2015 (11) TMI 1812 - AT - Income Tax

Income Tax Act: Tribunal Decisions on Turnover Deductions, Accounting Policies, and Expense Disallowances

The Tribunal upheld the inclusion of scrap sales in the total turnover for deduction purposes under section 80HHC of the Income Tax Act, following a ... Computation of deduction u/s 80HCC - exclusion of scrap sales in the total turnover for the purposes of deduction - CIT-A allowed relief to assessee - HELD THAT:- As perused the findings of the authorities below and considered the material available on record. We do not find any infirmity in the order of the learned CIT (Appeals) as he has given relief to the assessee following the earlier order in assessee's own case. Further, from the perusal of the judgment of the Hon'ble Supreme Court in the case of Punjab Stainless Steel Industries [2014 (5) TMI 238 - SUPREME COURT] we see that in a judgment running after analyzing the issue in detail, observed that the word 'turnover' would mean 'total sales'. The said sales would definitely not include the scrap material which is either to be deducted from the cost of raw material or is to be shown separately under the different head. No infirmity in the action of CIT (Appeals) in holding that the sale of scrap should be included in the total turnover for purposes of computation of deduction under section 80HHC of the Act. Disallowance of expenses which actually related to the earlier years and not this year - HELD THAT:- It is a matter of record that for the last so many years the assessee has been following the practice of claiming litigation expenses @ 20% in a duration of five years. From the perusal of various orders of lower authorities for various assessment years, this is also observed that the Department has been accepting the claim as such. Since there is no change in the facts during the year even the learned D.R. could not bring to our attention any distinguishing facts in this year, we are not inclined to interfere with the findings given by the CIT (Appeals) on the basis of principle of consistency. It is a trite law that the principle of Estoppel is not applicable to the income tax matters, this is also settled that there being no distinguishing facts emerging during the year, the Department cannot take a different view other than taken in earlier years. See NEO POLY PACK (P.) LTD. [2000 (4) TMI 26 - DELHI HIGH COURT] and RADHASOAMI SATSANG [1991 (11) TMI 2 - SUPREME COURT]. Addition of payment of bonus and leave with wages - which were not fully verifiable from the records produced by the assessee during the assessment proceedings - HELD THAT:- We see nowhere this fact is emerging from this order that the addition has been made on agreed basis. However, looking to the fact that certainly there was certain discrepancy in the bonus and leave with wages register, the Assessing Officer proceeded to make disallowance, which was a very small portion of the total expenses claimed by the assessee and also to the fact that the learned CIT (Appeals) deleted the disallowance in a very summary manner, we uphold the action of the Assessing Officer in making the disallowance. The ground of appeal raised by the Revenue is allowed. Disallowance of foreign traveling expenses - Addition being personal expenses while on tour, as the assessee had not produced all the bills of traveling as well as hotel lodging and boarding or local traveling taxi bills etc., during the course of assessment proceedings - HELD THAT:- Disallowance has been made by the Assessing Officer on an arbitrary basis and even the CIT (Appeals) has restricted to it arbitrarily, we are in agreement with the findings given by the CIT (Appeals) that the assessee being in the business of export of products and visiting abroad for business purposes and not for leisure and trips are to be taken on year to year basis, therefore, we confirm the order of the learned CIT (Appeals) on this issue. The ground of appeal raised by the Revenue is dismissed. Disallowance of general expenses as some vouchers pertaining to these expenses were appeared to be self made - CIT-A deleted the addition - HELD THAT:- AO has not brought on record any specific reason and any specific expense, which is not allowable under the Income Tax Act. By making an estimated disallowance out of the total expenses claimed by the assessee, the Assessing Officer in a way accepts the fact that the expenses have been incurred wholly and exclusively for the purposes of business. However, he makes an adhoc disallowance without pinpointing as to which component of the total expenses claimed by the assessee is not allowable. The manner in which the disallowance is made is totally arbitrary. Therefore, we uphold the action of the learned CIT (Appeals) in deleting the disallowance. Issues Involved:1. Exclusion of scrap sales from the total turnover for the purposes of deduction under section 80HHC of the Income Tax Act, 1961.2. Disallowance of expenses related to earlier years.3. Disallowance of payment of bonus and leave with wages.4. Disallowance of foreign travel expenses.5. Disallowance of general expenses.Issue-wise Detailed Analysis:1. Exclusion of Scrap Sales from Total Turnover:The primary issue in ITA No. 983/Chd/2013 was whether scrap sales should be excluded from the total turnover for computing deduction under section 80HHC of the Income Tax Act, 1961. The Assessing Officer excluded scrap sales from the total turnover based on previous ITAT decisions. However, the CIT (Appeals) included scrap sales in the total turnover, referencing an earlier ITAT decision in the assessee's favor and distinguishing it from the Parker Cycle Inds. case. The CIT (Appeals) also relied on the Supreme Court judgment in CIT Vs. Punjab Stainless Steel Industries, which held that scrap sales should be included in the total turnover. The Tribunal upheld the CIT (Appeals)'s decision, finding no infirmity in including scrap sales in the total turnover for deduction purposes under section 80HHC.2. Disallowance of Expenses Related to Earlier Years:In ITA No. 1138/Chd/2012, the issue was the disallowance of Rs. 8,51,092/- on account of expenses related to earlier years. The Assessing Officer disallowed expenses not incurred during the year, while the CIT (Appeals) deleted the disallowance, accepting the assessee's consistent accounting policy of spreading litigation expenses over five years. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing the principle of consistency and noting that the Department had accepted this accounting policy in previous years.3. Disallowance of Payment of Bonus and Leave with Wages:The issue in ITA No. 1138/Chd/2012 also involved the disallowance of Rs. 50,000/- for bonus and leave with wages due to unverifiable records. The CIT (Appeals) deleted the disallowance, finding the Assessing Officer's action arbitrary without detecting any bogus claims. The Tribunal, however, upheld the Assessing Officer's disallowance, acknowledging discrepancies in the records and the arbitrary nature of the CIT (Appeals)'s deletion.4. Disallowance of Foreign Travel Expenses:In ITA No. 1138/Chd/2012, the Assessing Officer disallowed Rs. 50,000/- out of foreign travel expenses due to unproduced bills, presuming personal use. The CIT (Appeals) reduced the disallowance to Rs. 10,000/-, finding the Assessing Officer's action arbitrary and recognizing the business nature of the trips. The Tribunal upheld the CIT (Appeals)'s decision, agreeing that the trips were for business purposes and not leisure.5. Disallowance of General Expenses:In ITA No. 1004/Chd/2012, the Assessing Officer disallowed Rs. 50,000/- out of general expenses due to self-made vouchers. The CIT (Appeals) deleted the disallowance, finding it arbitrary without specific unvouched expenses. The Tribunal upheld the CIT (Appeals)'s decision, noting the arbitrary nature of the disallowance without pinpointing specific non-allowable expenses.Conclusion:The Tribunal dismissed the Revenue's appeal in ITA No. 983/Chd/2013, while partly allowing the Revenue's appeals in ITA No. 1138/Chd/2012, ITA No. 1004/Chd/2012, and ITA No. 1005/Chd/2012. The judgments emphasized principles of consistency, the arbitrary nature of disallowances, and the importance of distinguishing facts in each assessment year.