2007 (9) TMI 309 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of accounts and invoking the provisions of s. 145(3) of the Act.
2. Estimation of gross profit of the manufacturing business eligible for deduction u/s 80-IC(2)(a)(iii).
3. Restriction of the claim of deduction u/s 80-IC(2)(a)(iii).
4. Exclusion of a sum from the computation of deduction u/s 80-IC(2)(a)(iii).
5. Deletion of addition made u/s 69C.
6. Disallowance of interest amounting to Rs. 86,810.
7. Charging of interest u/s 234B, 234D, and 244A.

Summary:

1. Rejection of Books of Accounts and Invoking Provisions of s. 145(3):
The AO rejected the books of accounts of the assessee by invoking the provisions of s. 145(3) due to overbilling, suppression of expenses, and cash purchases. The CIT(A) confirmed the applicability of s. 145(3). However, the Tribunal found that the AO's observations were contradictory and not supported by specific defects in the expenses. The Tribunal reversed the decision of the CIT(A) on this issue, stating that the AO was not justified in invoking s. 145(3).

2. Estimation of Gross Profit u/s 80-IC(2)(a)(iii):
The AO estimated the gross profit at Rs. 67,73,006 by applying a GP rate of 3.5% after excluding a sum of Rs. 2,90,51,228 from the gross profit. The Tribunal found that the AO's comparison of rates with those published in The Economic Times was incorrect. The Tribunal allowed the assessee's claim, stating that the product's purity and additional costs justified the higher rates.

3. Restriction of Deduction u/s 80-IC(2)(a)(iii):
The AO restricted the deduction to Rs. 2,70,546 against the claimed Rs. 3,32,89,399. The Tribunal found that the excise duty refund should be considered for deduction u/s 80-IC, as it was a realization of an asset and not income. The Tribunal directed the AO to allow the full deduction of Rs. 3,32,89,399.

4. Exclusion of Sum from Deduction Computation u/s 80-IC(2)(a)(iii):
The AO excluded Rs. 2,90,51,228 from the gross profit, considering it not derived from the industrial undertaking. The Tribunal held that the excise duty refund was not income but a realization of an asset, and thus, should be included in the deduction computation.

5. Deletion of Addition u/s 69C:
The AO made an addition of Rs. 25,00,000 u/s 69C, which was deleted by the CIT(A). The Tribunal upheld the deletion, stating that the AO did not provide material evidence for the suppression of expenses or overbilling.

6. Disallowance of Interest:
The AO disallowed interest of Rs. 86,810, which was confirmed by the CIT(A). The Tribunal found no infirmity in the CIT(A)'s order, stating that the loan taken for personal needs should be treated as a withdrawal of capital, and no interest can be allowed.

7. Charging of Interest u/s 234B, 234D, and 244A:
The Tribunal directed the AO to pass a speaking order on the charging of interest u/s 234B, 234D, and 244A(3), providing a reasonable opportunity of being heard to the assessee.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.