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2019 (11) TMI 638 - AT - Income TaxAddition of discrepancy in stock - assessee himself has accepted the discrepancy in stock during the course of survey and surrender the excess stock. Surrender was made when confronted with the documentary evidence and discrepancy - HELD THAT:- No physical discrepancy was found/ detected by the survey team and excess value of stock was merely because of difference in valuation of closing stock. Survey team took the valuation applying MRP- GP% whereas as per assessee, since as per normal trade practice sales are generally made after giving discounts @ 30% to 60%, stock was valued at MRP-Discounts-GP%. This discrepancy in valuation method was duly elucidated before the Assessing Officer vide submission dated 25.02.2013 by the Assessee. The statement showing valuation of closing stock at actual sale price supported by relevant invoices to prove assessee’s claim of overvaluation of stock by the survey team. It is undisputed fact that per unit consumption of inputs say, raw material, electricity, diesel etc. is directly proportional to the no. of cores in the wire i.e. as the no. of cores increases per unit consumption of input increases. A six core cable is nearly equal to six single core cables. The assessee demonstrated the conversion of 5 variety of multiple core wire, which constitute 91% of total production by the assessee, into single core wires which shows that production in meters per unit of electricity consumed has increased in the subject year through a table before the AO. The assessee also showed the comparative chart in respect of production of multiple core cable has increased in the subject year as compared to previous years and also demonstrated total production of wires in meters, if the same is converted to single core wires further substantiating assessee’s claim that per unit production has increased in subject year to the Assessing Officer. Thus, there is no need to interfere with the findings of the CIT(A). Ground No. 1 of the Revenue’s appeal is dismissed. Interest free advance to two sister concern without charging any interest - HELD THAT:- Advance of ₹ 77 lakhs considered by the Assessing Officer for making the disallowance, was not from interest bearing borrowed funds, but was made out of own funds built up from the interest free funds i.e. capital and Interest free sundry deposits available with the assessee amounting to ₹ 2.64 crores (1.34+1.30). This emerges from the records produced before the Assessing Officer. Therefore, when there is no expenditure of interest in respect of interest free funds of ₹ 2.64 crores which are more than the amount advanced, there is no justification for charging interest and that too @ 12% on the sum of ₹ 77 lakh. These factual aspects were ignored by the AO. Thus, the CIT(A) rightly deleted this addition. There is no need to interfere with the findings of the CIT(A). Ground No. 2 of the Revenue’s appeal is dismissed. Disallowance of damages u/s 37 - HELD THAT:- From the perusal of the records it can be seen that due to some unfavorable market conditions specifically shortage of material, unreasonable prices of inputs, delayed payment by railways etc. the assessee could not make the supplies on time to Railways that is the only reason that railways deducted liquidated damages out of payment due to the assessee. Thus, the breach of contract is squarely within the meaning of expression 'commercial expediency' when, seen from the perspective of the assessee's business. Thus it is settled law that only those payments which have been made for infringement of law shall not be allowed as revenue expenditure. Since, the said payment/deduction was not towards any offence or infringement of law therefore the disallowing the same is not tenable on part of the AO. CIT(A) rightly deleted this addition. Ground No. 3 of the Revenue’s appeal is dismissed.
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