1989 (9) TMI 163 - AT - Income Tax

Issues Involved:
1. Annual Letting Value (ALV) of multi-storeyed buildings.
2. Addition on account of excess consumption of coal.
3. Addition on account of underreporting of closing stock of paper cuttings.
4. Addition on account of excess consumption of babhar grass.
5. Addition on account of undervaluation of closing stock of wrappers and white records.
6. Addition on account of undervaluation of closing stock of finished goods.
7. Disallowance of interest paid by the assessee.
8. Treatment of the assessee company as an industrial company.

Issue-wise Analysis:

1. Annual Letting Value (ALV) of Multi-storeyed Buildings:
The Revenue's appeal contested the deletion of Rs. 1,05,59,160 as the ALV of buildings Akash Deep, Surya Kiran, and Ansal Bhawan. The ITO added this amount as property income, citing the appellant company as the legal owner. The CIT(A) deleted this addition, referencing Tribunal decisions in previous years. The Tribunal upheld the CIT(A)'s decision, confirming the deletion based on consistent earlier rulings against the Revenue.

2. Addition on Account of Excess Consumption of Coal:
The ITO added Rs. 2,24,800 due to a discrepancy between financial records and the raw material stock register, showing a difference of 562 M. Tons of coal. The CIT(A) deleted this addition, considering factors like pilferage, wastage during transit, and estimation methods used by the assessee. The Tribunal confirmed the CIT(A)'s deletion, acknowledging practical issues in coal handling and estimating.

3. Addition on Account of Underreporting of Closing Stock of Paper Cuttings:
The ITO added Rs. 6,59,648 for underreporting paper cuttings used in manufacturing. The CIT(A) deleted this addition, accepting the assessee's argument that paper cuttings are re-cycled and included in the initial raw material input. The Tribunal upheld the CIT(A)'s decision, finding no basis for the addition and recognizing the practical manufacturing process.

4. Addition on Account of Excess Consumption of Babhar Grass:
The ITO added Rs. 1,72,971 for unaccounted consumption of babhar grass, later reduced by the CIT(A) to Rs. 93,956. The Tribunal deleted the remaining addition, considering the natural wastage, moisture loss, and practical handling issues. The Tribunal found the shortage reasonable and consistent with previous and subsequent years.

5. Addition on Account of Undervaluation of Closing Stock of Wrappers and White Records:
The ITO added Rs. 4,04,075 for undervaluation of closing stock, which the CIT(A) reduced to Rs. 3,41,075. The Tribunal accepted the assessee's method of valuation, recognizing the practical use of wrappers and white records for internal purposes. The Tribunal directed the ITO to verify and adjust the figures accordingly, allowing the assessee's alternative calculations.

6. Addition on Account of Undervaluation of Closing Stock of Finished Goods:
The ITO added Rs. 1,83,652 for undervaluation of finished goods based on discrepancies in production reports. The CIT(A) sustained this addition. The Tribunal deleted the addition, accepting the assessee's explanation of the manufacturing process and reliance on excise records, which are under strict control and supervision.

7. Disallowance of Interest Paid by the Assessee:
The ITO disallowed Rs. 4,28,594 of interest payments, later reduced by the CIT(A) to Rs. 42,929. The Tribunal allowed the full amount, recognizing the interest as related to the running business and expansion, not the establishment of a new business.

8. Treatment of the Assessee Company as an Industrial Company:
The CIT(A) declined to treat the assessee company as an industrial company, a decision upheld by the Tribunal based on jurisdictional High Court rulings. The assessee's attempt to keep the issue alive was noted but ultimately dismissed.

Conclusion:
The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed, with several additions deleted or adjusted based on practical considerations and consistent past rulings.

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