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TMI Blog2007 (4) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... egally justified in restricting the disallowance at 30% out of guest house expenses of Rs. 55,629? 3. Whether the Income Tax Appellate Tribunal was legally justified in directing the assessing officer to cancel the interest of Rs. 3,64,734 levied under Section 220(2)?" 2. The reference relates to the assessment year 1986-87. 3. Briefly stated the facts giving rise of the present reference are as follows: 4. The assessee company is engaged in manufacturing of sugar, country liquor as well as Indian made foreign liquor in its factory at Shamli. On scrutiny of accounts submitted by the assessee for the assessment year 1986-87, for which previous year ended on 30th September, 1985, the Assessing Officer noticed that the assessee did not disclose any value of 7265 bales of Bagasses. On query it was stated before him that bagasse was meant for initial fuel and not for sale. It was further stated that for the purposes of valuation, there is no further cost of bagasse in the hands of the assessee company except for cost of wire used for baling and labour charges, which have been duly accounted for. The assessee followed this practice consistently in earlier years which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prove that 7265 bales which remained in the closing stock in the year of account, cost more than what has been disclosed by the assessee itself. The Tribunal accordingly held that cost to the assessee could not be substituted by cost to any other assessee for evaluation of closing stock. In above view of the matter, the Tribunal saw no justification for upholding impugned addition for undervaluation of closing stock of bagasses. Accordingly the addition was deleted. 5. The facts relating to question no.2 are that Assessing Officer disallowed Rs. 62,291/- was guest house expenses. This disallowance was made out of guest house expenses, depreciation and repair and maintenance of the guest house. On appeal, learned Commissioner of Income Tax (Appeal) confirmed the disallowance. This was done by him following the order of his predecessor for the assessment year 1985-86. The assessee then brought the issue in appeal before the Appellate Tribunal and submitted that the Tribunal has consistently held that expenditure on account of providing food etc. to the employees may be disallowed at 30% of the claim. In support of above, Tribunal's order in ITA No. 6047/Delhi/88 and C.O. No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove demand. However, there was no warrant for him to relate back the levy of interest under Section 220(2) of the Act from the date of refund issued as a result of provisional assessment under Section 141A of the Act. In above view of the matter, the Tribunal held that revenue authorities were not justified in charging interest under Section 220(2) of the Act. The same was cancelled. 7. We have heard Sri A. N. Mahajan, learned standing counsel appearing for the Revenue and Sri S.D. Singh, learned counsel appearing for the respondent assessee. 8. Sri A. N. Mahajan, learned standing counsel submitted that admittedly the assessee has not shown closing stock of Bagasse which is a byproduct and according to him Bagasse has some value which ought to have been shown in the closing stock. The Tribunal has erred in deleting the addition made on account of closing stock of Bagasse. He further submitted that in view of the specific provisions of sub-sections (3), (4) and (5) of Section 37 of the Act, the Tribunal was justified in restricting the disallowance at 30% out of guest house expenses of Rs. 55,629/-. In support of his aforesaid submissions he relied upon a decision of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has all alone been valuing it at the cost or market price which ever is lower. The assessee had not disclosed the closing stock of Bagasse as it was not being sold by it in open market and it is only used as fuel. The valuation of the closing stock of Bagasse would not have made any difference for the simple reason that the assessee was using it as fuel. If the valuation of closing stock of Bagasse was taken into consideration the corresponding deductions for it would be available to the assessee while determining the cost of fuel used by it. Thus, in any event, the Tribunal was justified in coming to conclusion that the valuation of the closing stock shown at the cost price was correct. So far as the question of disallowance of guest house expenses is concerned, we find that the assessee had not given a detailed break up and it had only claimed guest house expenses at Rs. 50,289/- and repairs at Rs. 5,000/- apart from claiming depreciation including worker welfare expenses. Under sub-sections (4) and (5) of the Section 37 of the Act expenditure on the maintenance of any residential accommodation in the nature of guest house has to be disallowed. Providing of lodging or board ..... X X X X Extracts X X X X X X X X Extracts X X X X
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