2024 (8) TMI 340 - AT - Income Tax

ITAT allows appeal on rental valuation, TDS compliance, and deletes stock shortage additions for engineering company

ACIT Mumbai Versus NRB Bearings Limited, Mumbai

ITAT Mumbai allowed assessee's appeal on annual letable value determination, directing AO to reassess market rent after comparing different years' rental ... Addition to the account of annual let out value of the property - determine the annual retable value - flat given on rent to Deutsche Bank is deriving the monthly rent of ₹ 3,12,500/-, whereas the rent charged from the Tata Sky is ₹ 1,92,500/- and difference in rent is only because of the security deposit - HELD THAT:- According to Section 23 the annual value of let out property is to be determined on the basis of the same for which the property is expected to let out from year to year therefore, it has to be the market rate of the rent. As in case of assessee’s own case for earlier years the co-ordinate Bench has resorted the matter back to the file of the learned Assessing Officer to determine the annual letable value, we also restore this matter back to the file of the learned Assessing Officer for reason being that he has compared the rent of F.Y. 2010-11, received from Deutsche Bank with rent received in F.Y. 2013-14 from Tata Sky. DR also relied upon the decision of Moni Kumar Subba [2011 (3) TMI 497 - DELHI HIGH COURT] to submit that the rateable value is not binding on the AO if the rateable value as per Municipal record does not represent the correct fair rent. The learned Assessing Officer may consider the same and after giving an opportunity to the assessee decide the issue afresh. Accordingly, ground no.1 of the appeal is allowed with the above direction. Expenses provided at the end of the year which were reversed at the beginning of the year and no tax is deducted thereon at the time of making provision - HELD THAT:- As the payer and the payee are identified, the nature of services is also ascertained and the amount of liability is also determined, there is no reason why the tax should not have been deducted thereon. Only in those circumstances provisions of Section 40a(ia) of the Act applies. However, it is apparent that if the assessee has paid such tax on or before the due date specified under Section 139(1) of the Act, no disallowance can be made. It is the claim of the assessee before AO also that even if it is accepted that the tax should have been deducted, assessee has subsequently deposited the impugned amount of TDs on or before the due date u/s 139(1) for the year in which provision is made, so no disallowance should have been made. As the assessee has complied with that condition, for different reasons we hold that the addition cannot be sustained - Decided in favour of assessee. Addition on account of shortage in stock - HELD THAT:- We find that the average stock of the assessee is ₹ 13,284/- lacs against this shortage of ₹ 78,000/- has arisen. This too is on account of half yearly physical verification of raw material, chemicals and also finished goods. The assessee’s closing stock and opening stock is in the range of Rs. 13,200 lacs. The difference arisen in the stock is only ₹ 78,000/- hence, this is a normal occurrence in such account of engineering producing company having multi state operations. CIT (A) look to the totality of the facts has deleted the addition correctly. Even otherwise in absence of any adverse material if on physical verification shortage of stock is found, it is an ordinary loss in case of a manufacturer, same could not have been disallowed. Addition for sale of scrap - AO has computed the average sale scrap generation per day and then made the addition for last four days of scrap sale - CIT(A) deleted addition - HELD THAT:- No logic and methodology in making the above addition. Sale of scrap is a continuous process in a manufacturing industry, the sale of scrap is accounted as and when it is sold, therefore, it is unfair and against established trade practices to determine the average sale of scrap per day and make an addition thereof, despite scrap is not sold. Accordingly, we confirm the order of the learned CIT(A) and dismissed ground of revenue. Issues Involved:1. Deletion of addition on account of annual let out value of the property.2. Deletion of addition made by Assessing Officer on account of expenses reversed at the beginning of the next year without tax deduction at source.3. Deletion of addition on account of shortage in stock.4. Deletion of addition on account of scrap value for 4 days.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Annual Let Out Value of the Property:The first issue concerns the deletion of an addition of Rs. 13,21,000/- related to the annual let out value of a property. The Assessing Officer (AO) compared the rental rates of a flat rented to Deutsche Bank and Tata Sky, concluding that the rent charged to Tata Sky was lower due to a significant security deposit. The AO determined the fair market rent to be Rs. 3,12,500/- per month, adding the difference to the assessee's income. The CIT(A) deleted this addition based on a previous ITAT order for the assessee's own case, which had remanded the issue back to the AO. The Tribunal restored the matter back to the AO, emphasizing that the annual value should be determined based on market rates and considering the Hon'ble Delhi High Court's decision in CIT Vs. Moni Kumar Subba (333 ITR 38). The AO is directed to re-examine the issue afresh.2. Deletion of Addition Made by Assessing Officer on Account of Expenses Reversed at the Beginning of the Next Year Without Tax Deduction at Source:The second issue pertains to the deletion of an addition of Rs. 1,81,15,000/- for expenses provided at the end of the year but reversed at the beginning of the next year without tax deduction at source. The AO disallowed the expenses under Section 40(a)(ia) of the Income-tax Act for non-deduction of tax. The CIT(A) deleted the disallowance, relying on the assessee's compliance with TDS provisions in subsequent years and judicial precedents. The Tribunal upheld the CIT(A)'s decision, noting that if the tax was subsequently deducted and deposited before the due date of filing the return, no disallowance should be made. The Tribunal found no reason to sustain the addition and dismissed the AO's ground.3. Deletion of Addition on Account of Shortage in Stock:The third issue involves the deletion of an addition of Rs. 78,000/- related to a shortage in stock. The AO added this amount based on discrepancies found during physical verification of inventory. The CIT(A) deleted the addition, considering the negligible percentage (0.01%) of the shortage relative to the total stock value. The Tribunal agreed with the CIT(A), noting that such minor discrepancies are normal in manufacturing operations and do not warrant disallowance. The Tribunal dismissed the AO's ground, finding no infirmity in the CIT(A)'s decision.4. Deletion of Addition on Account of Scrap Value for 4 Days:The fourth issue concerns the deletion of an addition of Rs. 7,56,000/- for scrap value not accounted for the last four days of the financial year. The AO calculated the average daily scrap sale and added the estimated value for the missing days. The CIT(A) deleted the addition, referencing a similar issue in the assessee's own case where such an addition was previously deleted. The Tribunal upheld the CIT(A)'s decision, finding no logic in the AO's methodology and emphasizing that scrap sales should be accounted for as and when they occur, not based on averages. The Tribunal dismissed the AO's ground.Conclusion:The appeal of the learned Assessing Officer is partly allowed for statistical purposes, with specific directions to re-examine the issue of annual let out value of the property. The other grounds raised by the AO were dismissed, upholding the CIT(A)'s deletions of the respective additions. The order was pronounced in the open court on 14.05.2024.