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TMI Blog2018 (6) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... is particular aspect of the matter followed the observations made by the ld. AO which is unjust and we therefore deleted the addition of 5,58,525/- to the total income of the assessee on the ground of under valuation of stock of raw material - Decided in favour of assessee. Addition u/s 40(A)(2) - remuneration given to lady directors - Held that:- If the lady directors are not involved in pure managerial or supervising work of the assessee company their contribution to some extent cannot be brushed aside. Both the AO as well as the CIT(A) indirectly accepted that to certain extent the women directors are rendering services to the benefit of the assessee company. Furthermore, taking into consideration the return of income of these lady directors it can also not be said that the income has escaped taxation. We, therefore, think it fit to allow 30% of the remuneration given to these lady directors. - Decided partly in favour of assessee. Disallowance of depreciation - Held that:- The assets acquired by the assessee company on lease were ready to use though not used in the business for whatever reason the assessee is entitled to get relief of deprecation as charged on these assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. The assessee had shown sales of stock of MS Scrap/Off Cut/Wrong Cut of 13,27,718 kg at a sale value of ₹ 79,63,323/-. Upon verification of sale bills it is seen that sales were made @ ₹ 13-14 per kg and ultimately it was found that only 591681 kg of the above stock has been sold. Since the appellant has shown sale of stock of 5,91,681.6 kg. the balance stock of 7,36,036 kg (1327718 - 591681.6) should have been included in the closing stock which was found shortage. It appears from the records that the assessee has not maintained any stock register on such item. The explanation given by the assessee in support of this shortage was not accepted by the AO and therefore the AO made an addition of ₹ 95,68,468/- to the total income of the assessee as undisclosed stock of MS Scrap (wrong cut). Such order was confirmed by the ld. CIT(A) and hence the appeal before us. 3. At the time of hearing of the matter the ld. AR submitted before us that the assessee company does not have any factory of its own and having an open shed only. It was further submitted by the assessee that there was no scope for physical verification of the stock being heavy and bulky items and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard the counsels of both the parties. We have perused the orders of the authorities below and relevant materials available on records. It appears from the records that there is a shortage of stock of 7,36,036 kg in the books of accounts which was to be explained to the AO by way of loss due to theft. We find from the records that general dairies were made before the concerned police station without even mentioning the quantity of materials theft. It is neither believable that the huge quantity of materials were lost within a short period of three years from the shed of the assessee. It further appears that this fact of theft was not disclosed by the assessee initially before the AO but only when the shortage was detected by the AO during the assessment proceedings, such explanation was submitted by the assessee. It is also evident from the certificate of the Chartered Accountant dated 26.08.2010 relied upon by the assessee, that no actual weightment of the stock had been made during the course of physical verification which is clear from the statement reproduced as under :- "There was no weightment facility within your factory or nor by area, so the verification was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or market value whichever is lower. The FIFO is a method to determine the cost and not the value of stock to be taken for consideration. He further submitted that as per Accounting Standard-2 related to inventories issued by ICAI the inventories should be valued at cost or market value whichever is lower. It has been followed by the assessee since years. The ld. AO misinterpreted that the inventories are to be valued at cost considering FIFO method whereas the cost is to be determined following FIFO method and the inventory is to be valued at cost or market value whichever is lower. The AO has not disputed the market value of the inventories neither the auditor found any infirmity in the valuation of the inventories. More so, the ld. AO has accepted the auditors report without any objection but made addition. The ld. AR further urged that the ld. CIT(A) has wrongly accepted the contention made by the ld. AO and confirmed the addition of ₹ 5,58,525/- which is unjustified, wrong and should be deleted. The ld. DR relied upon the orders passed by the ld. AO and raised objection to the submissions made by the ld. AR. 8. We have heard the submissions made by the respective parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or facilities, is not allowable. In this particular case the AO in his order specifically observe that no proper documents has been furnished by the assessee in order to justify the qualification/expertise of these lady directors to supervise the work and handle these statutory matters and hence the assessee failed to justify the payment of remuneration as mentioned above. The AO further relied upon the statement made by another Director of the company to this effect that these lady directors are involved in organising functions, doing puja etc and they do not come to the office regularly. Such activities do not come under the purview of business activities according to the AO. The AO observed this as a sort of arrangement to reduce the tax liability and thus the same is a bogus expenditure. The total remuneration of ₹ 6,40,000/- claimed to have been paid to the four lady directors was disallowed and added in the total income of the assessee. The ld. CIT(A) affirmed the order passed by the AO. 10.2 At the time of hearing of the matter the ld. AR strongly argued in support of his claim for allowing ₹ 6,40,000/- as the remuneration of the lady directors of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e these assets were ready to use, though not being utilised during the year under consideration in the said business depreciation is to be allowed on such assets. He has relied upon the judgment passed by the Hon'ble Jurisdictional High Court in the case of CIT, West Bengal-IV, Calcutta vs Norplex Oak India. The ld. DR raised his objection to the submissions made by the ld. AR and relied upon the orders by the lower authorities. 14. We have heard the submissions of both the parties. We have perused the relevant materials available on record. We have gone through the judgment passed by the Jurisdictional High Court regarding the same issue. The relevant portion of the judgement is narrated herein below : "13. In the case before us there is no dispute that the assessee is the owner of the plant and machinery. The only dispute before us whether the assessee should be treated to have "used" the plant and machinery for the relevant assessment year notwithstanding its admission that the machines could not be operated as would appear from the report of its Director. 14. In our opinion, the word "used" appearing in section 32(1) of the Act should be given a reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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