2014 (5) TMI 542 - AT - Income Tax

Deletion of disallowance on account of variation in closing stock Held that - Revenue has not been able to refute the findings of fact recorded by the CIT (A) - as per the audited balance sheet of the assessee, the value of closing stock is Rs. 2,27,92,346 - The quantity of closing stock tallies with the figure of excise records in RG-23, Part II and RG- 1 - CIT (A) is correct in holding that the AO wrongly took the value of stock of the assessee, as shown in the original return of income - CIT (A) rightly directed the AO to adopt the figure of the assessee s closing stock at Rs. 2,27,92,346/-, as declared in the revised return filed on 14.12.09, as against the value of closing stock of Rs. 2,65,61,073/-, as taken by the assessee in its original return of income the order of the CIT(A) is upheld Decided against Revenue. Deletion of disallowance of fuel expenses Held that - CIT (A) has rightly considered the contention of the assessee that the figure of Rs. 26,27,504/- was not the figure of fuel consumption and the correct fuel consumption was of Rs. 6,32,63,773/-, as compared to that of Rs. 5,46,31,886/- for the immediately preceding assessment year - The sales of the assessee company during the year were of Rs. 56,09,71,932/-, as compared to those of Rs. 39,34,31,972/- for the preceding year - Percentagewise, it worked out to 11.28% for the year, as compared to 30.89% for the preceding year - The AO had made the addition out of the closing stock incorrectly- All the fuel expenses had been made on regular bills from the suppliers and the payment had been made through account payee cheques - A copy of the assessee s fuel account was filed the order of the CIT(A) is upheld Decided against Revenue. Deletion of disallowance of stores and spares expenses Held that - CIT(A) was of the view that all the purchase transactions were through cheque payment, but for some small purchases done on urgent basis at the plant itself, in cash, through regular cash memos, entry qua which was duly made in the assessee s books of account - the assessee had not claimed this stock as expense u/s 37(1) of the IT Act - an asset was created in the inventory to be claimed in the next year- The expenditure found by the CIT (A) to be the figure of closing stock as per the assessee s books of account - The financial statement produced showed that the assessee had incurred an expenditure during the year on stores and spares as against a similar expenditure in the immediately preceding year - There was also no finding to the effect that the expenses had been incurred for any non-business purpose the details include description of the stores and spares, the party from whom they were purchased, the bill No., the billing date, the quantity, the rate and the amount - None of the above evidence produced by the assessee in support of its claim, as considered in detail by the CIT (A) the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
1. Disallowance of Rs.37,68,727/- on account of variation in closing stock.
2. Disallowance of Rs.5,00,000/- on account of fuel expenses.
3. Disallowance of Rs.6,00,000/- on account of stores and spares expenses.

Analysis:

Issue 1: Disallowance of Rs.37,68,727/- on account of variation in closing stock
The Department appealed against the CIT (A)'s decision to delete the disallowance. The AO disallowed the amount due to a difference in the value of closing stock as shown in revised returns. The CIT (A) considered the assessee's explanation that the mistake was due to misreporting of closing stock values. The assessee provided various documents supporting the correct value of closing stock. The Tribunal upheld the CIT (A)'s decision, noting that the closing stock value was correctly reported in the revised return, supported by audited balance sheets and excise records. The Department failed to refute these findings, leading to the confirmation of the CIT (A)'s order.

Issue 2: Disallowance of Rs.5,00,000/- on account of fuel expenses
The AO disallowed a portion of fuel expenses due to a significant increase compared to the previous year, citing unverifiable bills. The CIT (A) deleted the disallowance after considering the assessee's explanation and supporting documents. The Tribunal upheld this decision as the correct fuel consumption figures were provided, and all expenses were supported by regular bills and cheque payments. The Department's contention of unverifiable bills was not substantiated, leading to the rejection of their appeal.

Issue 3: Disallowance of Rs.6,00,000/- on account of stores and spares expenses
The AO disallowed a portion of expenses due to a substantial increase in stores and spares expenses, claiming unverifiable bills. The CIT (A) deleted the disallowance based on the assessee's explanation and evidence of proper stock management practices. The Tribunal upheld this decision, noting that all purchases were supported by regular bills and cheque payments, with no discrepancies found in the audited financial statements. The Department failed to challenge the evidence presented, resulting in the rejection of their appeal.

In conclusion, the Tribunal dismissed the Department's appeal, upholding the CIT (A)'s decisions on all three issues after thorough consideration of the assessee's explanations and supporting documentation.