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2014 (4) TMI 781 - AT - Income TaxDeletion of disallowance of finance charges Held that:- The proportionate disallowance was made by the AO because he was of the opinion that the assessee had incurred direct expenses of Rs.3.57 Crores against which there existed a closing stock of Rs.1.38 Crores and proportionate and accordingly disallowance had to be made - the assessee had claimed that interest was utilised by it for carrying out of its business -AO has not given any finding as to how the said claim of the assessee was incorrect - Assessee was following the same practice, writing its books of accounts as per the Accounting Standards, in earlier years and AO had never pointed out any defect in that practice - It is true that the AO can deviate from the stand taken in earlier years, but for doing so, he has to give cogent reasons which are not present in the particular case - the FAA was correct in holding that the basis for calculating WIP at 42% was not clear - expenses can be capitalised in certain conditions, but if AO wants to capitalise any expenses he has to clearly mention the facts leading to his conclusion - Assessee has never capitalied expenditure Decided against Revenue. Deletion of disallowance u/s 69B of the Act Unexplained investment Held that:- The assessee had hired a premises and paid Rs.20 lakhs to SG, that AO had gathered information from SG but did not inform the assessee about the result of his inquiry - AO has to confront the assessee with the information that he collects behind the back of the assessee and uses against it - the AO has violated the basic principle of natural justice and only on this basis ground of appeal taken by him can be dismissed - the FAA has held that transaction was with the SM it is not known whether assessee had hired any other premises besides the SG thus, the matter is required to be remitted back to the FAA for fresh consideration Decided in favour of Revenue. Deletion on account of service tax Held that:- The assessee was not routing the transactions of ST through the P&L A/c. and that it was dealing with ST only in the balance sheet - FAA has given a finding of fact that the basis for making addition was incorrect the order of the FAA is upheld Decided against Revenue. Disallowance of cash expenses on estimate basis Held that:- FAA rightly mentioned that the AO had not verified even a single bill or voucher that could be treated as bogus - He made a lump sum addition on ad hoc basis the approach has been rightly rejected by the FAA - But, while granting relief, FAA restricted the disallowance to 20% - the FAA has also not identified the bills/vouchers that could be disallowed - FAA could have directed the AO to furnish a remand report in this regard or could have directed the assessee to filed further details of payments of wages and food but, FAA choose not take any of those steps and held that there was possibility of expenses being personal/ non-professional in nature - In absence of any detail it could not be held that as to which expenditure could be termed as non-professional expenditure thus, the order of the FAA is reversed Decided in favour of Assessee. Possibility of incurring of expenditure cannot take place of evidences and tax liability cannot be fastened to an assessee on the basis of some possibility.Therefore, we are not able to persuade ourselves to confirm the order of the FAA.Reversing the order of the FAA, we decide effective ground of appeal in favour of the assessee. Disallowance of adhoc expenses 20% of wages and conveyance Held that:- FAA was correct in holding that disallowance should not be made for the material purchased -FAA has restricted the disallowance to 20% of wages and conveyance expenditure - But no reason has been given for sustaining the partial disallowance - without pointing out the mistakes in the books of accounts or in the vouchers/bills maintained by the assessee, no addition could be made under any head of expenditure - AO had two occasions to pass a reasoned order or bringing the relevant facts on record - But, he did not apply his mind the order of the FAA is reversed Decided in favour of Assessee.
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