2010 (9) TMI 1187 - AT - Income Tax

Summary

Issues Involved:
1. Classification of moulds as capital assets or consumable spares.
2. Rate of depreciation on moulds.
3. Depreciation rate on Tractor and Trolley.
4. Addition of Rs. 78,40,000/- under Section 68 of the Income Tax Act.

Comprehensive, Issue-Wise Detailed Analysis:

1. Classification of Moulds as Capital Assets or Consumable Spares:
The assessee claimed expenditure on the purchase of moulds as revenue expenditure, arguing that moulds had a short life span due to high temperatures and were replaced frequently. The Assessing Officer (AO) classified these moulds as capital assets, disallowing the revenue expenditure claim and allowing depreciation instead. The CIT(A) upheld the AO's decision, stating that moulds are capital assets eligible for depreciation. The Tribunal found that the AO and CIT(A) did not consider the consistent accounting method followed by the assessee in treating moulds as consumables. The Tribunal vacated the CIT(A)'s findings and remanded the matter for reconsideration, emphasizing the need to evaluate the consistent accounting method and the nature of the moulds.

2. Rate of Depreciation on Moulds:
The assessee argued for a 40% depreciation rate on moulds, citing their short lifespan and frequent replacement. The AO allowed depreciation at 25%, which the CIT(A) upheld, noting that a 40% rate applies only to moulds used in plastic and rubber goods factories, not applicable to the assessee. The Tribunal directed the CIT(A) to reassess the depreciation rate considering the consistent accounting method and the nature of the moulds.

3. Depreciation Rate on Tractor and Trolley:
The CIT(A) directed the AO to allow depreciation at 25% on Tractor and Trolley, against the assessee's claim of 40%. The Tribunal did not provide a separate analysis for this issue, indicating it was not pressed during the appeal hearing.

4. Addition of Rs. 78,40,000/- under Section 68:
The AO added Rs. 78,40,000/- as unexplained cash credit under Section 68, suspecting the genuineness of cash sales due to the absence of purchaser names, quantities, and transport details on sales bills. The CIT(A) deleted the addition, noting that the sales were recorded in the profit and loss account, and the transactions were normal business activities with payments made by cheques. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not provide evidence to disprove the genuineness of the transactions or that the payments came back to the assessee. The Tribunal concluded that treating cash sales as unexplained cash credit would result in double taxation.

Other Grounds:
Grounds 3 and 4 in the assessee's appeal were not pressed, and grounds 5, 2, and 3 in the Revenue's appeal were deemed general and did not require separate adjudication.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, directing a reassessment of the nature and depreciation rate of moulds while upholding the deletion of the addition under Section 68.