2011 (8) TMI 1142 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order passed by the Assessing Officer (A.O.) for special audit u/s 142(2A).
2. Rejection of books of accounts u/s 145(3) and addition on account of alleged low gross profit (GP).
3. Disallowance of deduction u/s 80IB.
4. Disallowance out of depreciation.

Summary:

Issue 1: Validity of the order passed by the A.O. for special audit u/s 142(2A)
The Tribunal found that the issue regarding the validity of the order passed by the A.O. for special audit u/s 142(2A) is of academic interest only, as no addition on account of low GP was found to be justified. Therefore, this issue was not adjudicated upon.

Issue 2: Rejection of books of accounts u/s 145(3) and addition on account of alleged low GP
The Tribunal examined the fall in GP reported by the assessees. It was found that the fall in GP was explained due to the increase in the price of raw materials, salary and wages, and other manufacturing expenses. The Tribunal noted that the special auditors and the A.O. did not provide a working for the impact of the increase in raw material prices on the GP. After detailed analysis, the Tribunal concluded that the entire fall in GP was explained and no addition on account of alleged low GP was justified. Consequently, the rejection of books of accounts u/s 145(3) was also not justified.

Issue 3: Disallowance of deduction u/s 80IB
The Tribunal addressed the disallowance of deduction u/s 80IB concerning interest on LC margin money and vatav kasar income. The assessees did not press the ground regarding interest on LC margin money, and this part of the ground was rejected as not pressed. Regarding vatav kasar income, the Tribunal held that it should be reduced from the cost of purchase and not treated as income from other sources. Therefore, the A.O. was directed not to reduce vatav kasar income from the business profits for calculating the deduction u/s 80IB.

Issue 4: Disallowance out of depreciation
The Tribunal upheld the disallowance of depreciation, noting that depreciation, even if not claimed, has to be allowed while computing deduction under chapter VIA, as per the decision of the Special Bench of the Tribunal in the case of Vahid Paper Converters and the judgment of the Hon'ble Apex Court in Cambay Electric Supply Industrial Co. Ltd. No material was brought on record to show that this decision was not applicable.

Conclusion:
Both appeals of the assessees were partly allowed. The Tribunal pronounced the order in the open court on 12th August 2011.