2008 (1) TMI 424 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80-IB of the Act.
2. Admission of new material in contravention of r. 46A.
3. Deletion of addition on account of undervaluation of stock.

Summary:

1. Deduction u/s 80-IB of the Act:
The Revenue challenged the CIT(A)'s decision to allow the assessee's claim of Rs. 1,60,29,523 u/s 80-IB, arguing that the subsidies received were not directly related to the business activities. The AO had denied the deduction, citing the Supreme Court's decision in Pandian Chemicals Ltd. vs. CIT and the Calcutta High Court's decision in CIT vs. Andaman Timber Industries Ltd. However, the CIT(A) allowed the claim, noting that the subsidies were directly related to the business activities, such as transport, working capital interest, fire insurance, and long-term loan interest. The Tribunal upheld the CIT(A)'s decision, emphasizing that the subsidies were integral to the business operations and had a direct nexus with the business activities. The Tribunal also referenced the Supreme Court's decision in Ponni Sugar (Erode) Ltd. vs. Dy. CTO and other relevant case laws to support its conclusion.

2. Admission of new material in contravention of r. 46A:
The Revenue contended that the CIT(A) admitted new material in the form of an office memorandum dated 28th Feb. 2002, in violation of r. 46A. However, the Tribunal found no evidence of contravention of r. 46A and dismissed this ground as devoid of merit.

3. Deletion of addition on account of undervaluation of stock:
The AO had made additions of Rs. 6,16,314 and Rs. 2,07,964 on account of undervaluation of finished stock and raw material, respectively. The CIT(A) deleted these additions, noting that the assessee had provided detailed stock statements, and the AO had not pointed out any defects in the audited accounts. The Tribunal upheld the CIT(A)'s decision, stating that the AO's additions were based on mere presumption without any material evidence.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds.