1997 (10) TMI 104 - AT - Income Tax

Summary

Issues:
1. Deletion of addition of Rs. 4,62,000 in the assessment year 1989-90.
2. Allowance of depreciation without deducting subsidy from the cost of assets.
3. Allowance of deduction under sections 80HH and 80-I based on commercial profits.

Analysis:

1. The first issue in the appeal was the deletion of an addition of Rs. 4,62,000 by the CIT(A) in the assessment year 1989-90. The AO had estimated additional production outside the books based on weight gain calculations. The AO contended that the weight gain should have been 32%, but the assessee showed only 20% weight gain. The CIT(A) deleted the addition, emphasizing that income should be determined as per books of account. The Tribunal agreed with the CIT(A), stating that without an expert opinion supporting the findings of the AO, mere chemical formulas cannot establish the accounts as defective. The Tribunal upheld the deletion of the addition.

2. The second issue revolved around the allowance of depreciation on the cost of assets without deducting the subsidy. The CIT(A) allowed the claim following a High Court decision, and the Tribunal upheld it, citing a Supreme Court judgment in a similar case. The Tribunal directed the AO to grant depreciation on the value of assets without deducting the subsidy amount, in line with the legal precedents.

3. The final issue concerned the allowance of deductions under sections 80HH and 80-I based on commercial profits. The AO had allowed the deductions after setting off earlier years' losses, while the assessee argued for deductions based on commercial profits. The CIT(A) supported the assessee's claim, referring to a Tribunal decision. However, the Tribunal noted that the jurisdictional High Court had already decided similar cases, directing that the deductions be granted after setting off earlier years' losses. Following the legal precedents, the Tribunal directed the AO to grant the deductions as per the High Court decisions.

In conclusion, the Tribunal partly allowed the Department's appeal, upholding the deletion of the addition in the first issue, directing the allowance of depreciation without deducting subsidy in the second issue, and granting deductions under sections 80HH and 80-I based on earlier years' losses in the third issue, in line with established legal principles and precedents.