2012 (11) TMI 91 - AT - Income Tax

Valuation of closing stock enhancement of value of land - Assessing Officer while calculating the value of closing stock added the amount of External Development Charges (EDC) and conversion charges to the cost of land at Kotkapura. - assessee contended that, it is well accepted practice that the statutory fee is not part of development expenses. - held that - matter remanded back to AO for fresh decision. Valuation of closing stock - Assessing Officer required the assessee to show cause as to why the valuation of land should not be taken on the basis of value of opening stock. The only reply given by the assessee was that the closing stock of the land was made as per accounting standard. - assessee had submitted a detailed submissions before the CIT(A). It seems that the CIT(A) has not taken into consideration the detailed submissions made by the assessee before him. The CIT(A) has also not given any reason as to why he has ignored the submissions of the assessee. - matter remanded to AO Disallowance @ 20% salary to director of the company - provisions of section 40A(3) - Cash payment - assessee submitted that the provisions of sect ion 40A(3) are not attracted in this case as it is protected by clause (d) to Rule 6DD of Income Tax Rules, 1962 Held that - Relevant entries in respect of salary expenses in the books of account of the assessee are not available on record. In the absence of such details, we could not appreciate the contention of Shri Ajay Jain, Ld. Counsel for the assessee matter remanded to Assessing Officer Disallowance of telephone expenses assessee submitted that telephone bills in the name of the company and the same were incurred for business purpose Held that - assessee submit ted that the assessee company has taken corporate connection in its own name and has given telephone connections to various employees and directors for business purposes only - service provider has issued the bill in the name of the company and all payments have been made by the company for business purposes only and it is only technical breach that at the time of leaving of employee and joining of new employee the change in name of user was not got registered in the records of telecom service provider - Assessing Officer has wrongly disallowed the expenses without appreciating the facts of the present case - appeal is allowed for statistical purposes

Issues Involved:
1. Valuation of Kotkapura Land
2. Valuation of Mansa Land
3. Disallowance of Salary to Director
4. Disallowance of Telephone Expenses

Detailed Analysis:

1. Valuation of Kotkapura Land:
The assessee contested the CIT(A)'s confirmation of additions to the valuation of Kotkapura land by Rs. 23,32,578/-. The Assessing Officer (AO) found discrepancies in the valuation, noting that the assessee did not include development expenses in the valuation of closing stock. The CIT(A) partially allowed the appeal, directing the AO to adopt the opening stock as the closing stock determined for the previous year. The Tribunal, after hearing submissions, found merit in the assessee's argument that statutory fees should not affect the valuation of closing stock. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for fresh consideration, directing the AO to consider the assessee's submissions and decide in accordance with the law.

2. Valuation of Mansa Land:
The assessee challenged the CIT(A)'s confirmation of additions to the valuation of Mansa land by Rs. 7,22,647/-. The AO had determined the closing stock based on the average value of the opening stock, leading to a discrepancy. The CIT(A) gave partial relief, directing the AO to adopt the opening stock as the closing stock determined for the previous year. The Tribunal noted that the CIT(A) did not consider the detailed submissions of the assessee and found that the method adopted by the AO was not recognized. The Tribunal remanded the issue to the AO for fresh consideration, directing the AO to consider the assessee's submissions and decide on merits.

3. Disallowance of Salary to Director:
The assessee appealed against the CIT(A)'s confirmation of 20% disallowance of salary paid to the director under section 40A(3) of the Income Tax Act. The Tribunal observed that relevant entries in the books of accounts were not available, making it difficult to appreciate the assessee's contention. In the interest of justice, the Tribunal restored the issue to the AO for fresh consideration, directing the AO to consider the assessee's contention and decide in accordance with the law.

4. Disallowance of Telephone Expenses:
The assessee contested the CIT(A)'s confirmation of disallowance of Rs. 94,694/- in telephone expenses. The AO disallowed the expenses, noting that several telephone users were not directors or employees. The CIT(A) upheld the disallowance. The Tribunal, after considering the assessee's arguments that the expenses were for business purposes and that FBT was paid, set aside the CIT(A)'s order. The Tribunal remanded the issue to the AO for fresh consideration, directing the AO to decide on merits after affording the assessee a reasonable opportunity of being heard.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding all issues to the AO for fresh consideration and directing the AO to consider the assessee's submissions and decide in accordance with the law.

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