2011 (8) TMI 1223 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of suppression of production.
2. Deletion of disallowance of interest on TUF Loan.
3. Deletion of disallowance u/s 35D.
4. Deletion of disallowance on account of unexplained transactions.

Summary:

1. Suppression of Production:
The Revenue challenged the deletion of Rs. 38,93,055/- added by the AO for suppression of production due to low oil gain and high wastage. The AO compared the assessee's oil gain and wastage with other similar units and found discrepancies. The CIT(A) deleted the addition, citing that similar low oil gains and high wastage percentages were accepted in other cases like Nakoda Textile Industries Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the AO's comparison was not appropriate and the assessee's explanations were reasonable.

2. Interest on TUF Loan:
The AO disallowed Rs. 10,15,014/- as interest on TUF Loan, arguing that the interest subsidy accrued to the assessee should have been accounted for. The CIT(A) deleted the disallowance, stating that the interest subsidy had not accrued as of 31.03.2005 and the right to receive the subsidy arose only after the sanction order dated 04.09.2008. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest subsidy pertained to the next financial year and not the year under consideration.

3. Disallowance u/s 35D:
The AO disallowed Rs. 7,87,008/- u/s 35D, arguing that loan processing charges for expansion should be amortized. The CIT(A) deleted the disallowance, stating that loan processing charges are revenue expenses and not covered under section 35D(2). The Tribunal reversed the CIT(A)'s decision, agreeing with the AO that the expenses should be amortized as per section 35D.

4. Unexplained Transactions:
The AO disallowed Rs. 12,22,800/- based on transactions recorded in an impounded file, which were not reflected in the regular books of accounts. The CIT(A) deleted the disallowance, considering the impounded papers as "dumb papers" with no clear description or names. The Tribunal upheld the CIT(A)'s decision, noting that the figures on the loose paper were ambiguous and did not conclusively pertain to the assessee.

Conclusion:
The appeal filed by the Revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on issues 1, 2, and 4, but reversing the decision on issue 3.