2017 (1) TMI 1141 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizing business purpose, interest expenditure, capital subsidy, and excise duty treatment.

Stadmed Pvt. Ltd. Versus DCIT, Circle-10, P- 7, Kolkata And Vice-Versa

Stadmed Pvt. Ltd. Versus DCIT, Circle-10, P- 7, Kolkata And Vice-Versa - TMI Issues Involved:1. Disallowance of traveling expenses.2. Disallowance of general expenses.3. Disallowance of proportionate interest expenditure on loans to directors.4. Classification of subsidy received from the Government of West Bengal.5. Addition of excise duty on closing stock of finished goods.Issue-wise Detailed Analysis:1. Disallowance of Traveling Expenses:The assessee claimed traveling expenses of Rs. 63,27,475/-, with some expenses supported by self-made vouchers. The AO disallowed Rs. 50,000/- on an ad-hoc basis due to the lack of external supporting evidence, which the CIT(A) reduced to Rs. 20,000/-. The Tribunal found that the lower authorities did not establish that the expenses were not for business purposes and noted the impracticality of obtaining external evidence for all traveling expenses. It highlighted that the expenses were less than the previous year and reversed the CIT(A)'s decision, allowing the full claim of the assessee.2. Disallowance of General Expenses:The assessee claimed general expenses of Rs. 22,06,322/-, with some supported by self-made vouchers. The AO disallowed Rs. 50,000/- on an ad-hoc basis, which the CIT(A) reduced to Rs. 20,000/-. The Tribunal, applying the reasoning from the traveling expenses issue, found no basis for the disallowance as the expenses were for business purposes and reversed the CIT(A)'s decision, allowing the full claim of the assessee.3. Disallowance of Proportionate Interest Expenditure on Loans to Directors:The assessee showed advances to directors and others totaling Rs. 56,48,764/- and claimed that the advances to others were for business purposes and those to directors were from its own funds. The AO disallowed interest on these advances. The CIT(A) upheld the disallowance for advances to directors but deleted it for advances to others. The Tribunal, relying on the principle that interest-free funds should be considered as coming from the assessee's own funds if they are sufficient, found that the assessee had sufficient own funds (Rs. 5,22,90,200/-) to cover the advances. It deleted the disallowance for both directors and others, dismissing the Revenue's appeal.4. Classification of Subsidy Received from the Government of West Bengal:The assessee received a subsidy of Rs. 29,53,161/- under the Industrial Promotion Assistance Scheme, which the AO treated as revenue in nature. The CIT(A) treated it as a capital receipt, following earlier decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, noting that the subsidy was for expansion and modernization, and not connected to day-to-day operations, thus treating it as a capital receipt.5. Addition of Excise Duty on Closing Stock of Finished Goods:The AO added Rs. 48,28,867/- to the assessee's income for excise duty on closing stock of finished goods. The CIT(A) deleted the addition, citing judicial decisions that excise duty payable at the time of removal of goods should not be included in closing stock. The Tribunal upheld the CIT(A)'s decision, referencing the case of CIT Vs. SVP Industries Limited, confirming that excise duty is payable at the time of removal, not manufacture, and should not be included in the closing stock.Conclusion:The assessee's appeal was allowed, and the Revenue's appeal was dismissed. The Tribunal's decision emphasized the principles of business purpose, sufficiency of own funds, and the nature of subsidies and excise duties in accounting practices.