2005 (12) TMI 563 - AT - Income Tax

Summary

Issues:
1. Dispute over additions made by rejecting book results under section 145 and addition due to low yield.
2. Disallowance of sum due to consumption of stores and spare parts.
3. Disallowance of depreciation on plant and machinery.

Analysis:

Issue 1:
The first ground of dispute involves additions made by rejecting book results under section 145 and addition due to low yield. The Assessing Officer observed a shortage in yield from cotton issued for yarn manufacture, leading to an addition to the income. The assessee argued that factors like moisture content and quality of cotton were not considered, and there was no reason to reject the book results. The CIT(A) compared the case with other spinning units and directed the computation of yield of waste cotton. The Tribunal held that the mere absence of a day-to-day stock register does not justify invoking section 145. The addition was based solely on this absence, ignoring the correctness of the accounts. The Tribunal concluded that the addition related to loss of production of waste cotton should be sustained, but the overall addition was unjustified and needed to be deleted.

Issue 2:
The next ground of appeal concerns the disallowance of expenses due to the consumption of stores and spare parts. The Assessing Officer noted a significant increase in expenses compared to the previous year and made a lump sum disallowance. The CIT(A) sustained the disallowance citing unverifiable expenses. The Tribunal acknowledged the valid reasons for increased expenses due to overhauling after a prolonged shutdown. However, the disallowance was deemed excessive, and it was reduced significantly based on the available information and the contentions raised by the assessee.

Issue 3:
The final ground of appeal pertains to the disallowance of depreciation on plant and machinery. The Tribunal sustained the disallowance as no error was pointed out during the hearing. Therefore, the disallowance on depreciation was upheld.

In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the assessee on the issues related to rejecting book results under section 145 and the disallowance of expenses due to consumption of stores and spare parts. However, the disallowance of depreciation on plant and machinery was upheld.