2013 (8) TMI 484 - AT - Income Tax

Rate of allowance of interest expenditure Held that - Assessing Officer himself made the disallowance @ 12% in the succeeding year i.e. 2007-08. It was claimed that the facts for the year under consideration were similar with the facts involved in the assessment year 2007-08. The learned CIT(A) also pointed out that in another comparable case having similar facts, the Assessing Officer himself disallowed the proportionate interest @ 12% - Allowance of interest expenditure @ 12%. Allowance of expenditure in relation to insurance charge and registration fee of vehicle Held that - A.O. disallowed all the expenses incurred by the assessee on account of insurance and registration charges for the assets acquired first time during the year under consideration A.O. ignored this vital fact that insurance charges were to be paid year after year annually so those were revenue in nature. In the instant case, it is not the case of the Assessing Officer that those expenses were not incurred for the business purposes, therefore, the Learned CIT(A) was fully justified in deleting the disallowance to the extent of Rs. 5,55,033/-, which related to the annual insurance expenses Revenue appeal rejected Decided against the Revenue. Valuation of closing stock - The facts related to this issue in brief are that the Assessing Officer noticed that the assessee had shown closing stock of Rs. 2,15,95,145/- in the trading account of IMFL/Beer - The permit fees, which was payable on per bulk liter basis had not been included in the valuation of closing stock Held that - Assessing Officer was not justified in treating the permit fee relating to the transmission of the stock from godown to the shops as a part of the closing stock. Moreover, whatever permit fee was paid by the assessee that was for the sale materialised, therefore it could not have been added while valuing the closing stock, which was to be surrendered/ returned on the next day following the end of the year to the Excise Department/distillery at cost price Revenue appeal dismissed Decided against the Revenue. Depreciation on written down value of the carats - Assessee in the revised depreciation chart claimed the depreciation at Rs. 37,000/- on carats, based on the adjustment made on account of excess depreciation claimed in the assessment year 2005-06 - Assessee had claimed depreciation on carats @ 100%, however, it was allowable @ 50% - Held that - Depreciation on carats as claimed by the assessee is allowed - As the A.O. has already allowed 50% depreciation, there remains the W.D.V. at Rs. 16,74,000/- for the year under consideration. Therefore, the appellant is entitled for depreciation @ 50% on the W.D.V. of carats. The A.O. is directed to allow depreciation on carats as claimed by the appellant.

Summary

Issues Involved:
1. Restriction of disallowance of proportionate interest out of interest payment.
2. Relief provided out of the addition made under the head vehicle insurance and registration expenses.
3. Deletion of addition on account of under valuation of closing stock.
4. Allowance of depreciation on the written down value (WDV) of carats.

Detailed Analysis:

1. Restriction of Disallowance of Proportionate Interest:
The first issue pertains to the restriction of disallowance of proportionate interest from 15% to 12%. The assessee, a liquor contractor, had advanced funds to various parties without charging interest while paying interest on overdrafts. The Assessing Officer (AO) disallowed Rs. 6,44,515/- out of the interest claimed by the assessee, considering it non-business expenditure. The CIT(A) reduced this disallowance to 12%, referencing a similar case where 12% was deemed reasonable. The tribunal found no infirmity in CIT(A)'s decision, noting consistency with the subsequent year's assessment and a comparable case.

2. Relief on Vehicle Insurance and Registration Expenses:
The second issue involves relief of Rs. 5,55,033/- out of Rs. 10,82,872/- disallowed by the AO for vehicle insurance and registration expenses. The AO capitalized these expenses, allowing only 15% depreciation. The CIT(A) differentiated between one-time registration expenses (capital in nature) and recurring insurance expenses (revenue in nature), deleting the disallowance related to insurance. The tribunal upheld CIT(A)'s decision, recognizing the recurring nature of insurance expenses and their relevance to business operations.

3. Deletion of Addition for Under Valuation of Closing Stock:
The third issue concerns the deletion of an addition of Rs. 10,98,197/- for under valuation of closing stock. The AO included permit fees in the closing stock valuation, considering it part of the purchase price. The CIT(A) noted that the business was for one year only, and the stock had to be surrendered at cost price, making the inclusion of permit fees irrelevant. The tribunal agreed, emphasizing that permit fees were for materialized sales and should not be part of the closing stock valuation.

4. Depreciation on Written Down Value of Carats:
The final issue is the allowance of depreciation on the WDV of carats. The AO had allowed only 50% depreciation, adding the difference to the assessee's income. The CIT(A) directed the AO to allow depreciation as claimed by the assessee, noting that the WDV should reflect the revised depreciation chart. The tribunal upheld this decision, finding no valid grounds to interfere with CIT(A)'s observations, which were based on the factual matrix.

Conclusion:
The tribunal dismissed the department's appeal, supporting CIT(A)'s decisions on all issues. The judgments were based on consistent application of principles, factual accuracy, and adherence to legal standards. The tribunal's detailed analysis ensured that the assessee's claims were evaluated fairly, aligning with relevant precedents and statutory provisions.