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2018 (3) TMI 941 - AT - Income TaxDisallowance/restriction of raw material consumed to 1% of the value of raw material consumed on estimate basis - closing stock valuation - according to AO, in the assessment year under consideration there is abnormal increase in the consumption of raw material by 25% than compared with the increase in production of finished goods by 10% - Held that:- On perusal of Schedule 14 (Materials) of the audited accounts (page no. 20) reveals that closing stock of work-in-progress (WIP) as on 31.03.2004 is ₹ 38,192/- and on 31.03.2005 is ₹ 52,907/-. Thus, there is an increase of 39% in the closing stock of WIP. We also note that the value of closing stock of finished goods and WIP has also increased by 29%, therefore, in the light of the aforesaid facts emerging from the audited accounts of the assessee, the factual inference of the AO is incorrect and the basis for estimation itself fails. We also note that the books of account of the assessee has not been rejected by the AO, therefore, the estimation was not warranted. CIT(A) erred in restricting the disallowance to 1% of raw material consumed. Therefore, in the interest of justice and fair play for both the parties, we set aside the order of Ld. CIT(A) and remand the matter back to the file of AO for de novo adjudication - Decided in favour of assessee for statistical purposes Disallowance of site expenses-Maintenance and site expense u/s. 40(a)(ia) to the extent of labour charges and office rent - Non deduction of tds - Held that:- We note that out of the details of site expenses of ₹ 4,04,51,275/- the AO asked only the details of TDS of site expenses of ₹ 1,50,22,618/- pursuant to which assessee gave the details of this information sought. However, the AO disallowed site expenses and maintenance of ₹ 43,44,654/- and site expenses and others of ₹ 84,81,271/- which aggregates to ₹ 1,28,25, 925/- u/s. 40(a)(ia) and (ib) of the Act without providing proper opportunity to the assessee. The Ld. CIT(A) gave partial relief after taking note of the details submitted before him. The AO ought to have done the assessment by providing sufficient opportunity to the assessee and since no opportunity was given to the assessee at the time of assessment proceedings on the addition/disallowance made, the proper course to be taken is that the matter needs to be remanded back to the AO. Disallowance of advertising expenses - as per AO assessee neither submitted the name and address of the respective parties nor the confirmation of bills and hence, the said amount is liable for disallowance u/s. 40(a)(ia) read with sec. 194C - Held that:- We note that out of ₹ 41,40,940/- AO disallowed ₹ 2,17,760/- on the plea that details of the disbursal was not provided to him, so he made disallowance. CIT(A) has given partial relief by holding as supra. However, we do not understand in what context the CIT(A) has given relief to the assessee. The main grievance of the revenue is that details in respect to this issue for amount disallowed by AO were not provided before the AO. Direct the AO to verify the claim of the assessee afresh. So, we set aside the order of CIT(A) on this issue and restore the matter back to the file of AO for fresh consideration Disallowance on account of prior period expenses - Held that:- As submitted by the assessee that in the assessment year under consideration, the auditor has reported prior period expenses of ₹ 13,127/- in clause 22(b) of the tax audit report which according to the assessee was duly offered to tax in the computation of total income. However, without assigning any reason the authorities below have made the addition which renders the order bad in law for non-application of mind, therefore, in the interest of justice relying on the order of Hon’ble Supreme Court in the case of Tin Box Company (2001 (2) TMI 13 - SUPREME Court), we remand this issue to the file of AO for de nove adjudication. Addition on gifts given - Held that:- We note that assessee has given calendar, diary, bags etc. which are regularly presented to customers, dealers, employees during festival occasion to carry the business smoothly and needs to be considered as business expenditure u/s. 37(1) of the Act. Allowability of foreign travel expenses - Held that:- We note that in earlier assessment years there has been no disallowance on foreign travel and taking into consideration the rule of consistency and since the AO has made ad hoc disallowance which is an arbitrary exercise of power, we do not subscribe this action of the AO and, therefore, we uphold the order of Ld. CIT(A) and dismiss this ground of appeal of revenue. Allowability of hotel expenses - Held that:- Director and foreign employees as well as other employees/auditors of the assessee company have been staying in hotels and bills have been annexed with the paper book. So, the contention of the AO cannot be accepted. We have already upheld the order of the Ld. CIT(A) in respect to travelling expenses because it is for the purpose of business. When they travelled they have to stay in various places/countries for which expenses are for the purpose of business of the assessee, therefore, we uphold the order of the Ld. CIT(A) who was pleased to delete the ad hoc disallowance made by the AO. Allowability of professional fees paid - payment of tds - Held that:- Professional fees paid to Advent processing in the earlier years and subsequent assessment years has not been disallowed and for the first time the AO has resorted to disallow the same. We take note that the TDS of the payment has been deducted and the assessee has submitted the detailed break up of payment along with the copies of the bills before the AO. However, on a specious plea that the nature of drawing and design and its relevance to the business carried out by the assessee could not be understood from the invoice prompted the AO to make the disallowance, which the Ld. CIT(A) taking note of the evidence furnished and the TDS deducted and also taking into consideration that the professional fees for Advent Processing has never been disallowed in the earlier years as well as the subsequent assessment years allowed the claim which does not call for any interference
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