43(3) of the Income Tax Act. The Tribunal restored the matter to the AO with a direction to consider the assessee's claim for depreciation on the cost/WDV of dies in accordance with the law.

3. Disallowance Under Section 43B:

The ground for the assessment year 1984-85 relates to the confirmation of disallowance of Rs. 13,181 under Section 43B. The learned counsel admitted that the disallowance under Section 43B was restricted by the CIT(A) to Rs. 13,181 out of the total disallowance of Rs. 1,18,075 made in respect of outstanding sales-tax liability. The Tribunal found no merit in this ground and rejected it.

4. Non-Admittance of the Claim for Deduction Under Section 80J and/or 80HHA:

The next ground in the assessment year 1984-85 is that the CIT(A) erred in not admitting the claim for deduction under Section 80J and/or 80HHA. The CIT(A) rejected the claim on the ground that no such claim was made before the AO. The Tribunal agreed with the CIT(A), noting that the assessee failed to furnish any specific claim or relevant documents required for deductions under these sections. The Tribunal confirmed the CIT(A)'s view.

5. Levy of Interest Under Section 217:

The last ground relates to the confirmation of the levy of interest under Section 217. The CIT(A) directed the AO to grant consequential relief. The Tribunal found that the directions given by the CIT(A) to the AO for recalculating the interest would meet the ends of justice and rejected this ground.

Conclusion:

In the result, both the appeals were treated as partly allowed for statistical purposes. The Tribunal directed the AO to cancel the additions related to the valuation of closing stock and to consider the assessee's claim for depreciation on dies. The other grounds raised by the assessee were rejected.