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Income Tax Appellate Tribunal, CHANDIGARH BENCHES ‘B’, CHANDIGARH
Before: SHRI SANJAY GARG & Dr. B.R.R. KUMAR
Per Sanjay Garg, Judicial Member:
The above captioned appeals one by the Revenue and another by the assessee have been preferred against the order dated 09.03.2017 of the Commissioner of Income Tax (Appeals), [hereinafter referred to as CIT(A)], Patiala relating to assessment year 2012-13.
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 2
Since both the appeals are arising out of the same order of the
CIT(A), hence, the same have been heard together and are being disposed
of by this common order. First, we will take up appeal of the Revenue in
ITA No. 839/Chd/2017.
The Revenue is aggrieved by the action of the CIT(A) in deleting the
addition made of Rs. 34,14,667/- on account of suppressed sale. The
assessee is involved in manufacturing of packaging material and plastic
products. The Assessing officer observed that assessee had shown less
yield for the year under consideration as compared to earlier assessment
years. He, therefore, concluded that the assessee might have suppressed its
sales. He by taking average of the past years vis-a-vis the production
shown by the assessee during the year under consideration, estimated the
figure of suppressed sales and made addition to the income of the assessee
accordingly.
Being aggrieved by the above order of the Assessing officer, the
assessee preferred appeal before the CIT(A). The Ld. CIT(A) found that
there was no evidence on the file or record about the suppression of sales
and considered the submissions of assessee that lower yield was on account
of various circumstances including power fluctuation, break down of
electricity and that the assessee was involved in manufacturing of various
types of products according to demand and that the yield depends upon the
variety of products manufacture also. That during the year there was
generation of more waste in relation to the products manufactured, etc.
The Ld. CIT(A) after considering the overall facts and circumstances
of the case observed that merely because the assessee had shown during the
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 3
year less yield that itself cannot be a ground for addition. That even otherwise, there was no evidence available of suppression of sales. He therefore, deleted the additions so made by the Assessing officer on this issue. Being aggrieved by the above order, the Revenue has come up in appeal before us.
We have considered the rival submissions. In our view, the Ld. CIT(A) has rightly deleted the addition in the absence of any cogent or convincing evidence that the assessee has surpassed its sales. The assessee has explained about various factors contributing for the low yield. Even otherwise, in our view, in the absence of any incriminating evidence, it cannot be assumed that the assessee might have suppressed the sales. We, therefore, do not find any merit in the appeal of the Revenue and the same is accordingly dismissed.
Now coming to the appeal of the assessee in ITA No. 816/Chd/2017, wherein the assessee has taken following grounds:-
That the Ld CIT(A) has erred in confirming the capitalization of interest paid, amounting to Rs.53,157/-, on loan raised for purchase of machinery on the ground that the machinery has not been used during the year under consideration whereas, as per the assessee the trial run has been conducted by the assessee after commissioning of the machinery, therefore, the capitalization made as per explanation 8 under Section 43(1) r.w. section 36(l)(iii) is bad in law and therefore prayed to be set-aside.
That the Ld. CIT(A) has erred in confirming the disallowance of depreciation amounting to Rs. 57,474/- on building on the ground that in the month of March the assessee purchased cement and bricks whereas, as per the assessee the meager amount expended on cement and bricks could not challenge the whole
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 4
building erected and commissioned by the assessee amounting to Rs. 11,49,474/-, therefore the disallowance of depreciation is being prayed to be set- aside.
That the Ld. CIT(A) has erred in confirming the disallowance of depreciation amounting to Rs. 10,356/- on machinery on the ground that in the month of March the assessee purchased machineries and there are no erection charges qua those machineries whereas, as per the assessee the employees of the assessee are competent enough to install the said machineries, therefore, the disallowance of depreciation is being prayed to be set-aside.
That the Ld CIT(A) has erred in confirming the disallowance of expenditure amounting to Rs. 58,840/- on the ground that the said expenditure relates to service tax penalty and therefore under section 37(1) the said expenditure is not allowable, whereas, as per the assessee these expenses paid towards meeting Statutory obligation, therefore the disallowance made may kindly be set aside.
That the Ld. CIT(A) has erred in partially confirming the disallowance of travelling expenditure to the tune of Rs. 3,91,028 (out of Rs.4,66,028/-) on the ground that the family of director accompanied him on the trrip whereas, as per the assessee the business exigency of the foreign trip is not in doubt, therefore the disallowance made may kindly be set-aside.
That the Ld. CIT(A) has erred in confirming the disallowance @ 50% of sales promotion expenses which comes to Rs.4,52,118/- on the ground that the assessee failed to give the identity of a person to whom the costly gifts have been paid and the some expenditure has been booked on 31.03.2012 whereas, as per the assessee the business exigency and the genuineness of the expenditure is not in doubt, therefore the ad-hoc disallowance made may kindly be set-aside.
