2021 (10) TMI 449 - AT - Income Tax

Tribunal upholds most CIT(A) decisions, sustains finance charge disallowance for 2010-11, dismisses Revenue appeals for 2006-10.

DCIT, Central Circle – 2 (2), Chennai – 34. Versus M/s. Midas Golden Distilleries P Ltd.,

DCIT, Central Circle – 2 (2), Chennai – 34. Versus M/s. Midas Golden Distilleries P Ltd., - TMI Issues Involved:1. Suppression of production.2. Excess production.3. Disallowance of landscaping charges.4. Inflation in cost of old bottles.5. Disallowance of finance charges.6. Disallowance of discount allowed on sales.Detailed Analysis:1. Suppression of Production:The primary issue was the deletion of addition made towards suppression of production. The AO alleged that the assessee suppressed production based on discrepancies in the number of caps issued versus the number of bottles produced. The AO determined unaccounted production of Rs. 55,32,10,232/- based on the difference in caps issued and actual consumption. However, the CIT(A) deleted the addition, noting that the AO's estimation was based on secondary raw materials without considering primary raw materials like rectified spirit and neutral spirit, which are under strict control of State Excise Authorities. The CIT(A) emphasized that the AO's conclusion was built on wrong premises and lacked supporting evidence of any discrepancy in primary raw materials. The Tribunal upheld CIT(A)'s decision, agreeing that the AO's estimation was speculative and unsupported by concrete evidence.2. Excess Production:For the assessment year 2007-08, the AO made an addition of Rs. 1,23,73,800/- towards excess production by comparing probable production of IMFL with reported production. The AO calculated excess production of 2,47,516 litres. The assessee argued that the production loss reported to State Excise Authorities was within permissible limits. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO's calculation was arithmetical and did not account for the actual production process and permissible production loss.3. Disallowance of Landscaping Charges:For the assessment year 2007-08, the AO disallowed Rs. 14,83,950/- towards landscaping charges, treating them as capital expenditure. The CIT(A) found that landscaping activities, such as growing grass, did not provide enduring benefits and were current repairs. The Tribunal upheld CIT(A)'s decision, agreeing that the landscaping charges were not capital in nature.4. Inflation in Cost of Old Bottles:For assessment years 2008-09 and 2009-10, the AO made additions towards inflation in the cost of old bottles by comparing prices paid to different suppliers. The AO alleged that the assessee paid higher prices without justification. The CIT(A) deleted the additions, noting that the AO did not provide evidence to prove that bottles from different suppliers were of the same quality and type. The Tribunal upheld CIT(A)'s decision, agreeing that the AO's comparison was speculative and unsupported by evidence.5. Disallowance of Finance Charges:For the assessment year 2010-11, the AO disallowed Rs. 18,00,000/- towards finance charges, alleging that the assessee diverted interest-bearing funds for non-business purposes. The CIT(A) deleted the addition, but the Tribunal reversed this decision, sustaining the AO's addition, noting that the assessee did not provide a satisfactory explanation for the diversion of funds.6. Disallowance of Discount Allowed on Sales:For the assessment year 2010-11, the AO disallowed Rs. 4,31,86,368/- towards discount allowed on sales, claiming the assessee failed to justify the discount with evidence. The CIT(A) deleted the addition, noting that the discount was charged by TASMAC as per the terms of supply. The Tribunal upheld CIT(A)'s decision, agreeing that the discount was genuine and allowed as per the agreement.Conclusion:The Tribunal upheld the CIT(A)'s decisions on most issues, except for the disallowance of finance charges for the assessment year 2010-11, which was sustained. The appeals filed by the Revenue for assessment years 2006-07 to 2009-10 were dismissed, and the appeal for assessment year 2010-11 was partly allowed.