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2018 (4) TMI 925 - ITAT CHENNAIDisallowance towards sales promotion expenses - Held that:- In the instant case, it is not the case of the ld AO that the expenditures incurred in the form of giving diaries, medical planners, medical representative bags etc were in the nature of expenditure prohibited by MCI regulations. In any event, these expenditures were incurred much prior to the introduction of the CBDT Circular and MCI regulations itself. We have already held that the genuinity of the expenditure and business purposes thereon were not doubted by the revenue herein - We further hold that the applicability of the Circular 5/2012 could only be prospective in nature and cannot be made applicable for the Asst Year under dispute before us. We allow the claim of write off of the assessee in the sum of ₹ 1,18,23,353/- as deduction in Asst Year 2005-06 - Decided in favour of assessee Addition made u/s 41(1) - Held that:- When the entire balance outstanding in the sum of ₹ 39,90,797/- is reflected as receivable in the books of CABL, which is also assessed by the very same AO, there cannot be any cessation of liability on the part of the assessee. We find that the ld AO had only forced the assessee to cease the liability payable to CABL. Had the ld AO verified the records of CABL which is also assessed in his office / circle only, he could have understood the truth. Without doing the same, the action of the ld AO by making an addition u/s 41(1) of the Act is not warranted and accordingly deserves to be deleted. TDS u/s 194J - Disallowance made u/s 40(a)(ia) towards audit fees - non deduction of tds - Held that:- In the instant case, the assessee had made provision for audit fees to the account of the payee which fact has been mentioned by the ld CITA. Hence the provisions of section 194J of the Act are clearly attracted and non-deduction of tax at source would automatically invite disallowance u/s 40(a)(ia) of the Act. The statutory auditor is appointed in the annual general meeting of the company by the shareholders and would hold office till the conclusion of the next annual general meeting. Hence the name of the payee (i.e the auditor) is very well known to the assessee in order to make provision for audit fees by crediting to the said auditor’s account. Hence we are not inclined to accept the arguments of the ld AR that the audit report is signed after the end of the year. Accordingly, the Ground raised by the assessee is dismissed. Validity of reopening the assessment - valuing the closing stock of scrap - Held that:- In the instant case, the purported income ie valuing the closing stock of scrap which was discovered subsequently during the course of reassessment proceedings, can be brought to tax, only if the escaped income i.e business loss claimed by the assessee, which triggered, in the first instance, the issuance of notice u/s 148 of the Act, is assessed to tax. As stated above, during the reassessment proceedings, the ld AO agreed with the contentions of the assessee that it had indeed done business activity and hence the business loss was allowed to be set off with other income. In this scenario, the ld AO would be precluded from making any other addition towards the new source of income as prima facie his reason to believe that income had originally escaped assessment had failed. Even on merits, from the facts narrated and explanations given hereinabove, we find that the ld AO is not justified in valuing the closing stock of packing materials representing scrap based on the scrap sales made in subsequent years ignoring the principles of valuation of stock as enumerated in AS 2 issued by ICAI which is also mandated to be followed u/s 145A of the Act. Hence no addition towards valuation of closing stock could be validly made in the reassessment even on merits in the instant case. - Decided in favour of assessee.
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