2017 (1) TMI 1141 - AT - Income Tax

Disallowance of travelling cost - Held that - The assessee being corporate claimed such travelling expenses in the immediate preceding year for ₹ 1,16,10,992/- but in the year before us it is considerably less. Therefore in the instant case ad hoc disallowance to the extent of ₹ 20,000/- of the total expenses made on probabilities which is in our view not justified as no specific item or instance of personal expenditure was found in the circumstances of the case. We have noted that the fact of expenditure was well established by the self made vouchers but the lower authorities failed to bring any instance on record any unreasonableness in the amount of expenditure and the purpose for which it was incurred whether personal or commercial. On these facts, we see no reasons to make any addition/disallowance of travelling cost. Disallowance of proportionate interest expenditure for the loan given to the directors - Held that - The assessee has submitted that it has its own funds of ₹ 5,22,90,200.00 as on 31.3.2005. Therefore it is clearly established that the assessee was having its own capital greater than the loans and advances given to the directors. We are, therefore, of the considered view that no addition is warranted Treatment to subsidy received from Government of West Bengal as capital receipt - Held that - The scheme of the West Bengal Gov. does not an all envisage giving any subsidy in respect of specific items of expenses like sales-tax, power, water, etc. and hence the same cannot be regard to be of revenue nature. Since the assessee has received the financial assistance under the same scheme, in our view, the CIT(A) was justified in following the earlier order of the Tribunal for Treatment to subsidy received from Government of West Bengal as capital receipt Addition on account of excise duty pertaining to finished goods - Held that - The liability for the payment of the excise duty arises at the time of removal of the goods and in the instant case the finished goods are lying in the closing stock. Therefore there is no question of including the excise duty in the closing stock of the finished goods

Issues Involved:
1. Disallowance of traveling expenses.
2. Disallowance of general expenses.
3. Disallowance of proportionate interest expenditure on loans to directors.
4. Classification of subsidy received from the Government of West Bengal.
5. Addition of excise duty on closing stock of finished goods.

Issue-wise Detailed Analysis:

1. Disallowance of Traveling Expenses:
The assessee claimed traveling expenses of ?63,27,475/-, with some expenses supported by self-made vouchers. The AO disallowed ?50,000/- on an ad-hoc basis due to the lack of external supporting evidence, which the CIT(A) reduced to ?20,000/-. The Tribunal found that the lower authorities did not establish that the expenses were not for business purposes and noted the impracticality of obtaining external evidence for all traveling expenses. It highlighted that the expenses were less than the previous year and reversed the CIT(A)'s decision, allowing the full claim of the assessee.

2. Disallowance of General Expenses:
The assessee claimed general expenses of ?22,06,322/-, with some supported by self-made vouchers. The AO disallowed ?50,000/- on an ad-hoc basis, which the CIT(A) reduced to ?20,000/-. The Tribunal, applying the reasoning from the traveling expenses issue, found no basis for the disallowance as the expenses were for business purposes and reversed the CIT(A)'s decision, allowing the full claim of the assessee.

3. Disallowance of Proportionate Interest Expenditure on Loans to Directors:
The assessee showed advances to directors and others totaling ?56,48,764/- and claimed that the advances to others were for business purposes and those to directors were from its own funds. The AO disallowed interest on these advances. The CIT(A) upheld the disallowance for advances to directors but deleted it for advances to others. The Tribunal, relying on the principle that interest-free funds should be considered as coming from the assessee's own funds if they are sufficient, found that the assessee had sufficient own funds (?5,22,90,200/-) to cover the advances. It deleted the disallowance for both directors and others, dismissing the Revenue's appeal.

4. Classification of Subsidy Received from the Government of West Bengal:
The assessee received a subsidy of ?29,53,161/- under the Industrial Promotion Assistance Scheme, which the AO treated as revenue in nature. The CIT(A) treated it as a capital receipt, following earlier decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, noting that the subsidy was for expansion and modernization, and not connected to day-to-day operations, thus treating it as a capital receipt.

5. Addition of Excise Duty on Closing Stock of Finished Goods:
The AO added ?48,28,867/- to the assessee's income for excise duty on closing stock of finished goods. The CIT(A) deleted the addition, citing judicial decisions that excise duty payable at the time of removal of goods should not be included in closing stock. The Tribunal upheld the CIT(A)'s decision, referencing the case of CIT Vs. SVP Industries Limited, confirming that excise duty is payable at the time of removal, not manufacture, and should not be included in the closing stock.

Conclusion:
The assessee's appeal was allowed, and the Revenue's appeal was dismissed. The Tribunal's decision emphasized the principles of business purpose, sufficiency of own funds, and the nature of subsidies and excise duties in accounting practices.

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