The Ganga Kisan Sahkari Chinni Mills ... vs Department Of Income Tax

by the CIT(A) on 10.8.2011 in relation to the assessment year 2008-

09.

2. The first ground is against the allowing of relief of `23 lac out

of disallowance of `25 lac. Briefly stated, the facts of this ground

are that the assessee society claimed deduction for a sum of ITA No.5455/Del/2011

`97.93 lac under the head 'Manufacturing Material and Chemicals'

expenses. The AO noticed that in the immediately preceding year,

the expenses under this head were to the tune of `48.90 lac. In view

of almost 100% increase in such expenses, the assessee was called

upon to justify the deduction. The assessee stated that due to

increase in the rate of material used in the manufacturing process,

the expenses have gone up. In the absence of proper explanation

given by the assessee, the AO made an ad hoc disallowance of `25

lac. The ld. CIT(A), on perusal of the details of expenses, restricted

the addition to `2 lac, against which the Revenue has come up in

appeal before us.

3. After considering the rival submissions and perusing the

relevant material on record, it is observed that the AO has made an

ad hoc disallowance of `25 lac by simply noticing that the expenses

under this head increased by 100% in comparison with the

preceding year. The assessee's explanation about the increase in

the material cost was not controverted by the AO. Simply because a

particular expense has increased upwards, cannot in itself be a

reason to call for any disallowance. Considering the totality of facts

and circumstances of the instant case, we find that the ld. CIT(A) 2 ITA No.5455/Del/2011

was justified in restricting the disallowance to `2 lac on account of

non-availability of some petty vouchers. This ground is not allowed.

4. The only other ground is against the allowing of a relief of

`9,37,495/- out of disallowance of `25 lac under the head 'Repairs

and maintenance of Plant and machinery'. The AO observed that

the assessee claimed deduction for a sum of `1.56 crore under this

head. Such expenditure was found to be on a higher side in

comparison with the expenditure of `1.04 crore incurred in the

preceding year. The assessee, in response to the claim for

deduction submitted that the scrap generated as a result of repairs

and maintenance was not accounted for, which event takes place in

3-4 years. Not convinced, the AO made a disallowance of `25 lac.

The ld. CIT(A) reduced the disallowance to `15,62,505/-.

5. After considering the rival submissions and perusing the

relevant material on record, it is again noticed that the AO has

made an ad hoc disallowance by simply considering higher

expenditure on account of repair of plant and machinery. It is quite

natural that with the increase in the age of assets, the repair costs

also increase. We find weight in the viewpoint of the ld. CIT(A) that

the assessee's method of recording scrap in the year of sale was 3 ITA No.5455/Del/2011

not appropriate. In our considered opinion, the ld. CIT(A) was

justified in considering the value of scrap at 10% of total expenses

under this head, which comes to `15.62 lac, thereby allowing a

relief of `9.37 lac. This ground is not allowed.

6. In the result, the appeal is dismissed.

The order pronounced in the open court on 14.01.2015.

Sd/- Sd/-

[A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated, 14th January, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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