2024 (6) TMI 687 - AT - Income Tax

Addition for Under-Valuation of Closing Stock stock - reliance on stock statements furnished to banks for credit purposes - CIT(A) deleted the impugned addition, noting that the stock statement supplied to the bank was primarily for securing higher borrowing facilities and did not necessarily reflect the actual stock position - HELD THAT - Statement furnished to the bank cannot be the sole basis for determining the closing stock value for tax purposes unless supported by any independent verified evidence. CIT(A) has rightly deleted the addition made by the AO, and the same is upheld. Therefore, the Ground No.1 of the Revenue is dismissed. Disallowance u/s 14A towards Investment in Shares - HELD THAT - Section 14A of the Act is not a provision which empowers the AO to disallow expenditure which has been incurred for earning income chargeable to tax in each and every case where there is an investment which is capable of earning exempted income. Section 14A of the Act will come into play only in such cases where there is a claim by the assessee that particular income is exempt u/s.10 of the Act or is not liable to be included in the total income of the assessee, and the assessee had incurred expenditure in relation to such exempted income. In the present case, it is evident that there is no claim of any exempted income. When there is no claim of exemption in respect of any income during the year, provisions of Section 14A of the Act has no applicability, particularly so when the appellant has not incurred any expenditure whatsoever for making the investments. As decided in the case of CIT vs. Corrtech Energy Limited 2014 (3) TMI 856 - GUJARAT HIGH COURT that in a case where there is no income which is not chargeable to tax, provisions of Section 14A of the I.T. Act is not applicable. It is also a settled law that when assessee has substantial interest free funds disallowance u/s.14A of the Act is unwarranted - See Suzlon Energy Ltd 2013 (7) TMI 697 - GUJARAT HIGH COURT - Decided in favour of assessee. Disallowance towards Interest on Unpaid Purchase Price - CIT(A) has deleted the addition - HELD THAT - assessee purchased raw-material from POSCO and as none of the vendors of the said raw-material used to give credit for purchase of said material and POSCO allowed the credit facility for purchase of raw material (but charged interest at the rate of 6% per annum), material was purchased from POSCO. Since there was a delay in payment to POSCO, assessee paid interest to POSCO.POSCO is not a related party. Such interest was paid to POSCO in earlier years also. Such interest was paid on account of contractual obligation at 6% per annum when interest paid to bank was at the rate of 15% or more per annum - POSCO is enjoying monopoly among suppliers of electrical steel coils and importantly purchases from POSCO have not been doubted by the AO. CIT(A) has correctly deleted the addition considering these points and relying on the decision of co-ordinate bench in case of assessee itself in AY 2012-13. Decided in favour of assessee. Disallowance towards Insurance Expenses - Keyman Insurance Policy, where the beneficiary of such policies was assessee company and not the individual directors - AO disallowed this expenditure concluding that the same were incurred towards personal expenses - HELD THAT - Considering the fact that the insurable interest is held in the company in case of Key Insurance Policies and the decision of Co-ordinate Bench, we dismiss the appeal of the Revenue.

Summary

Issues Involved:

1. Deletion of Addition for Under-Valuation of Closing Stock.
2. Deletion of Disallowance under Section 14A towards Investment in Shares.
3. Deletion of Disallowance towards Interest on Unpaid Purchase Price.
4. Deletion of Disallowance towards Insurance Expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition for Under-Valuation of Closing Stock:

The Revenue challenged the deletion of an addition of Rs. 13,23,88,046/- made by the AO for under-valuation of closing stock. The AO had rejected the value disclosed in the books under section 145(3) of the Income Tax Act, 1961, and adopted the value shown in the stock statement furnished to the bank. The Ld.CIT(A) deleted the addition, noting that the stock statement supplied to the bank was primarily for securing higher borrowing facilities and did not necessarily reflect the actual stock position. The Ld.CIT(A) relied on several decisions of the Gujarat High Court, which consistently held that stock statements furnished to banks for credit purposes do not represent the true value of closing stock as per the books of accounts. The Tribunal upheld the Ld.CIT(A)'s decision, emphasizing that the stock statement furnished to the bank cannot be the sole basis for determining the closing stock value for tax purposes unless supported by any independent verified evidence. Therefore, the Ground No.1 of the Revenue was dismissed.

2. Deletion of Disallowance under Section 14A towards Investment in Shares:

The AO made an addition of Rs. 34,57,503/- under section 14A of the Act in respect of the investment in shares. The Ld.CIT(A) deleted the disallowance, agreeing with the assessee's contention that no fresh investment was made in equity shares during the year, and no exempt income was earned or claimed. The Tribunal noted that Section 14A applies only when there is a claim of exempt income and the assessee has incurred expenditure in relation to such exempt income. Since there was no claim of exempt income and the assessee had sufficient interest-free funds, the Tribunal upheld the Ld.CIT(A)'s decision, dismissing Ground No. 2 of the Revenue.

3. Deletion of Disallowance towards Interest on Unpaid Purchase Price:

The AO disallowed Rs. 60,98,247/- towards interest paid to POSCO India Pure Processing Centre on the unpaid purchase price of raw material. The Ld.CIT(A) deleted the disallowance, noting that POSCO was not a related party, and the interest was paid as per a contractual obligation at a rate lower than the bank interest rate. The Tribunal upheld the Ld.CIT(A)'s decision, considering the facts and the decision of the Co-ordinate Bench in the assessee's own case for AY 2012-13, dismissing this ground by upholding the order passed by the Ld.CIT(A).

4. Deletion of Disallowance towards Insurance Expenses:

The AO disallowed Rs. 24,66,506/- towards insurance expenses related to Keyman Insurance Policy, concluding that they were personal expenses. The Ld.CIT(A) deleted the disallowance, noting that the policies were for the benefit of the company, not individual directors. The Tribunal upheld the Ld.CIT(A)'s decision, considering the insurable interest held by the company and the decision of the Co-ordinate Bench, dismissing the appeal of the Revenue.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, upholding the order of the Ld.CIT(A) on all grounds. The order was pronounced in the Open Court on 13th June, 2024, at Ahmedabad.