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Issues Involved:
1. Rejection of books of account u/s 145 of the Income Tax Act, 1961. 2. Addition of Rs. 92,89,426/- on account of suppression of production. 3. Disallowance of Rs. 55,000/- on account of interest expenses. 4. Disallowance of Rs. 33,000/- on account of interest on cash balance. Summary: Issue 1: Rejection of books of account u/s 145 of the Income Tax Act, 1961 The Learned Assessing Officer (AO) rejected the books of account u/s 145 due to significant variations between the production shown and the electricity consumed. The AO calculated the total production based on electricity consumption and found a discrepancy, leading to the rejection of the books. The Assessee argued that power consumption varies due to several factors, and the books were maintained correctly and audited without any defects noted. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] held that the AO did not provide material evidence to justify the rejection of the books, which were audited and maintained as per the Income Tax Act. Issue 2: Addition of Rs. 92,89,426/- on account of suppression of production The AO made an addition of Rs. 92,89,426/- based on the estimated suppressed production calculated from electricity consumption. The Assessee contended that electricity consumption is not directly proportional to production due to various factors. The CIT(A) observed that the AO did not provide evidence of unaccounted manufacturing, sales, or purchases of raw materials. The CIT(A) relied on the Delhi ITAT decision in Pondy Metal & Rolling Mills (P) Ltd., which held that mere variation in electricity consumption cannot justify suppression of production. Thus, the addition was deleted. Issue 3: Disallowance of Rs. 55,000/- on account of interest expenses The AO disallowed Rs. 55,000/- of interest expenses, alleging that the Assessee provided an interest-free loan of Rs. 5,00,000/- from borrowed funds. The Assessee argued that it had sufficient interest-free funds, including share capital and reserves, to cover the loan. The CIT(A) found that the Assessee had adequate interest-free funds and deleted the disallowance. The Tribunal upheld this decision, noting no evidence that the loan was given from interest-bearing funds. Issue 4: Disallowance of Rs. 33,000/- on account of interest on cash balance The AO disallowed Rs. 33,000/- of interest on the grounds that the Assessee maintained a cash balance of Rs. 3,00,000/- while withdrawing money from the bank. The CIT(A) deleted the addition, stating that the auditors did not make adverse comments on this issue. The Tribunal agreed, emphasizing that maintaining cash is a business decision and cannot be dictated by the AO. The addition was deemed unjustified and was deleted. Conclusion: The Tribunal dismissed the appeal of the Revenue, confirming the order of the CIT(A) on all grounds. The rejection of books of account, addition for suppressed production, and disallowances of interest expenses and interest on cash balance were all found to be unjustified.
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