1992 (6) TMI 54 - AT - Income Tax

Summary

Issues Involved:
1. Addition to the value of closing stock.
2. Disallowance of law charges.
3. Claims u/s 32AB and 80HHC.
4. Disallowance u/r 6B.

Summary:

1. Addition to the Value of Closing Stock:
The primary issue was the addition of Rs. 35.11 lakhs to the value of the closing stock by the ITO, who argued that the MODVAT portion of the excise duty paid on raw materials should be included. The assessee, a paint manufacturer, followed the "exclusive" method of accounting for MODVAT, where excise duty on inputs is not debited in the P&L A/c but is recorded in a separate MODVAT Credit Receivable A/c. The CIT(A) upheld the ITO's addition. The Tribunal, however, ruled in favor of the assessee, stating that since the excise duty on inputs was not debited in the P&L A/c, it should not be added to the closing stock value. The Tribunal emphasized maintaining the "balance" in accounting, as adding the MODVAT element to the closing stock without debiting it in the P&L A/c would distort the profit calculation. The Tribunal also dismissed the department's argument that the assessee accepted the addition by providing the figure, clarifying that it was done under the ITO's directive and not as an acceptance of the addition.

2. Disallowance of Law Charges:
The ITO disallowed Rs. 30,000 out of the total law charges of Rs. 2,64,204 without specific reasons. The Tribunal, after scrutinizing the details provided by the assessee, found no basis for the disallowance and deleted it.

3. Claims u/s 32AB and 80HHC:
The ITO disallowed claims of Rs. 36.77 lakhs u/s 32AB and Rs. 1,28,960 u/s 80HHC on the ground that the audit reports were not furnished along with the return of income. The Tribunal noted that the audit reports were submitted before the assessment was completed and held that the requirement to file the audit report along with the return is directory, not mandatory. Citing the Kerala High Court's decision in CIT v. Malayalam Plantations Ltd. and ITAT decisions, the Tribunal allowed the claims.

4. Disallowance u/r 6B:
The assessee contested the disallowance of Rs. 84,594 for expenses on gifts and presentation articles. The CIT(A) had confirmed Rs. 82,687 based on the audit report and deleted the balance. The Tribunal upheld the disallowance of Rs. 82,687 as per the audit report.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal deleting the addition to the closing stock and the disallowance of law charges, while confirming the disallowance u/r 6B and allowing the claims u/s 32AB and 80HHC.