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2015 (5) TMI 724 - AT - Income TaxDisallowance of Prior period expenditure - Held that:- Ld. Counsel refers to page 20A wherein Cochin Customs receipt for miscellaneous charges is contained which is dated 30.01.2006 acknowledging the payment of ₹ 84,728/-. In this receipt, the bill of entry number is mentioned as 170028 dated 30.11.2005 from 16.11.2005 to 31.01.2006. This suggests that the demand note was received during the year under consideration and, therefore, this cannot be treated as prior period expenditure. Similarly, the details of interest for ₹ 7,04,233/- at page 20B of the paper book also clearly suggests that the liability is crystallized during the year under consideration and, therefore, this also cannot be treated as prior period expenditure. Further, both the impugned amounts are primarily compensatory in nature being on account of delayed payment of Custom Duty. Therefore, both the amounts are to be allowed being incurred wholly and exclusively for business purposes. However, in view of the submissions of the ld. DR, we restore this issue to the file of the Assessing Officer to verify when the demand was raised and if it was raised during the previous year under consideration then it is to be allowed - Decided in favour of assesse for statistical purposes. Disallowance of legal fee payment - denied on the ground of being relatable to prior period expenses - Held that:- keeping in view the smallness of amount and there being no dispute about genuineness of the expenditure and further the fee being relatable for the month of March, 2005, we are of the opinion that the claim should not be denied particularly when the bill has been received in the current assessment year and the payment has also been made in the current assessment year - Decided in favour of assesse. Disallowance of medi-claim policy of the Director of the company - Held that:- admittedly the mediclaim policy was for the benefit of director only and no benefit was derived by the assessee company from the said insurance policy in the name of director. This claim in no way was for the benefit of business interest of assessee company.,The assessee has not brought on record any evidence to infer that it was in any way under obligation to meet the expenditure on medi-claim policy in terms of service conditions. - Decided against assesse. Disallowance of interest not charged on capital expenditure booked as work in progress on behalf of plant owner FOSCL - Held that:- A bare perusal of the arrangement clearly shows that the whole arrangement has been made on account of commercial expediency because both the parties were benefited by the technical knowledge and know-how of each other. FOSCL was also the holder of intellectual property rights concerning the products and any other future added products and was entitled to these rights, therefore, it was in the interest of assessee to get benefit out of the same. We, therefore, considering the commercial expediency involved and terms of the agreement between the parties, did not find any reason to confirm the disallowance made by the lower revenue authorities on account of interest element on the amounts advanced to FOSCL being reflected as work-in-progress in the fixed assets. This ground is allowed - Decided in favour of assesse. Disallowance of Plant expenses - Held that:- the expenditure claimed is on the same footing as claimed by the assessee in ground no.5. Accordingly, we allow this ground of the assessee for the same reasons as recorded vide dealing ground no.5 above.- Decided in favour of assesse. Addition being interest not charged on business advances - Held that:- It is well settled law that no addition can be made on account of notional interest to be earned by assessee. This is against the very concept of real income theory. Be that as it may, the assessee had sufficiently owned funds to advance a sum of ₹ 18,96,035/-. We, therefore, do not find any basis for confirming the additions made by lower revenue authorities. - Decided in favour of assesse. Disallowing the expenditure for personal use under the head of Telephone, Vehicle Running & Maintenance - Held that:- It is not in dispute that assessee has paid fringe benefit tax on telephone and vehicle running expenses, therefore, no further disallowance on estimate basis is called for- Decided in favour of assesse. Addition on account of under valuation of closing stock - held that:- We are not convinced with the submission of ld. Counsel for the assessee that since, in earlier years, no such apportionment was made, therefore, the consistent method of valuation should be followed. The assessee’s approach is contrary to fundamental principle of accounting which require the matching of expenses with the revenue. If the revenue is to be realized by sale of stock in subsequent year then all the direct expenses attributable to the said stock can also be realized only when the stock is sold. Therefore, the direct expenses are to be allocated to the closing stock irrespective of the fact whether the same are debited to profit and loss account or trading account. We, therefore, set aside the order of the CIT (A) and restore that of the Assessing Officer. However, we are in agreement with the ld. Counsel for the assessee that if the closing stock of the current year is to be increased then simultaneously opening stock of subsequent year has also to be increased - Decided in favour of assesse for statistical purposes. Overdue interest charges - disallowed being prior period expenses and penal in nature - Held that:- we restore this matter to the file of the Assessing Officer for verification of assessee’s claim with regard to the details given by M/s. PEC Limited which is contained at page 48 of the paper book because the Assessing Officer has observed that assessee had not substantiated its claim whereas assessee’s contention is that the details were before the Assessing Officer - Decided in favour of assesse for statistical purposes.
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