2003 (8) TMI 177 - AT - Income Tax

Summary

Issues Involved:
1. Addition to the valuation of closing stock.
2. Exclusion of income.
3. Depreciation on expenditure.
4. Disallowance of expenditure on repairs at the residence of employees.
5. Disallowance of deduction for interest accrued but not due.
6. Disallowance of interest on excess levy sugar price.
7. Disallowance of deduction for provision of bad and doubtful debts.
8. Disallowance of entertainment expenditure.

Detailed Analysis:

1. Addition to the Valuation of Closing Stock:
The assessee changed the method of valuation of closing stock of sugar, valuing levy sugar independently at lower cost or realisable value instead of averaging it with free sale sugar. The AO observed that this change resulted in a lower valuation of stock and lower net profit by Rs. 1,68,71,980. The CIT(A) upheld the AO's decision, noting that the change was not consistent and appeared to be aimed at reducing tax liability. The Tribunal agreed, finding the change not bona fide and not consistently followed, thus confirming the addition.

2. Exclusion of Income:
Ground No. 2 was not pressed by the assessee and was thus rejected.

3. Depreciation on Expenditure:
The AO allowed 10% depreciation on expenditures on aluminium partitions, treating them as part of furniture and fixtures, instead of allowing 100% depreciation claimed by the assessee as temporary structures. The CIT(A) confirmed this, and the Tribunal agreed, noting that the life span of aluminium structures justified a lower depreciation rate.

4. Disallowance of Expenditure on Repairs at the Residence of Employees:
The AO disallowed Rs. 9,100 spent on repairs at the vice president's residence, considering it non-business expenditure. The CIT(A) upheld this decision. The Tribunal confirmed the disallowance as the assessee failed to prove that the expenditure was incurred as part of the terms of employment or regular business.

5. Disallowance of Deduction for Interest Accrued but Not Due:
The AO disallowed Rs. 21,15,615 of interest accrued on Sugar Development Fund Loan, stating it was not due for payment. The CIT(A) upheld this under s. 43B(a) of the Act. The Tribunal agreed, noting that interest could only be claimed when due, and the repayment schedule began in 1996.

6. Disallowance of Interest on Excess Levy Sugar Price:
The AO disallowed Rs. 15,54,540 as interest on excess levy sugar price, considering it a contingent liability. The CIT(A) upheld this, noting that the liability was not crystallised as the Supreme Court had not given a final order. The Tribunal confirmed, stating that the liability remained contingent pending the Supreme Court's decision.

7. Disallowance of Deduction for Provision of Bad and Doubtful Debts:
Ground No. 7 was not pressed by the assessee and was thus dismissed.

8. Disallowance of Entertainment Expenditure:
The AO disallowed Rs. 14,80,175 under s. 37(2A), estimating only 10% of the expenses as attributable to employees' participation. The CIT(A) directed the AO to exclude 35% of such expenditure. The Tribunal upheld the CIT(A)'s decision, finding it reasonable based on the assessee's own claim.

Conclusion:
The Tribunal dismissed the appeal, confirming the decisions of the CIT(A) on all grounds.