2013 (3) TMI 218 - AT - Income Tax

Disallowance of stock loss - FAA deleted the addition - Held that - As per AO it is the case of less purchases whereas as per the assessee it is a case of receipt of less stock due to flood as 2600 MT of goods got washed away into the sea at Paradeep Port. Supplier had insurance with ICICI Lombard General Insurance who got Rs.1,45,77,724 & appellant had to bear loss of Rs.20,88,189. On carefully analyzing the impugned orders of both the authorities below in the light of the submissions of both the parties and considering the material made available to the Tribunal, it is found that both the authorities have not properly examined the issue in the light of facts on record and evidence produced by the assessee. Therefore set aside the impugned order of the CIT(A)and restore this issue to the file of the AO for fresh adjudication strictly following the principles of natural justice - in favour of revenue for statistical purposes. Addition u/s 40(a)(ia) - reimbursement of freight charges - CIT(A) deleted the said addition relying on the decision of DCIT v. Hasmukh J. Patel (2011 (3) TMI 353 - ITAT, AHMEDABAD)wherein held that where payment made by the assessee is nothing but reimbursement of freight charges for which necessary memos were issued by the shipping agent, Section 194C was not applicable - Held that - The payments in question have been made by AERL and the assessee had only reimbursed the amount corresponding such payments. The CIT(A) has observed that the AO has not come out with any contrary finding on the claim of the assessee. Therefore, no infirmity in the order of the CIT(A) duly supported by the decision of ITAT, Ahmedabad (supra) - in favour of assessee. Disallowance of electricity charges - CIT(A) deleted the disallowance - Held that - The assessee claimed to have paid service connection fees deposited with Executive Engineer office at Jajpur. In the cases of CIT v. Excel Industries 1979 (10) TMI 68 - BOMBAY HIGH COURT , CIT v. Anand Gum Industries 1985 (4) TMI 58 - RAJASTHAN HIGH COURT and Sarabhai M Chemicals v. CIT 1980 (7) TMI 77 - GUJARAT HIGH COURT it is held service connection fee is a revenue expense as the advantage was not of an enduring nature. Thus no infirmity in the order of CIT(A) deleting the addition being the fees for service connection of electricity - in favour of assessee.

Summary

Issues:
1. Disallowance of stock loss
2. Disallowance of addition under section 40(a)(ia)
3. Disallowance of electricity charges as revenue expenditure

Issue 1 - Disallowance of stock loss:
The Revenue appealed against the CIT(A)'s order deleting the disallowance of stock loss of Rs.20,88,189. The case involved discrepancies in stock quantity and purchases. The Assessing Officer found a shortage of raw material stock and discrepancies in the purchase of coking coal. The appellant claimed stock loss due to flood, but the AO questioned the evidence provided. The CIT(A) deleted the addition, citing the High Sea Sale Agreement and insurance coverage. However, the ITAT found both authorities had not properly examined the issue and sent it back to the AO for fresh adjudication.

Issue 2 - Disallowance under section 40(a)(ia):
The AO disallowed Rs.41,46,571 under section 40(a)(ia) for not deducting TDS on payments to Apex Energy Resources Ltd. The CIT(A) overturned this decision based on a precedent where reimbursement of freight charges did not require TDS deduction. The ITAT upheld the CIT(A)'s decision, noting the absence of contradictory findings by the AO.

Issue 3 - Disallowance of electricity charges:
The AO disallowed Rs.1,81,000 as capital expenditure for service connection fees, which the CIT(A) reversed, considering it a revenue expense based on judicial precedents. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the ITAT partly allowed the Revenue's appeal for statistical purposes, sending back the stock loss issue for fresh adjudication while upholding the decisions on the disallowances under section 40(a)(ia) and the treatment of electricity charges as revenue expenditure.