2012 (3) TMI 701 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of accounts u/s 145(3).
2. Addition on account of unaccounted production and sale.
3. Addition on account of alleged capital employed in unaccounted production.
4. Disallowance of interest.
5. Deduction u/s 80IB.
6. Addition on account of expenses of capital nature.
7. Disallowance u/s 40(a)(ia).

Summary:

1. Rejection of books of accounts u/s 145(3):
The assessee's books of accounts were rejected by the AO due to discrepancies, primarily the high consumption of electricity. The CIT(A) upheld this rejection, citing the absence of stock registers and uneven electricity consumption. The Tribunal, however, found that the books could not be rejected solely based on electricity consumption, especially when no defects were found in the stock registers of waste paper and chemicals. Thus, this ground of appeal by the assessee was allowed.

2. Addition on account of unaccounted production and sale:
The AO made an addition based on the high consumption of electricity, assuming unaccounted production. The CIT(A) reduced this addition but still upheld it partially. The Tribunal found no corroborative evidence of unaccounted purchases or sales and noted that no adverse findings were made by the Excise or Sales Tax Departments. Consequently, this ground of appeal by the assessee was allowed.

3. Addition on account of alleged capital employed in unaccounted production:
Following the rejection of the books and the addition for unaccounted production, the AO added for alleged capital employed in this unaccounted production. The CIT(A) reduced this addition. The Tribunal, linking this issue to the unaccounted production, found no merit in the addition as the primary addition was deleted. This ground of appeal by the assessee was allowed.

4. Disallowance of interest:
The AO disallowed interest on borrowed capital used to acquire new assets, which were not put to use. The CIT(A) deleted this addition, but the Tribunal found that the CIT(A)'s reliance on pre-amendment cases was misplaced. The Tribunal upheld the AO's disallowance but noted that the assessee would be entitled to enhanced deduction u/s 80IB. Thus, this ground of appeal by the revenue was allowed.

5. Deduction u/s 80IB:
The CIT(A) dismissed the assessee's claim for deduction u/s 80IB on the total assessed income. The Tribunal found that the assessee was eligible for such deduction on the enhanced income, following the decision in Allied Industries. Thus, this ground of appeal by the assessee was allowed.

6. Addition on account of expenses of capital nature:
The AO treated certain repair and maintenance expenses as capital in nature. The CIT(A) partly upheld this. The Tribunal, after examining the nature and use of the items, found them to be revenue expenses. Thus, this ground of appeal by the assessee was allowed.

7. Disallowance u/s 40(a)(ia):
The AO disallowed expenses for not deducting TDS u/s 194C, treating the transactions as work contracts. The CIT(A) deleted this addition, finding the transactions to be contracts for sale. The Tribunal upheld the CIT(A)'s decision, noting the applicability of the decision in CIT v. Dy. Chief Accounts Officer, Markfed. Thus, this ground of appeal by the revenue was dismissed.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was also partly allowed. The Tribunal's decision addressed each issue comprehensively, considering the relevant facts, submissions, and legal precedents.