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Issues:
1. Undervaluation of closing stock 2. Treatment of subsidy as a revenue receipt Issue 1: Undervaluation of closing stock The appeal pertains to the assessment year 1986-87. Ground No. 1, against the confirmation of the addition of Rs. 2,04,019 on account of undervaluation of closing stock, was not pressed by the assessee as a similar issue was decided against the assessee in a previous Tribunal order. Therefore, this ground was dismissed. Issue 2: Treatment of subsidy as a revenue receipt The only ground remaining for discussion in the appeal is against the treatment of a subsidy of Rs. 14,43,876 as a revenue receipt. The Assessing Officer observed that the subsidy was credited under "Electrical tariff subsidy" and was received in four instalments. The subsidy was utilized to purchase assets but was not shown as a trading receipt or reduced from the cost of assets for depreciation. The CIT(A) held the subsidy as a revenue receipt but agreed that it should not be reduced from the cost of assets for depreciation. The assessee argued that the subsidy was an incentive for industrial activities and should not be treated as a revenue receipt. The Departmental Representative argued that the subsidy was a revenue receipt based on previous court decisions. The Tribunal analyzed the subsidy scheme and held that the subsidy was a capital receipt utilized for industrial activities, not trading profits. Relying on previous judgments and the purpose of the subsidy, the Tribunal concluded that the subsidy was a capital receipt and not taxable as trading profits. In conclusion, the Tribunal allowed the appeal in part, holding that the subsidy received by the assessee was a capital receipt and not taxable as trading profits. The decision was based on the purpose of the subsidy and previous court judgments distinguishing between revenue and capital receipts.
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