2019 (1) TMI 198 - AT - Income Tax

Disallowance u/s 43B - Addition on account of excise duty on closing stock - disallowance triggered based on the observations made by the tax auditor in the tax audit report - Held that - We find that the tax auditor had duly observed that the assessee had not provided for excise duty on closing stock of finished goods, meaning thereby, no debit to profit and loss account has been made for the same. While it is so, it could be concluded that no deduction had been claimed by the assessee towards excise duty on closing stock of finished goods in the Asst Year 1996-97. When there is no claim of deduction, there cannot be applicability of provisions of section 43B - Decided in favour of assessee. Disallowance of depreciation - AO had disallowed only 50% of depreciation claimed by the assessee as the assessee could not furnish separate list of assets - Held that - It is not in dispute that the depreciation on assets is allowable on the basis of block of assets with effect from 1.4.1988. Hence for the assessment years under consideration, the principle of block of assets would be applicable. It is now well settled that once an asset enters the particular block of assets and depreciation granted thereon for the whole block as such, the concerned asset loses its identity - condition of put to use should be tested only in the year of installation or purchase and not thereafter. Hence we hold that the depreciation is allowable on the entire block of assets in the instant case. In any case, the basis adopted by the authorities below of disallowing 50% of depreciation claimed is not in accordance with law.- Decided in favour of assessee. Disallowance of miscellaneous expenses - assessee company was declared as a sick industrial company - Held that - We find that the mistake committed in the annual report had been duly pointed out and brought to the notice of the AO in the original assessment proceedings itself vide written submissions dated 26.10.1998, which has been summarily ignored by the AO. We find that the same had been duly appreciated by the CIT-A by holding that the correct printing charges is only ₹ 7.76 lakhs and that the same is not to be considered as abnormally very high. As argued that since the assessee is already declared as a sick industrial company and most of its units are closed , the papers containing documents and evidences are dislocated and hence the evidences could not be furnished before the AO. CIT-A had taken due cognizance of the same and had deleted the disallowance of miscellaneous expenses on an estimated basis , which requires no interference.- Decided in favour of assessee. Disallowance of legal and professional expenses - Held that - We find that the CIT-A had granted relief to the assessee to the tune of ₹ 21,84,986/- for which details in the form of ledger accounts were produced before the AO, since it could be deciphered from the same that the same were paid by account payee cheques. But for the remaining sum of ₹ 9,87,014/-, no evidence whatsoever was furnished by the assessee. Hence the same has been rightly confirmed by the CIT-A, which in our considered opinion, does not require any interference

Summary

Issues:
1. Disallowance u/s 43B of the Act
2. Disallowance of Depreciation u/s 32 of the Act
3. Disallowance of Miscellaneous Expenses - ?100.99 lakhs
4. Disallowance of Legal & Professional Expenses - ?9,87,014/-

1. Disallowance u/s 43B of the Act:
The dispute arose from the disallowance of excise duty on closing stock in the assessment year 1996-97. The tax auditor noted the absence of provision for excise duty on closing stock in the profit and loss account. The authorities invoked section 43B of the Act to disallow ?52,43,000, but the tribunal found no claim for deduction, thus ruling the provision inapplicable. The tribunal highlighted that the legislative amendment mandating inclusion of excise duty in closing stock valuation was effective from 1999-2000. The disallowance was deemed erroneous, and the appeal was allowed.

2. Disallowance of Depreciation u/s 32 of the Act:
Regarding the disallowance of depreciation for the assessment year 1996-97, the AO had disallowed 50% of the claimed amount due to operational unit closures. The tribunal emphasized that depreciation is allowable on the block of assets and not on individual units. The tribunal cited the Hyderabad Tribunal's decision supporting depreciation on the entire block of assets. The tribunal found the AO's basis for disallowance flawed and dismissed the revenue's grounds, granting relief to the assessee.

3. Disallowance of Miscellaneous Expenses - ?100.99 lakhs:
The AO disallowed miscellaneous expenses of ?100.99 lakhs, primarily due to high printing charges. The tribunal noted that the correct printing charges were significantly lower at ?7.76 lakhs, as clarified by the assessee. The tribunal found the AO's oversight of the corrected charges unreasonable and allowed the appeal, dismissing the revenue's grounds.

4. Disallowance of Legal & Professional Expenses - ?9,87,014/-:
The AO disallowed legal and professional expenses of ?31,72,000, but the assessee could only provide details for a portion of the amount. The tribunal granted relief for the documented expenses but upheld the disallowance for the remaining sum due to lack of evidence. The tribunal found the decision justified and dismissed the assessee's appeal for the remaining amount.

The tribunal pronounced the orders on various appeals on 16.10.2018, allowing, dismissing, or partly allowing the appeals based on the issues discussed and analyzed in the judgment.