2019 (12) TMI 359 - AT - Income Tax

Addition on account of loss of raw tobacco - CIT(A) has deleted the said addition stating that loss is consistent in nature and assessee company is subject to audit by excise authorities and day to day production consumption records are being maintained which are scrutinized by the excise authority - HELD THAT - The assessee manufactures tobacco from raw tobacco in the form of small flags and remove impurities before processing i.e. dust, threads and other parts of plants i.e. seeds, stems, seeds, small stone/earthen material etc. which are to be separated and discarded. The assessee has maintained day to day production consumption record which was subject to scrutiny by the excise authority and the total wastage occurred on account of raw tobacco is 0.210% of the total consumption. The ratio of loss on account of raw tobacco was very consistent as the same was 0.2048 % in assessment year 2011-12 and 0.2112 % in F.Y. 2014-15. Considering these facts and circumstances, we do not find any infirmity in the decision of ld. CIT(A), therefore, the appeal of the revenue is dismissed on this issue. Undervaluation of closing stock of Varakh and Masala - HELD THAT - As noticed that assessee has consistently applied FIFO method for valuation of stock in respect of Varakh and Masala and furnished purchase bills on sample basis of various items but the assessing officer has not pointed out how the method of valuation adopted for valuation of stock was wrong. It is clearly elaborated in the finding of the ld. CIT(A) that during the course of assessment proceedings, the assessing officer has not demonstrated how the method of valuation adopted for valuation of stock by the assessee was wrong. Therefore, we do not find any error in the finding of ld. CIT(A). Accordingly, this ground of appeal of the revenue is dismissed Addition for the manufacturing loss - HELD THAT - The entire production record was maintained as prescribed by the excise authority which was subject to scrutiny and examination by the excise authorities. During the year under consideration there was increase in the gross profit and net profit of the assessee compared to the other years. We do not find any infirmity in the decision of ld. CIT(A) in restricting the addition of manufacturing loss to ₹ 4,47,060/-, therefore, this ground of the revenue is also dismissed. The ground of cross objection filed by the assessee is also dismissed as we justify the finding of the ld. CIT(A) that claim of loss of raw tobacco should be the part of the total loss of manufacturing process. Disallowance of damage goods - HELD THAT - Claim is just 0.004% of the total turnover which is miniscule looking to the size of the turnover. In this regard, it is noticed that this claim of damaged goods is made by the agents/dealers because of pilferage during transport etc. The assessee has also furnished the credit notes issued to the parties after verification and no cash payment was made against the claim of damaged goods as the dealers required to make less payment in the subsequent disbursement after reducing the claim of damaged goods Addition of foreign travel expenses - HELD THAT - Assessee has failed to substantiate with relevant supporting evidences that foreign travel expenses were connected to the business purpose of the assessee. Even the assessee has failed to controvert the findings of the A.O. that foreign trips were made to Singapore, Hongkong under the arranged tour package and the assesse could not demonstrate with supporting evidences that tour was connected with business purpose of the assessee. Therefore, this ground of cross objection filed by the assessee is dismissed. Disallowance as excess depreciation on electrical installation - HELD THAT - Assessee has failed to substantiate with relevant supporting evidences that the electrical fitting was part of plant and machinery, therefore, we do not find any error in the decision of ld. CIT(A) Disallowance of employees contribution to PF or ESIC - HELD THAT - The issue is covered against the assessee by the decision of Hon ble Jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. 2014 (1) TMI 502 - GUJARAT HIGH COURT therefore, this ground of cross objection is rejected. Disallowance of expenses u/s. 35D - HELD THAT - After considering the fact that such expenditure has been incurred for increasing the authorized share capital, this ground of cross objection of the assessee is dismissed after fallowing the decision of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT 1996 (12) TMI 6 - SUPREME COURT .

Summary

Issues Involved:
1. Addition of ?4,47,060 on account of loss of raw tobacco.
2. Addition of ?12,74,187 on account of undervaluation of closing stock.
3. Addition on account of manufacturing loss from ?2,36,64,474 to ?4,47,060.
4. Deletion of ?91,372 disallowance on account of damaged goods.
5. Cross objection against addition of ?4,47,060 on account of manufacturing loss.
6. Cross objection against disallowance of ?4,85,323 foreign travel expenses.
7. Cross objection against disallowance of ?64,886 as excess depreciation on electrical installation.
8. Cross objection against disallowance of employees' contribution to PF or ESIC.
9. Cross objection against disallowance of expenses of ?22,600 u/s. 35D of the I.T. Act.

1. Loss of Raw Tobacco:
The assessing officer disallowed ?4,47,060 claimed as loss of raw tobacco, citing improved techniques of SI in packs used by the assessee. However, the CIT(A) upheld the claim, noting the consistent nature of the loss, supported by audit and production records, leading to a dismissal of the revenue's appeal.

2. Undervaluation of Closing Stock:
The assessing officer added ?12,74,187 for undervaluation of closing stock, challenging the valuation method used by the assessee. The CIT(A) found the method consistent and accepted by the department previously, leading to the dismissal of the revenue's appeal.

3. Manufacturing Loss:
The assessing officer added ?2,36,64,474 as manufacturing loss, disputing the explanation provided by the assessee. The CIT(A) upheld a reduced addition of ?4,47,060, considering detailed explanations of the manufacturing process and consistent production records, leading to the dismissal of the revenue's appeal and the assessee's cross objection.

4. Damaged Goods Disallowance:
The assessing officer disallowed ?91,372 for damaged goods, citing lack of evidence. The CIT(A) upheld the claim, considering the minimal impact on the turnover, leading to the dismissal of the revenue's appeal.

5. Cross Objection - Manufacturing Loss:
The assessee's cross objection against the addition of ?4,47,060 for manufacturing loss was dismissed, aligning with the CIT(A)'s decision that the loss of raw tobacco should be part of the total manufacturing loss.

6. Cross Objection - Foreign Travel Expenses:
The cross objection against the addition of ?4,85,323 for foreign travel expenses was dismissed due to the failure to prove business connection, as trips were under tour packages.

7. Cross Objection - Excess Depreciation:
The cross objection against disallowance of ?64,886 as excess depreciation on electrical installation was dismissed due to the failure to prove the fitting was part of plant and machinery.

8. Cross Objection - Employees' Contribution:
The cross objection against disallowance of employees' contribution to PF or ESIC was rejected based on a High Court decision.

9. Cross Objection - Expenses under Section 35D:
The cross objection against disallowance of expenses of ?22,600 u/s. 35D of the I.T. Act was dismissed following a Supreme Court decision.

In conclusion, both the appeal of the revenue and the cross objection filed by the assessee were dismissed by the tribunal.