2012 (2) TMI 238 - AT - Income Tax

Valuation of Closing Stock - AO made additions as Excise Duty not included in stock - Held That - In view of Asst.CIT vs. Narmada Chematur Petrochemicals Ltd. (2010 - TMI - 202159 - Gujarat High Court), duty to be included only at the time of sale since goods not cleared additions not justified. TDS - Delivery of gas to be made from buyer to seller at the outlet station - Held That - Its a contract of sale/ purchase and not of work thus no liability to deduct TDS under 194C.

Summary

Issues involved:
1. Valuation of closing stock for A.Y. 2005-06
2. Disallowance under section 40(a)(ia) for A.Y. 2005-06
3. Cross objection for A.Y. 2005-06
4. Valuation of closing stock for A.Y. 2006-07
5. Disallowance under section 40(a)(ia) for A.Y. 2006-07

Valuation of closing stock for A.Y. 2005-06:
The main issue revolved around the alleged undervaluation of closing stock by not including excise duty. The AO added the excise duty amount to the closing stock value, citing section 145A of the Act. The CIT(A) upheld the AO's decision, stating that excise duty should be included in the closing stock valuation. However, the assessee argued that excise duty should only be included when goods are cleared from the factory, relying on various case laws. The ITAT reversed the CIT(A)'s decision, agreeing with the assessee's arguments, and allowed the appeal.

Disallowance under section 40(a)(ia) for A.Y. 2005-06:
The AO disallowed a payment made without tax deduction under section 194C, invoking section 40(a)(ia). The CIT(A) disagreed, stating that the payment was part of a contract for sale and not a work contract. The ITAT upheld the CIT(A)'s decision, citing factual findings and legal principles, and dismissed the revenue's appeal.

Cross objection for A.Y. 2005-06:
The cross objection was filed by the assessee to dismiss the revenue's appeal, citing a Tribunal decision. However, since the issue was already addressed in deciding the revenue's appeal, the cross objection was deemed redundant and dismissed.

Valuation of closing stock for A.Y. 2006-07:
Similar to the issue in A.Y. 2005-06, the AO alleged undervaluation of closing stock by not including excise duty. The ITAT allowed the assessee's appeal, following the same reasoning and legal principles as in the A.Y. 2005-06 case.

Disallowance under section 40(a)(ia) for A.Y. 2006-07:
The AO made a disallowance under section 40(a)(ia), which was deleted by the CIT(A). The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal based on similar facts and legal principles as in the A.Y. 2005-06 case.

In summary, the ITAT allowed the assessee's appeal for A.Y. 2005-06 and A.Y. 2006-07 regarding the valuation of closing stock, while dismissing the revenue's appeal on the disallowance under section 40(a)(ia) for both years. The cross objection for A.Y. 2005-06 was dismissed as redundant.