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 5
That the Ld. CIT(A) has erred in confirming the disallowance of expenditure on consumables amounting to Rs.76,928/- on the ground that the said expenditure is not in commensurate with the earlier year expenditures whereas, as per the assessee the genuineness of the expenditure is not in doubt and consumables may vary year to year which depends upon number of factors, therefore the ad-hoc disallowance made may kindly be set-aside.
At the outset, Ld. Counsel for the assessee has invited our attention to the grounds of appeal wherein a noting has been made at ground Nos. 3 & 4, withdrawing the same. The Ld. Counsel for the assessee has also stated at bar that as per withdrawal instructions of his client, he has withdrawn ground Nos. 3 & 4. Therefore, ground Nos. 3 & 4 are dismissed as ‘withdrawn’.
Ground No.1 is regarding the capitalization of interest of Rs. 53,157/-. The Assessing officer disallowed the capitalization of the above interest on the ground that the machinery was not put to use during the year. The assessee contested this issue unsuccessfully before Ld. CIT(A) also.
Before us, Ld. Counsel for the assessee has submitted that the machinery was put to use as a trial run was done prior to first April, 2012. We find that the above contention of the assessee is not supported with any cogent and convincing evidence. We, therefore, do not find any merit in this ground and accordingly dismiss the same.
Ground No. 2 is regarding the deprecation on building amounting to Rs. 57,474/-. The Assessing officer observed from the bills and vouchers of cement and bricks that the bills were of the month of March 2012. He,
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 6
therefore, held that the building was not completed at the end of the financial year i.e. by 31st March, 2012. He, accordingly disallowed the
depreciation claimed on the building. The said disallowance has been
further upheld by the Ld. CIT(A).
We have heard the rival contentions. Admittedly, the bricks and
cement was purchased in the month of March itself, which was used for the
construction of the aforesaid building. In view of this, in our view, lower
authorities have rightly held that the building was not competed at the close of the year i.e 31st march of the relevant year. There is no evidence
brought to our knowledge that the building was put to use during the year.
In view of this, we do not find any merit in this ground of appeal and the
same is accordingly dismissed.
Ground No.5 is relating to the disallowance of part of expenditure
on foreign trip of the Director on the ground that the family of the director
accompanied him. The total expenditure claimed was amounting to Rs.
4,66,028/-, out of which, Assessing officer disallowed a sum of Rs.
3,91,028/- pertaining to the expenses on the family’s visit along with the
director. Ld. Counsel for the assessee could not explain as to how the
family of the director contributed in procuring business for the assessee
company. Hence, in our view, the lower authorities have rightly disallowed
the expenses relating to the foreign trip of the family of director of the
assessee. This ground is accordingly dismissed.
Ground No.6 is regarding disallowance of 50% of sales promotion
expenses claimed to have been incurred on purchase of costly gifts. The
Ld. Assessing officer asked the assessee to give the details of the persons
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 7
to whom the costly gifts were given and how the gifts to those persons
were beneficial to the business of the assessee. However, the assessee
could not give any satisfactory explanation in this regard.
Before us, Ld. Counsel for the assessee could not explain about the
justification in incurring of the expenses on the gifts and also could not co-
relate with evidence that the said expenditure were relating to the business
activity of the assessee. In view of this, we do not find any merit in this
ground of appeal and the same is accordingly dismissed.
Ground No.7 is relating to the disallowance of expenditure incurred
on consumables. The Assessing officer found that the assessee has shown
expenditure on consumables which was more than expenditure claimed in
the earlier assessment years. The assessee explained that the expenditure
on consumables vary from year to year and that there cannot be a straight
jacket formula to restrict the expenditure on consumable to a particular
limit; That it all depends upon the manufacturing activity and various
other circumstances and also the types of products manufactured.
However, the Assessing officer did not get satisfied with the above
explanation and made disallowance of Rs. 76,928/-, out of Rs. 6.15,424/-
on ad hoc basis. The above disallowance has further been upheld by the Ld.
CIT(A).
We have heard the rival contentions. We find that the lower
authorities have not doubted the incurring of expenditure on the basis of
any incriminating evidence found against the assessee. The disallowance
has been made merely on conjecture and surmises. We agree with the
contention of the Ld. Counsel for the assessee that there cannot be an
ITA No. 839/Chd/2017 ITA No. 816/Chd/2017 (M/s Sood Plastics (P) Ltd) 8
estimation of a fix amount regarding the consumption of consumables in
manufacturing products, which may vary owing to various circumstances as
explained by the assessee. The above disallowance has been made by the
lower authorities only on a presumption basis which, in our view, is not
sustainable in the eyes of law. Ground No.7 is, therefore, allowed and the
disallowance made on this account is ordered to be deleted.
In view of the above the appeal of the Revenue is dismissed and the
appeal of the assessee is treated as partly allowed.
Order pronounced in the Open Court.
Sd/- Sd/- (Dr. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 13.03.2018 Rkk Copy to: 2. The Appellant 3. The Respondent 4. The CIT 5. The CIT(A) 6. The DR