2016 (9) TMI 381 - AT - Income Tax

Addition on account of undervaluation of closing stock - CIT(A) deleted the addition - Held that - It is seen from the bills dated 30.3.2005 and 31.3.2005 that these contain purchases of hatching egg for the period from Ist March to 31st March and the eggs hatched upto 10th March are converted into broiler chicks which were already sold. Therefore, there remains the closing stock of ₹ 35,98,223/- as shown by the assessee in its audited books of accounts. Accordingly, we find the findings of the learned CIT(A) in order. - Decided against revenue Addition being the undisclosed purchases - CIT(A) deleted the addition - Held that - We find that the Assessing Officer was not able to bring out any evidence that the entries in audited books of accounts were not correct. Moreover, the assessee himself will not show higher figure in the audit report. Therefore, we find that there is a typographical mistake in the audit report alone which cannot be made the sound basis for such addition. Therefore, the findings of the learned CIT(A) are upheld - Decided against revenue Disallowance u/s 40A(3) being 20% of total payment - Held that - As noted that the payments were made in excess of ₹ 20,000/-. Therefore, we find no infirmity in the orders of the authorities below - Decided against assessee Addition u/s 40(a)(ia) of legal and professional expenses - TDS was not deducted - Held that - No force in the submission of the learned counsel for the assessee as the total payment under the head legal and professional charges fell within the provisions of section 40(a)(ia) of the Act, hence, the disallowance confirmed by the learned CIT(A) is upheld.- Decided against assessee Disallowance on account of various expenses being telephone expenses, vehicle expenses, depreciation, travelling and conveyance expenses - Held that - The assessee repeated the same arguments and vehemently argued that the disallowances were made without pointing out any specific defect or instance, hence such disallowance need to be deleted nned not to be accepted.- Decided against assessee

Summary

Issues:
1. Undervaluation of closing stock
2. Unaccounted sale and purchases
3. Disallowance of cash payments to sister concerns
4. Disallowance of legal and professional charges
5. Disallowance of various expenses

Undervaluation of Closing Stock:
The appeal filed by the department concerns the undervaluation of closing stock for the assessment year 2005-06. The Assessing Officer added ?8,99,590 due to the difference in purchase ledger and closing stock. However, the CIT(A) deleted this addition based on the explanation provided by the assessee. The CIT(A) noted that the closing stock only included eggs purchased after a certain date, which had already hatched and were not part of the closing stock. The Tribunal upheld the CIT(A)'s decision, stating that the closing stock shown by the assessee was accurate.

Unaccounted Sale and Purchases:
The department also raised issues regarding unaccounted sale and purchases. The Assessing Officer added ?4,64,436 for unaccounted sale and ?25,68,986 for undisclosed purchases. The CIT(A) found a typographical error in the tax audit report, leading to higher figures being reported. As the entries in the audited books were correct and supported by evidence, the additions were not sustained. The Tribunal upheld the CIT(A)'s decision on these grounds.

Disallowance of Cash Payments to Sister Concerns:
The cross objection by the assessee involved the disallowance of cash payments to sister concerns under section 40A(3) of the Act. The Assessing Officer disallowed 20% of the total cash payment of ?8,18,475. The CIT(A) confirmed this disallowance, as the assessee failed to provide a satisfactory explanation for the urgent need for cash payments. The Tribunal upheld the decision of the authorities on this ground.

Disallowance of Legal and Professional Charges:
Another issue was the disallowance of ?18,700 under section 40(a)(ia) of the Act for legal and professional expenses. The Assessing Officer had disallowed this amount for non-deduction of TDS. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, stating that the payment fell within the provisions of the Act.

Disallowance of Various Expenses:
Lastly, the disallowance of ?2,23,589 on various expenses such as telephone, vehicle, depreciation, and travelling expenses was challenged. The disallowances were made due to non-maintenance of proper records and personal use of assets. The Tribunal found the disallowances justified, considering the nature of the expenses and the lack of specific defects pointed out by the assessee. Therefore, the orders of the authorities were upheld, and this ground was dismissed.

In conclusion, both the appeal of the revenue and the cross objection of the assessee were dismissed by the Tribunal in this judgment delivered on 27th July 2016.