1992 (4) TMI 12 - HC - Income Tax

Issues Involved:
1. Entitlement to weighted deduction under section 35B of the Income-tax Act for ECGC premium expenditure.
2. Discrepancy in the value of closing stock declared to the bank and the Income-tax Department for the assessment year 1976-77.
3. Deletion of addition of Rs. 12,65,658 to the closing stock by the Commissioner of Income-tax (Appeals).
4. Deletion of addition of Rs. 18,85,000 as difference in closing stock for the assessment year 1978-79.

Issue-wise Detailed Analysis:

1. Entitlement to Weighted Deduction under Section 35B of the Income-tax Act for ECGC Premium Expenditure:
The sole question in Income-tax Reference No. 100 of 1986 pertains to whether the expenditure of Rs. 23,076 by way of ECGC premium is entitled to weighted deduction under section 35B of the Income-tax Act. The Appellate Tribunal had held that the assessee is entitled to the weighted deduction as per the decision of the Special Bench of the Tribunal in J. Hemchand and Co.'s case. The court referred to an unreported decision in CIT v. Indian Emporium, where it was noted that the decision in J. Hemchand and Co.'s case was pending appeal before the Supreme Court. The Central Board of Direct Taxes (CBDT) issued a circular dated December 28, 1981, adopting the decision of the Special Bench, providing administrative relief. Following the earlier decision, the court directed the Income-tax Appellate Tribunal to reconsider the matter in light of the CBDT circular dated December 28, 1981, and adjudicate the relief entitled to the assessee afresh. The court declined to answer the sole question but directed the Tribunal to consider it afresh.

2. Discrepancy in the Value of Closing Stock Declared to the Bank and the Income-tax Department for the Assessment Year 1976-77:
The questions in Income-tax Reference No. 116 of 1989 and Income-tax Reference No. 97 of 1989 involve discrepancies in the closing stock declared to the bank and the Income-tax Department. The assessee declared the closing stock to the Income-tax Officer at Rs. 3,22,062, while to the bank, it was declared as Rs. 37,74,953 on December 19, 1975, and Rs. 19,88,145 on December 31, 1975. The assessee claimed that the figures given to the bank were inflated to obtain higher loan facilities. The Income-tax Officer did not accept this plea and added Rs. 12,65,658 to the closing stock for the assessment year 1976-77. The Commissioner of Income-tax (Appeals) held that the inflated figures were shown to the bank for obtaining loans and deleted the addition. The Appellate Tribunal upheld this conclusion on different reasoning, noting that the Department had accepted the assessee's plea in other years and should not adopt inconsistent stands.

3. Deletion of Addition of Rs. 12,65,658 to the Closing Stock by the Commissioner of Income-tax (Appeals):
The Appellate Tribunal's decision was challenged by the Revenue, arguing that the Tribunal's reasoning was perfunctory and lacked a legal basis. The Tribunal had highlighted the inconsistency in the Department's approach for different assessment years and upheld the deletion of the addition. The court found the Tribunal's order vague and ambiguous, noting that it failed to address whether the assessee's plea of inflated stock was true and tenable. The court directed the Tribunal to reconsider the matter and provide a clear legal basis for its decision.

4. Deletion of Addition of Rs. 18,85,000 as Difference in Closing Stock for the Assessment Year 1978-79:
Similar to the previous issue, the Tribunal's decision to delete the addition of Rs. 18,85,000 was based on the inconsistency in the Department's approach. The court found the Tribunal's reasoning unclear and directed it to reconsider the matter, providing a clear legal basis for its decision.

Conclusion:
The court declined to answer the questions referred in Income-tax Reference No. 116 of 1989 and Income-tax Reference No. 97 of 1989 due to the vague and ambiguous nature of the Tribunal's orders. The Tribunal was directed to restore the appeals to its file and dispose of them in accordance with law, considering the observations made by the court. The sole question in Income-tax Reference No. 100 of 1986 was also directed to be reconsidered by the Tribunal in light of the CBDT circular dated December 28, 1981. The references were disposed of with these directions.

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