2004 (1) TMI 297 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of subsidy from the actual cost of assets for computing depreciation and investment allowance.
2. Addition of Rs. 4,38,040 as unexplained investment or sales of 466 MT of Rice Bran Extraction.
3. Addition of Rs. 52,957 as unexplained investment on 9800 Litres of Hexane.

Issue-wise Detailed Analysis:

1. Reduction of Subsidy from Actual Cost of Assets:
The Revenue appealed against the CIT(A)'s decision not to reduce the subsidy from the actual cost of assets for computing depreciation and investment allowance. The Tribunal allowed the Revenue's appeal, directing the Assessing Officer to reduce the subsidy received by the assessee from the actual cost of the assets for the purpose of allowing depreciation and investment allowance, in line with the binding decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Jindal Bros. Rice Milk [1989] 179 ITR 470.

2. Addition of Rs. 4,38,040 as Unexplained Investment or Sales of 466 MT of Rice Bran Extraction:
The Assessing Officer found a shortage of 466 MTs of Rice Bran extraction, which was not accounted for in the books and assumed it must have been sold outside the books. The assessee explained the shortage was due to moisture loss, storage loss, and losses during transportation and handling. The CIT(A) confirmed the addition, noting the lack of comparable cases to support the assessee's claim. The Tribunal found the shortage claimed by the assessee at 3.07% was comparable to other cases in the region, but since this information was not furnished before the Assessing Officer, the Tribunal restored the matter to the Assessing Officer for fresh adjudication, allowing the assessee to provide data from comparable cases.

However, the Judicial Member disagreed, noting that the loss of weight during transportation and on high seas was adequately explained and supported by shipping bills and other documents. The Judicial Member found no basis for the assumption of unaccounted sales and deleted the addition. The Third Member supported the Judicial Member's view, emphasizing the audited accounts, statutory registers, and the consistent method of accounting. The Third Member also noted the company's financial distress and the winding-up order by the High Court, concluding that the addition should be deleted.

3. Addition of Rs. 52,957 as Unexplained Investment on 9800 Litres of Hexane:
The assessee showed a discrepancy in the closing stock of Hexane between the books and the statement furnished to the bank. The Assessing Officer added Rs. 52,957 to the income, which was upheld by the CIT(A). The Tribunal found the explanation that Hexane in the pipeline was not accounted for in the books to be consistent with the method employed in earlier years. The Judicial Member argued that the discrepancy was neutralized by the consistent accounting method and deleted the addition. The Third Member agreed, noting that the addition would not benefit the Revenue as it would require an equivalent adjustment in the opening stock of the next year, thereby reducing the assessable income of that year.

Conclusion:
The Tribunal allowed the Revenue's appeal regarding the reduction of subsidy from the actual cost of assets. For the assessee's appeal, the addition of Rs. 4,38,040 was deleted, and the matter was not restored to the Assessing Officer. The addition of Rs. 52,957 was also deleted, considering the consistent accounting method and the financial condition of the company. The final order was passed in accordance with the majority view favoring the Judicial Member's conclusions.