2015 (1) TMI 863 - AT - Income Tax

Addition on account of low yield of finished product - rejection of books of accounts - CIT(A) deleted the addition - Held that - In the case of the appellant, there is no allegation that the appellant was not maintaining vouchers for the purchases or for the expenses. The indirect allegation of the Assessing Officer was that the purchases of sodium nitrate solution would have been more which would mean that the recorded purchases were supported by vouchers and the Assessing Officer had no reason to dispute the recorded purchases. Since, no expenses were disallowed on the basis of non-maintenance of vouchers, the only view can be taken that the expenses are fully supported by vouchers. The contention of the Assessing Officer that the purchases of sodium nitrate solution would have been more is not supported by any evidence on record. It is pertinent to mention here that the appellant's premises were subject to search on 30.08.2005. No incriminating documents leading to unaccounted purchases, unaccounted sales or unaccounted expenses were recovered during the course of search. The appellant's cases for the A.Y. 2006-07 and six years prior to that were completed after thorough scrutiny but no such additions of suppressed production and sales outside the books were stated to be made and if there were any, the same were not brought on record by the Assessing Officer. It is surprising that the books of accounts were accepted for seven continuous years on the basis of same accounting system by the Assessing Officer whereas the accounting system for the eighth year is being found faulty. The addition was made only on possibilities and probabilities which cannot be approved in absence of evidence and without any material on record. No specific error in the findings of the CIT(A) could be pointed out by the Departmental Representative. We also observed from the order of the CIT(A) that the Gross Profit shown by the assessee during the year is 23.63% which compares favourably with the Gross Profit of 21.38% shown in the immediately preceding assessment year. - Decided against revenue. Disallowance towards additional depreciation on plant and machinery - CIT(A) confirmed disallowance on the ground that the conditions required for claiming such depreciation are not fulfilled - Held that - The Authorized Representative of the assessee could not file any evidence to show that the assessee acquired any new plant and machinery during the year under consideration on which it claimed additional depreciation of ₹ 90,908/-. No material was also brought on record by the Authorized Representative of the assessee to show that the said expenses of ₹ 90,908 was not incurred on the repairs of existing plant and machinery. Therefore, we do not find. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 32,57,060/- on account of low yield of finished product.
2. Disallowance of additional depreciation of Rs. 90,908/- on plant and machinery.

Detailed Analysis:

1. Deletion of Addition of Rs. 32,57,060/- on Account of Low Yield of Finished Product:

The Revenue's grounds of appeal revolved around the deletion of an addition made by the Assessing Officer (AO) due to the low yield of finished products. The AO invoked section 145(3) of the Act, alleging that the assessee did not furnish the required details and pointed out discrepancies in the records. The AO's addition was based on the observation that the yield was low and the quantification of by-products was not properly recorded. Despite multiple notices, the assessee failed to provide detailed records, leading to the invocation of section 145(3) and an estimation of income based on average yield.

The CIT(A) deleted the addition, noting that the assessee's records were audited and no deficiencies were found by the Excise authorities. The CIT(A) emphasized that the AO's findings were based on surmises and conjectures without concrete evidence of inflation or suppression of purchases or sales. The CIT(A) also highlighted that the change in the manufacturing process led to reduced production costs and higher gross profit, which was verified through excise records and audits. The CIT(A) concluded that the AO was not justified in rejecting the books of account and making additions based on possibilities and probabilities.

The Appellate Tribunal upheld the CIT(A)'s decision, noting that the Departmental Representative could not point out specific errors in the CIT(A)'s findings. The Tribunal observed that the Gross Profit shown by the assessee was higher than the previous year, providing no basis to interfere with the CIT(A)'s order. Thus, the grounds of appeal by the Revenue were dismissed.

2. Disallowance of Additional Depreciation of Rs. 90,908/- on Plant and Machinery:

The assessee's cross-objection challenged the disallowance of additional depreciation on the ground that the conditions for claiming such depreciation were not fulfilled. The AO disallowed the additional depreciation, stating that the expenses were towards the upkeep of old machinery rather than the acquisition of new machinery, which is a prerequisite for additional depreciation under section 32(1)(iia) of the Act.

The CIT(A) upheld the AO's decision, emphasizing that the provisions of section 32(1)(iia) specifically require the acquisition and installation of new machinery or plant. The CIT(A) noted that the assessee did not acquire new machinery but incurred expenses for maintaining existing machinery, which does not qualify for additional depreciation.

The Appellate Tribunal agreed with the CIT(A)'s findings, as the assessee could not provide evidence of acquiring new machinery. The Tribunal confirmed that the expenses were for repairs of existing machinery and upheld the disallowance of additional depreciation. Consequently, the cross-objection of the assessee was dismissed.

Conclusion:

The appeal by the Revenue and the cross-objection by the assessee were both dismissed, with the Tribunal confirming the CIT(A)'s decisions on both issues. The additions on account of low yield were deleted due to lack of concrete evidence, and the disallowance of additional depreciation was upheld due to non-fulfillment of statutory conditions.