1996 (8) TMI 143 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition in trading results by CIT(A).
2. Direction to accept capitalisation of expenses and allow depreciation.
3. Alleged denial of opportunity to the Assessing Officer by the CIT(A).
4. Application of section 145(2) of the Income-tax Act.
5. Alleged violation of Rule 46A of the Income-tax Rules.
6. Determination of the date of commercial production.

Detailed Analysis:

1. Deletion of Addition in Trading Results by CIT(A):
The CIT(A) deleted the addition of Rs. 2,10,53,195 made by the Assessing Officer, who had rejected the books of accounts under section 145(2) of the Income-tax Act. The CIT(A) considered the detailed arguments and evidence provided by the assessee, including the supervision by the Central Excise Department and the maintenance of statutory registers. The CIT(A) found no material evidence to support the Assessing Officer's claim of sales outside the books of account and concluded that the provisions of section 145(2) were not applicable.

2. Direction to Accept Capitalisation of Expenses and Allow Depreciation:
The CIT(A) directed the Assessing Officer to accept the capitalisation of expenses for the period from 1-1-1987 to 11-3-1987 and to allow depreciation thereon. This decision was based on the finding that the commercial production started in March 1987, contrary to the Assessing Officer's conclusion that it began in January 1987.

3. Alleged Denial of Opportunity to the Assessing Officer by the CIT(A):
The Judicial Member contended that the CIT(A) received additional evidence without affording the Assessing Officer an opportunity to cross-examine Shri Dubey, who was produced before and interrogated by the CIT(A). This was considered a violation of Rule 46A of the Income-tax Rules, which mandates that the Assessing Officer be given a reasonable opportunity to examine additional evidence or cross-examine witnesses. The Judicial Member proposed quashing the CIT(A)'s order on this ground.

4. Application of Section 145(2) of the Income-tax Act:
The Assessing Officer applied section 145(2) to reject the books of account, citing discrepancies in production records, power consumption, and raw material usage. However, the CIT(A) found that the statutory registers and records maintained by the assessee were duly examined and signed by the Central Excise authorities. The CIT(A) concluded that the provisions of section 145(2) were not applicable, as the Assessing Officer did not provide concrete evidence of sales outside the books of account.

5. Alleged Violation of Rule 46A of the Income-tax Rules:
The Judicial Member argued that the CIT(A) violated Rule 46A by admitting additional evidence without giving the Assessing Officer an opportunity to cross-examine Shri Dubey. The Accountant Member, however, contended that the notice of hearing was given to the Assessing Officer, who did not avail of the opportunity to be present. The Third Member concluded that there was no violation of Rule 46A, as the CIT(A) did not consider the interrogation of Shri Dubey as additional evidence and did not record any reasons for admitting such evidence.

6. Determination of the Date of Commercial Production:
The Assessing Officer determined that the commercial production started in January 1987, based on various documents and statements, including those of Shri Dubey. The CIT(A), however, accepted the assessee's claim that commercial production began in March 1987, supported by statutory registers and other records. The Third Member upheld the CIT(A)'s findings, noting that the Assessing Officer's conclusions were based on surmises and conjectures without substantial evidence.

Conclusion:
The Third Member concluded that the CIT(A) provided sufficient opportunity to the Assessing Officer within the meaning of section 250 of the Income-tax Act and that there was no violation of Rule 46A. The CIT(A)'s order to delete the additions and accept the capitalisation of expenses was upheld, and the appeals were dismissed.