2015 (10) TMI 2244 - AT - Income Tax

Court upholds CIT(A)'s deletions, rejects Department's appeal on book of account rejection, disallowances

The Asst. Commissioner of Income Tax, Hoshiarpur Versus Millenium Leather Foils (Pvt.) Ltd.

The appeal filed by the Department was dismissed, and the deletions made by the CIT(A) regarding the rejection of books of account and various ... Disallowance of consumable stores expenses and disallowance out of raw material expenses - CIT(A) deleted addition - Held that:- The assessee had produced a chart of prices of consumable stores for the year under consideration and of the preceding year, which was not considered by the A.O. The A.O just compared the percentage of the costs of consumable stores in the year under consideration and for the preceding year, making an addition of ₹ 1,59,912/-. The sales made by the assessee were accepted. All these facts were duly taking into consideration by the learned CIT(A) and it was rightly observed by him that it was not necessary that the expenses regarding consumable stores should also come down proportionately with the decrease in sales, since the assessee could not pre-suppose or envisage that its sales were going to the fall. The learned CIT(A) has also taken into account that the genuineness of the expenses was not challenged by the A.O. Therefore, finding no error therewith, uphold the action of the learned CIT(A) in deleting the addition on account of disallowance out of consumable stores expenses and that on account of disallowance out of raw material expenses. - Decided in favour of assessee. Disallowance out of free sample expenses and on account of value of goods returned by customers to the assessee - CIT(A) deleted addition - Held that:- These additions were made by the A.O. on an estimated basis. In this regard, it is seen that the A.O had himself accepted giving of free samples to be a part of the assessee’s business. So much so, the A.O had himself allowed 50% of the expenses concerning free sample given. In fact, the disallowance for the other 50% was not based on any clear justification or reasoning. Thus, this disallowance was clearly without application of mind by the A.O. Likewise, the A.O took 25% of the sale value of the good returned, to make the addition of ₹ 29,000/-. This was also without any basis and without any application of mind. Therefore, the learned CIT(A) was correct in deleting these additions. - Decided in favour of assessee. Disallowance out of job work expenses - CIT(A) deleted addition - Held that:- The rates of the job work of the assessee were not compared with those of other similarly placed assessees which ought to have been done. Again, it is nowhere disputed that the payments made were all through account payee cheques and were verifiable from not only the assessee’s books of account, but also from its bank accounts and those of the persons the doing the job work. Though the assessee had provided complete details of the persons doing the job work, including their names and addresses, the A.O did not deem it fit to make any enquiry whatsoever from them. The A.O made a selfanalysis of the matter, but even this analysis was not put to the assessee. The learned CIT(A), however, duly took into consideration these facts and circumstances while dealing the addition and the action of the learned CIT(A) is, accordingly, uphold.- Decided in favour of assessee. Disallowance out of wages expenses - CIT(A) deleted addition - Held that:- The A.O worked out the difference in money terms at ₹ 2,65,220/-, being 2.72% of ₹ 97,50,761/- and made addition of ₹ 92,827/-. The learned CIT deleted this addition. Here also, the addition was made by the A.O without any basis, without doubting either the factum of incurrence, or the genuineness of the expenditure claimed. Therefore, the learned CIT(A) is perfectly justified in deleting this addition also. - Decided in favour of assessee. Disallowance of purchase expenses - CIT(A) deleted addition - Held that:- CIT(A) observed that the amount had been written off by the assessee in its books of account even before the effective start of the assessment proceedings for the year under consideration. Apropos the additional evidence filed in the shape of the copies of bills, the learned CIT(A) observed that these bills had been raised in the name of the assessee company by M/s Flint Group India Pvt. Ltd. It was on considering these factors that the learned CIT(A) deleted the addition made. Do not find anything wrong with this action of the learned CIT(A) also and the deletion is upheld. - Decided in favour of assessee. Difference in account with different parties - CIT(A) deleted addition - Held that:-Difference was on account of opening balances in the accounts of the party. This difference stood duly reconciled by the A.O. This was precisely the reason why no comment was offered in the remand report. Besides, part of the explanation had also been accepted by the A.O., concerning the difference in the accounts. However, no further enquiry had been made. Still, the amounts were added without considering that since the difference was on account of opening balances, no addition could be made in the year under