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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 18-3-2014, for the assessment year 2010-2011, in the matter of order passed u/s.143(3) of the IT Act, wherein following grounds have been taken by the assessee :- “1. That on the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing only part relief in ad-hoc disallowance made by the ld. AO on account of : i) Shortage in transit (shipment expenses) Rs.2,00,000/- ii) Quality rebate Rs.50,000/-
2. That on the facts and in the circumstances of the case, the ld. CIT(A) only allowed half relief by only deleting the addition of Rs.5,32,567/-. The assessee is entitled for further reduction in income of Rs.5,32,567/- on account of reduction in modvat credit wrongly construed by AO as increase. Therefore Rs.5,32,567/- is required to be further reduced from total income.”
2. Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of manufacturing and 2 export of Soya flour, chunks, lecithin and other soya products etc. The turnover of the assessee company during the year was of Rs.248.33 crore which included export sales of Rs.112.65 crores. During the course of assessment, details were filed in respect of various expenses. Explanations were filed in response to queries raised by the AO. The AO made adhoc disallowance of Rs.2 lakhs on account of shortage in transit(shipment expenses) of Rs.2 lakhs and Rs.50000/- for quality rebate. We found that total shipment expense are to the tune of Rs.3,68,27,382/-. Details of entire shipment expenses alongwith supporting vouchers/ledgers were filed before the Id AO as well as before the Id ClT(A) enclosing inter-alia details of shortage-in-transit. Out of these shipment expenses the total shortage-in-transit is to the tune of Rs14,27,562. This comes to a meagre 0.057% of turnover- 14.27 lacs/248.33 Cr. The AO disallowed Rs.5 lakhs out of these expenses on adhoc basis.
3. By the impugned order, the CIT(A) on one hand accepted that the Id AO has not brought on record any working as to how the loss on account of shortage in transit was less than the amount claimed by appellant, but on the other hand by comparing the loss in transit with the job work done by the assessee company for MARICO industries. It was explained to the Id CIT(A) that the appellant has, during the year under consideration done job work for MARICO and that there are certain re- imbursement of expenses as made by MARICO which, instead of crediting to income account, are credited to respective expense heads.
3 MARICO had deducted TDS on entire payments (including re- imbursements). The AO could not trace corresponding income in the P&L and hence went on to hold that there was income which was not credited to the account books. It was explained before the Ld CIT(A) that each and every item of payment by MARICO was credited in the books. Thus there was no such income which remained to be credited in the books of account. The Id CIT(A) after due verification of each and every reconciliation entry relating to the said ground had allowed the said ground. The CIT(A) held that the assessee could not produce tangible material to establish that MARICO had made some deductions for shortage-in-transit. The CIT(A) found that there was no occasion to link these two grounds and hence the appellant did not produce evidences to that effect.
We have considered rival contentions and found that similar adhoc disallowance was made in the assessee’s case year after year. The ITAT in assessee’s own case for the assessment years 2005-06 to 2007-08, deleted the entire additions so made vide order dated 20-3-2013. We had carefully gone through the order of the Tribunal inassessee’s own case and found that nature of disallowance so deleted by the Tribunal are the same as has been sustained by the CIT(A). Respectfully following the order of the Tribunal in assessee’s own case, we do not find any merit in the addition of Rs.2 lakhs sustained by the CIT(A).
The CIT(A) also upheld the disallowance of Rs.50000/- on quality rebate. From the record we found that total shipment expense are to the 4 tune of Rs 3,68,27,382. Details of entire shipment expenses alongwith supporting vouchers/ledgers were filed before the Id AO as well as before the Id ClT(A). Out of these shipment expenses the details of total quality rebate for DOC is to the tune of Rs 29,46,281 details of which were filed alongwith supporting details. This comes to a meager 0.12% of turnover- 29.46Iacs/248.33 Cr. the AO disallowed Rs.2 lakhs out of these expenses on adhoc basis. By the impugned order the CIT(A) sustained the addition of Rs.50000/- on adhoc basis. Following the reasoning given in the para 4 above, we direct the AO to delete the addition so made.
The assessee is also aggrieved for allowing half relief on account of reduction of MODVAT credit of Rs.5,32,567/-, which was wrongly considered by the AO as increase.
We have considered rival contentions and found that this issue has been discussed by the AO at page 4 and by CIT(A) at page 6 & 8. Facts in brief are that there was an opening balance of Rs26,33,416 on Modvat Account as per RG-23 register. The closing balance was actually Rs 36,53,004. Thus the correct difference between the opening and closing balances of Modvat came to Rs.10,19,588 which was to be added to the returned income of the assessee. However, due to inadvertence, the closing balance of MODVAT on closing stock was taken at Rs 41,85,571 in the tax audit report/3CD (instead of correct closing balance of Rs 36,53,004. This resulted in the assessee adding an amount of Rs 15,52,161 ( wrong closing balance 41,85,571 - opening balance 26,33,416) to the profit as per P&L account for the purpose of computing 5 the taxable income. As per our considered view, the correct amount to be added was Rs 10,19,58. This resulted in a wrong and excess addition of Rs 5,32,573 (wrongly added as 5,32,567 by the AO) to the income of the assessee. The AO vide page 4 para 11 instead of deducting the said amount from the reported profit added the same to it. Thus resulting in double jeopardy to the assessee. This fact was brought to the notice of the Id ClT(A) vide ground no. 7 before her and written submissions dated 19.06.2013 and 08.03.2014. It was categorically pointed out to her that the said mistake (of taking wrong closing MODVAT balance at Rs 41,85,571 in the current year has been corrected in the subsequent year as taking the correct amount of Rs 36,53,004 as opening balance of next year AY2011-12 and an income of Rs 5,32,567 has been added in the income of next year against which the assessee has not gone in further appeal. The CIT(A) after due verification of these facts allowed the ground of assessee by directing the AO to delete the said addition (pg 8 para 7.4) She however did not direct the AO to give a further reduction of Rs 5,32,573 from the assessed income- since in the first place, the amount of Rs 5,32,573 , which was required to be reduced from the income was instead added to it. She thus corrected only half of the error and forgot to give appropriate directions regarding the remaining half of the error.
In view of the above facts, we direct the AO to give further relief of Rs.5,33,573/- from assessee’s income to nullify such error. We direct accordingly.
In the result, appeal of the assessee is allowed.