TMI Blog2003 (10) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... lvement so as to warrant such disallowances. He contended that the learned CIT(A), therefore, was not justified in sustaining the disallowances made by the AO on this count. 4. The learned Departmental Representative, on the other hand, submitted that these disallowances were made by the AO not for the involvement of personal element but specifically for non-business purpose and, therefore, the learned CIT(A) was fully justified in upholding the action of the AO on this count. 5. After considering the rival submissions and perusing the relevant material on record, it is observed that the required record was not maintained by the assessee-company to establish that the expenses incurred on telephone as well as on vehicle maintenance was fully incurred for the purposes of its business and since it was not possible to verify such expenses being wholly and exclusively incurred for the purpose of assessee s business, the AO made a disallowance to the extent of 1/10th of the claim and the learned CIT(A) upheld his action observing that although the assessee is admittedly a limited company, any expenditure incurred for non-business purposes cannot be allowed. Having regard to this spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excess stock of stores and spares : 2,84,828 7,98,091 During the course of survey, Shri P. Ravi, Manager (Finance Accounts) of the assessee-company was present and the inventory of stock was prepared by the survey team in his presence and with his assistance. He, however, failed to explain the difference in stock found during the course of survey and in his capacity as authorised representative of the assessee-company, accepted the factum of excess stock and also agreed to surrender the same as additional income of the assessee-company. The assessee-company, however, did not offer the said amount in its return of income filed for the year under consideration and when the AO required the assessee-company to offer its explanation in the matter during the course of assessment proceedings, there was no compliance from the assessee-company despite sufficient opportunity having been afforded by the AO. Finally on 27th Sept., 2002, the assessee s representative Shri Shastri and Shri Murthy admitted that they are not in a position to explain the same and the AO, therefore, proceeded to add the entire value of excess stock detected and admitted during the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me time the explanation given in this regard cannot also be sufficient to cover this wide margin specially because the valuation was made with the help of an expert manager who was present at the time of survey. Some addition is, therefore, warranted which on a fair and reasonable estimate is restricted to Rs. 2 lakhs. Regarding the addition of Rs. 2,84,828 made on account of stores and spares, and Rs. 99,590 on account of semi-finished goods, the excess stock found during survey was properly inventorised item-wise/number-wise. The stores and spares as also the semi-finished goods could be physically counted because they were only in pieces. So, the difference, i.e., excess stock detected by the survey team in respect of stores and spares and semi-finished goods on the basis of actual counting of pieces, is found to be correct and the explanation given in this regard is not acceptable and accordingly addition to the extent of Rs. 2,84,828 and Rs. 99,590 is entirely confirmed." Aggrieved by the order of the learned CIT(A) on this issue, the assessee as well as the Revenue is in appeal before us. 8. The learned counsel for the assessee submitted that none of the directors of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was prepared with his assistance. On this basis, the stock was found to be excess by Rs. 7,98,091 and Mr. Ravi attending the survey party on behalf of the assessee-company could not offer any satisfactory explanation as regards the said excess stock. On the contrary, he accepted the factum of excess stock and also agreed to surrender the value of excess stock as additional income of the assessee-company in his statement recorded during the course of survey. Before us, the learned counsel for the assessee has submitted that the said surrender made on behalf of the assessee-company by Mr. Ravi was retracted by the assessee-company vide its letter dt. 8th Aug., 1997, filed on 29th Aug., 1997. He has also filed a copy of the said letter at page Nos. 2 to 5 of his paper book and a perusal of the same reveals that there was no such specific retraction made by the assessee-company and although an attempt was made to explain the excess stock by making submissions of general nature, the assessee-company finally had agreed in the concluding para of the said letter that reconciliation of stock to the satisfaction of the Department would involve lot of time and efforts. Consequently, to avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,673 for the reason that the said addition was based solely on the surrender made by one of the officials of the assessee-company who in fact was not authorised to do so and the inventory of raw material was taken during the course of survey by visual inspection/estimation without going into the actual measurement/weighment of stock lying in heaps and huge containers. We find it difficult to uphold the relief given by the learned CIT(A) on this count since the reasons given by him in justification of the same, in our opinion, are not well founded. As already observed, the surrender made by Mr. Ravi on account of excess stock was further ratified by the assessee-company in a letter dt. 8th Aug., 1997 filed immediately after the date of survey. Moreover, the representatives of the assessee-company had admitted before the AO that they are not in a position to explain the excess stock and thus by implication the factum of excess stock found during the course of survey was accepted on behalf of the assessee-company even during the course of assessment proceedings. In these circumstances, the addition made by the AO on account of excess stock of raw material found during the course of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the claim of the assessee for deduction on interest income, it is observed that this Bench has taken a consistent view on this issue holding that two conditions are required to be fulfilled by the assessee in order to claim the deduction under s. 80-IA on the interest income. The said two conditions are that there should be inextricable link between interest earned and the business of the assessee and the interest paid by the assessee in the year under consideration should be more than the interest earned. In the present case, the interest expenditure incurred by the assessee was much more than the income earned from interest as is evident from a copy of the relevant P L a/c placed at page No. 63 of the assessee s paper book and it is thus clear that the first condition was duly satisfied by the assessee. As regards the second condition regarding the inextricable link between the interest earned and business of the assessee, it is observed that the corresponding investment in the form of deposit was made by the assessee-company for offering the same as security deposit for availing bank guarantee as well as for purchase of car and trucks and thus the interest earned on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this disallowance. 16. In ground No. 1 of its appeal, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs. 3,96,996 made by the AO disallowing the claim of the assessee for deduction on account of bad debts. 17. After considering the rival submissions and perusing the relevant material on record, it is observed that the claim of the assessee for deduction on account of bad debt amounting to Rs. 3,96,996 was disallowed by the AO for the reason that the said amount had not been written off by the assessee in its books of account as required under s. 36(2) in order to qualify for deduction. The learned CIT(A), however, deleted the said disallowance and allowed the claim of the assessee for deduction on account of bad debts observing that the requirements of s. 36(2) had been duly satisfied and fulfilled by the assessee-company. Before us, the learned counsel for the assessee has demonstrated from the relevant balance sheet and P L a/c of the assessee-company that the bad debts claimed by the assessee had been duly written off in the books of account and although in the P L a/c the amount so written off was wrongly mentioned as "provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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