consideration. All these factors were duly taken into consideration by the learned CIT(A) while ordering the addition to be deleted. Finding no error here also, the action of the learned CIT(A) is confirmed. - Decided in favour of assessee. Disallowance out of payment made to internal auditor - CIT(A) deleted addition - Held that:- No comments were offered by the A.O. The learned CIT(A) found the genuineness of the expenses to have not been doubted by the A.O. The payment was also not found to have been made to any related person. The factum of TDS having been made and deposited also went in favour of the assessee. The certification/ confirmation by Sh. Daljit Singh also remained unchallenged. It was all these points which led the learned CIT(A) to delete the addition made. This deletion is also upheld.- Decided in favour of assessee. Issues Involved:1. Rejection of books of account.2. Addition on account of disallowance out of consumable store expenses.3. Addition on account of disallowance out of raw material expenses.4. Addition on account of disallowance out of free sample expenses.5. Addition on account of value of goods returned by customers.6. Addition on account of disallowance out of job work expenses.7. Addition on account of disallowance out of wages expenses.8. Addition on account of disallowance out of purchase expenses.9. Addition on account of difference in accounts.10. Addition on account of disallowance out of payment made to internal auditor.Detailed Analysis:1. Rejection of Books of Account:The Assessing Officer (A.O.) rejected the books of account of the assessee without pointing out any specific defects. The observations made by the A.O. were of a general nature and did not identify any particular discrepancies. The learned CIT(A) found that the A.O.'s decision was based on a comparison of expenses with the previous year without a reasoned order. The genuineness of the expenses was never doubted, and the A.O.'s findings were based on an unsupported analysis. The CIT(A)'s decision to reject the A.O.'s action was not challenged.2. Addition on Account of Disallowance out of Consumable Store Expenses:The A.O. made an addition of Rs. 1,59,912/- by comparing the expenses with the previous year. The assessee provided detailed records, including purchase bills and vouchers, which showed no defects. The CIT(A) observed that the genuineness of the expenses was not questioned and that the expenses need not decrease proportionately with sales. The deletion of the addition by the CIT(A) was upheld.3. Addition on Account of Disallowance out of Raw Material Expenses:Similar to the consumable store expenses, the A.O. made an addition of Rs. 2,62,430/- based on a comparison with the previous year. The CIT(A) found that the A.O. did not consider the detailed explanations and documents provided by the assessee. The deletion of the addition by the CIT(A) was upheld.4. Addition on Account of Disallowance out of Free Sample Expenses:The A.O. made an addition of Rs. 1,37,500/- on an estimated basis, despite accepting that giving free samples was part of the assessee's business. The A.O. allowed only 50% of the expenses without clear justification. The CIT(A) found the disallowance to be without application of mind and deleted the addition, which was upheld.5. Addition on Account of Value of Goods Returned by Customers:The A.O. added Rs. 29,000/- based on an estimated 25% of the sale value of returned goods. The CIT(A) found this addition to be without basis and deleted it. The deletion was upheld.6. Addition on Account of Disallowance out of Job Work Expenses:The A.O. made an addition of Rs. 1,40,410/- without doubting the genuineness of the expenses. The A.O. compared job work expenses with sales and did not verify the payments made through account payee cheques. The CIT(A) deleted the addition, and this action was upheld.7. Addition on Account of Disallowance out of Wages Expenses:The A.O. added Rs. 92,827/- by comparing the wages expenses with the previous year without doubting the genuineness of the expenditure. The CIT(A) deleted the addition, and this deletion was upheld.8. Addition on Account of Disallowance out of Purchase Expenses:The A.O. added Rs. 2,02,267/- due to non-payment to M/s Flint Group India Pvt. Ltd. during the year. The CIT(A) found that the amount was written off as income in the succeeding year, making the addition revenue-neutral. The deletion of the addition by the CIT(A) was upheld.9. Addition on Account of Difference in Accounts:The A.O. added Rs. 85,122/- due to differences in account balances with three parties. The CIT(A) found that the differences were due to opening balances and reconciled by the A.O. The deletion of the addition by the CIT(A) was upheld.10. Addition on Account of Disallowance out of Payment Made to Internal Auditor:The A.O. added Rs. 45,000/- by restricting the claim for internal audit fees. The CIT(A) found the expenses to be genuine, with TDS duly made and deposited. The deletion of the addition by the CIT(A) was upheld.Conclusion:The appeal filed by the Department was dismissed, and the order pronounced in the open court on 23rd September 2015 confirmed the deletions made by the learned CIT(A).