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2015 (2) TMI 288 - AT - Income TaxAddition on account of low yield of finished product - CIT(A) deleted the addition - provisions of section 145(3) invoked - Held that - There was an abnormal increase in the purchase of power and fuel as the sodium acetate solution was purchased at 1776.81 MT during the year as against 96.05 MT in the immediately preceding assessment year. We find that the fuel cost has increased from ₹ 14.66 lakhs in the previous year to ₹ 38.33 lakhs during the relevant year. The turnover of the assessee has not increased during the relevant period. The plea of the assessee is that with new manufacturing process it was able to save a net saving of ₹ 18.38 lakhs during the relevant period, is not convincing for the simple reason that the savings, if made in the manufacturing process, should have been reflected in the overall GP rate of the assessee. Provisions of section 145(3) of the Act were rightly invoked by the AO. However, we find that the GP rate of last year at 32.03% was applied for the relevant period, resulting in addition of ₹ 19.63 lakhs, which seems to be on the higher side. The assessee has tried to explain that there was increase in the cost of input material during the year, and there was a change in the manufacturing process of the assessee during the relevant year. Considering the totality of the facts of the case, and the pleading of the assessee, we are of the view that the ends of justice shall be met, if the addition on account of GP is restricted to ₹ 12,50,000/- as against ₹ 19,63,023/- made by the AO and deleted by the CIT(A) - Decided partly in favour of revenue. Deemed dividend - CIT(A) granting relief of rs.26,30,779/- on account of advance of ₹ 43,05,779/- given to the assessee by the company through its unit M/s.Akshay Chemicals (NIPL) - Held that - CIT(A) has passed a well reasoned speaking order on this issue. The payment against the amount receivable by the assessee could not be taken as deemed dividend in the hands of the assessee. The working of addition after allowing adjustments of the amount payable on the date of payment comes to ₹ 15,44,232/-. We find that the CIT(A) has directed the addition of ₹ 16,75,000/- by adding the figure of ₹ 66,742/- paid to the assessee by the company in February and March, 2007 in the figure of ₹ 15,44,232/- and difference of ₹ 64,000/- was ignored being a meager amount. In these facts, we hold that there being no mistake in the order of the CIT(A) on this issue, the same is confirmed - Decided against revenue. Additional depreciation on plant and machinery - disallowance additional depreciation on plant and machinery confirmed by the ld.CIT(A) - Held that - There is no material on record on behalf of the assessee to show that the machinery during the year was new and expenditure made by the assessee was not in the form of repairs and maintenance of old machinery or addition thereto. In these facts, we hold that no interference in the order of the CIT(A) is called for, which is confirmed - Decided against assessee. Penalty u/s.271(1)(c) - additional income disclosed by the assessee in the returns filed under section 153A - Held that - Issue of levy of penalty under section 271(1)(c) of the Act on the additional income offered after the search, in the return filed under section 153A of the Act, is covered with the decision of Kirit Dahyabhai Patel Vs. ACIT (2015 (1) TMI 201 - GUJARAT HIGH COURT) wherein held that in view of specific provision of section 153A of the Act, the return of income filed in response to notice under section 153A of the IT, Act is to be considered as return filed under section 139 of the Act, as the AO has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under section 271(1)(c) of the Act, and the penalty is to be levied as income assessed over and above the income returned under section 153A, if any. Thus the issue is decided in favour of the assessee and the penalty levied under section 271(1)(c) of the Act for all three assessment years are cancelled - Decided in favour assessee.
Issues Involved:
1. Addition of gross profit under section 145(3) of the Act. 2. Deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. 3. Disallowance of additional depreciation on plant and machinery. 4. Penalty under section 271(1)(c) for additional income disclosed post-search. Issue 1: Addition of Gross Profit under Section 145(3) of the Act: The Revenue appealed against the deletion of an addition of Rs. 19,63,023 on account of gross profit by invoking section 145(3) of the Act. The abnormal increase in power and fuel consumption was highlighted, leading to the addition. The assessee attributed the increase to a change in manufacturing process resulting in savings, which was contested by the Revenue. The Tribunal found the increase in consumption significant, coupled with a decrease in gross profit rate compared to the previous year. While upholding the invocation of section 145(3), the Tribunal restricted the addition to Rs. 12,50,000, considering the explanations provided by the assessee. Issue 2: Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961: The Revenue contested the relief granted on an advance given to the assessee by a company, invoking section 2(22)(e). The Tribunal analyzed the transactions and ledger accounts to determine the applicability of the provision. Despite agreeing in principle, the Tribunal restricted the deemed dividend addition to Rs. 15,44,232, as opposed to the higher amount added by the AO and confirmed by the CIT(A). Issue 3: Disallowance of Additional Depreciation on Plant and Machinery: The assessee's appeal challenged the disallowance of Rs. 1,17,909 towards additional depreciation on plant and machinery. The Tribunal upheld the disallowance, noting the lack of evidence to prove the machinery was new or the expenditure was for additions, not repairs. The CIT(A)'s decision was confirmed, dismissing the assessee's appeal on this issue. Issue 4: Penalty under Section 271(1)(c) for Additional Income Disclosed Post-Search: The assessee appealed against the penalty levied under section 271(1)(c) for additional income disclosed post-search. Citing a jurisdictional High Court decision, the Tribunal ruled in favor of the assessee, canceling the penalties for all three assessment years. The return filed under section 153A was considered for penalty purposes, leading to the cancellation of penalties based on the specific provisions and judicial precedent. In conclusion, the Tribunal partially allowed the Revenue's appeal for the Asstt. Year 2007-08, dismissed the assessee's CO for the same year, and allowed the appeals of the assessee for the Asstt. Years 2000-01, 2004-05, and 2005-06 based on the detailed analysis and application of relevant legal provisions and precedents.
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