1991 (8) TMI 141 - AT - Income Tax

2003 (3) TMI 284 - AT

Issues Involved:
1. Addition of Rs. 78,358 due to alleged under-valuation of closing stock.
2. Disallowance of Rs. 55,799 and Rs. 1,37,902 relating to U.P. Sales-tax and Central Sales-tax.
3. Disallowance of Rs. 3,550 under Section 80VV.
4. Disallowance of Rs. 47,658 out of manufacturing expenses.
5. Addition of Rs. 21,000 on account of closing stock of two motors.
6. Disallowance of Rs. 4,250 out of consumable stores.

Issue-wise Detailed Analysis:

1. Addition of Rs. 78,358 due to alleged under-valuation of closing stock:
The Revenue's appeal contested the deletion of an addition of Rs. 78,358 made by the Assessing Officer (AO) for under-valuation of closing stock. The AO had initially valued the closing stock of 1971 pieces of semi-finished goods at Rs. 1,05,930, but later adjusted this to Rs. 16,58,597 based on an average sale price of Rs. 935 per piece, resulting in an addition of Rs. 1,84,288. This was subsequently reduced to Rs. 78,358 under Section 154. The CIT(A) deleted the addition, stating that the figures were properly explained and there was no evidence of suppressed sales. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not justify the assumption of suppressed value and failed to identify specific defects in the valuation method.

2. Disallowance of Rs. 55,799 and Rs. 1,37,902 relating to U.P. Sales-tax and Central Sales-tax:
The assessee appealed against the disallowance of Rs. 55,799 (U.P. Sales-tax) and Rs. 1,37,902 (Central Sales-tax). The AO did not allow these deductions, arguing that the liabilities were for earlier years and had not been paid. The CIT(A) partly accepted the assessee's plea for Rs. 28,000 but upheld the disallowance for the balance. The Tribunal found that the demands were raised during the relevant previous year and that Section 43B, operative from 1st April 1984, could not be invoked for the assessment year 1983-84. Citing the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. vs. CIT, the Tribunal allowed the entire amounts as deductions.

3. Disallowance of Rs. 3,550 under Section 80VV:
The AO disallowed Rs. 3,550 under Section 80VV, which limits deductions for legal expenses to Rs. 5,000. The CIT(A) upheld this disallowance. The Tribunal, however, found that Section 80VV applies to expenses incurred in proceedings before income-tax authorities and does not cover consultation fees. Therefore, the disallowance was reduced to Rs. 550.

4. Disallowance of Rs. 47,658 out of manufacturing expenses:
The AO disallowed Rs. 47,658 out of Rs. 1,50,419 claimed as manufacturing expenses due to lack of bills and non-production of the store ledger. The CIT(A) upheld this disallowance. The Tribunal noted that the assessee had produced internal vouchers and that the expenses were consistent with previous years. It found no justification for disallowing about one-third of the expenses and deleted the addition.

5. Addition of Rs. 21,000 on account of closing stock of two motors:
The AO added Rs. 21,000 for two motors of 100 HP, citing variations in stock value reported to the bank and in the profit & loss account. The CIT(A) upheld this addition, noting that the motor was valued higher for bank purposes. The Tribunal observed that the motor's cost price was Rs. 32,272, and it was sold for Rs. 36,350 shortly after the accounting period. It reduced the addition to Rs. 7,272, aligning with the cost price.

6. Disallowance of Rs. 4,250 out of consumable stores:
The AO disallowed Rs. 4,250, representing 10% of consumable stores expenses, due to discrepancies in ledger entries. The CIT(A) upheld this disallowance. The Tribunal found no justification to interfere with the authorities' decision due to lack of evidence and upheld the disallowance.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing detailed justifications for each issue.

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