2015 (6) TMI 246 - AT - Income Tax

Addition of closing work in progress - CIT(A) deleted the addition - Held that - Similar issue arose in Assessment Years 2004-05, wherein the CIT(A) has granted the relief to the assessee on similar issue by deleting the addition for closing work-inprogress amounting to ₹ 8,37,568/-. Facts being similar, so following the same reasoning as mentioned in the case of Bajaj Fashions Pvt Ltd ( 2009 (7) TMI 1214 - ITAT AHMEDABAD), this issue in the appeal for Assessment Year 2004-05 is also decided in favour of assessee. Addition of excess payment of interest to sister concern - CIT(A) deleted the addition - Held that - Following the same reasoning as mentioned in the order of Hon ble Gujarat High Court in assessee s own case (2015 (1) TMI 663 - GUJARAT HIGH COURT) wherein held if the Tribunal was satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the assessee there was no reason why the full amount expended should not have been allowed. It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or that it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee , we are not inclined to interfere with the findings of the CIT(A) who has rightly deleted the addition of excess payment of interest to sister concern amounting to ₹ 13,65,558/-; accordingly, the same is upheld. - Decided in favour of assessee.

Summary

Issues:
1. Addition of closing work-in-progress
2. Excess payment of interest to sister concern

Issue 1: Addition of Closing Work-in-Progress:
The appeal involved multiple assessment years challenging the deletion of closing work-in-progress additions. The Assessing Officer added the closing work-in-progress amount as the assessee did not show work-in-progress at year-end. The CIT(A) granted relief to the assessee, noting the consistent method of valuation followed by the assessee. The CIT(A) upheld the deletion based on the principle of matching cost with revenue and the inability to value certain stock items accurately. The ITAT upheld the CIT(A)'s decision, citing a similar case precedent and consistency in valuation methods. The issue was decided in favor of the assessee for all relevant assessment years.

Issue 2: Excess Payment of Interest to Sister Concern:
Regarding the excess payment of interest to a sister concern, the Assessing Officer disallowed the interest expenditure under section 40A(2)(b) due to the interest rate being higher than the prevailing market rate. The CIT(A) granted relief to the assessee, highlighting that the addition was already addressed in a previous assessment order and the duplication of the addition was unjustified. The ITAT supported the CIT(A)'s decision, referencing a similar case where the Tribunal upheld the deletion of disallowance of interest expenditure. The issue was decided in favor of the assessee for all relevant assessment years, with the ITAT dismissing the appeals filed by the Revenue.

The judgment addressed the issues of addition of closing work-in-progress and excess payment of interest to a sister concern across multiple assessment years. The ITAT upheld the CIT(A)'s decisions in favor of the assessee for both issues, emphasizing consistent valuation methods and lack of justification for disallowances. The appeals filed by the Revenue were dismissed, and the cross-objections raised by the assessee were deemed academic due to the favorable rulings on merit. The judgment provided detailed analysis and legal reasoning for each issue, ensuring a comprehensive review of the facts and applicable laws.