No allowance for labor costs and freight expenses is deducted from closing stock since the assessee failed to provide an explanation for the same
Fact and issue of the case
These cross appeals by the assessee and Revenue, are arising out of order of the Commissioner of Income Tax (Appeals)-18, Chennai in ITBA/APL/M/250/2021-22/1039396014(1) dated 04.02.2022. The assessment was framed by the ACIT, Company Circle III(1), Chennai, for the assessment year 2008-09 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 21.12.2010. Revenue’s Appeal in ITA No.311/CHNY/2022
The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the disallowance made by AO of proportionate interest paid on borrowed funds amounting to Rs.4,91,60,188/- paid in respect of Binny Limited and Rs.19,52,400/- paid in respect of Viceroy Chennai Hotels Pvt. Ltd. For this, Revenue has raised various grounds which are argumentative and hence, need not be reproduced.
Brief facts are that the assessee company is engaged in the business of manufacturing and trading of chemicals and in generation of power.
Observation of the court
We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO has made disallowance on estimated basis at the rate of 20% of total expenses incurred on account of repair and maintenance. The assessee before CIT(A) filed ledger accounts without supporting evidences. Hence, he sustained the disallowance made by AO at 20%. We have gone through the assessment order and noted that the AO has purely estimated disallowance at 20% but assessee explained that the assessee company is following a practice of claiming this expenditure towards building repairs and maintenance, plant repairs and maintenance and other maintenance and by this, it has incurred and claimed expenditure of Rs.5,29,74,156/-. The AO has simply disallowed without verifying and without any basis. We are of the view that disallowance should have some basis. There can be a reason for some personal disallowance and for that estimated disallowance can be to the extent of 10% and hence, we restrict the disallowance at 10% and allow this issue of assessee’s appeal partly.
In the result, the appeal filed by the Revenue in ITA No.311/CHNY/2022 is dismissed and the appeal filed by the assessee in ITA No.182/CHNY/2022 is partly-allowed.
Order pronounced in the open court on 12th October, 2023 at Chennai.
Read the full order from hereTCP-Limited-Vs-ACIT-ITAT-2