2008 (11) TMI 424 - AT - Income Tax

Tribunal remands scrap issue, upholds DEPB receipts addition under Income-tax Act

The Tribunal partly allowed the appeal, remanding the issue of scrap generation and sale to the Assessing Officer for fresh examination. However, the ... Deductions - Exporters, Method of accounting - Rejection of accounts Issues Involved:1. Rejection of books of account and trading addition.2. Receipt of DEPB for the purpose of deduction u/s 80HHC of the Income-tax Act, 1961.Summary:Issue 1: Rejection of Books of Account and Trading AdditionThe Assessing Officer (AO) rejected the books of accounts of the assessee u/s 145(3) of the Act and made an addition of Rs. 22,93,113 due to low gross profit. The AO noted discrepancies in the scrap generation and sale, and the lack of primary records/registers for scrap calculation. The CIT(A) upheld the AO's decision, citing the absence of primary manufacturing records and faulty valuation methods.The Tribunal found that the tax authorities did not point out any defect in purchases or expenses from the audited books of account, nor any instance of inflated expenditure or unaccounted sales. The Tribunal opined that the rejection of books merely on account of fall in gross profit rate or unproven scrap generation was unjustified. However, the Tribunal restored the issue of scrap generation and sale to the AO for fresh examination, allowing the assessee an opportunity to produce evidence.Issue 2: Receipt of DEPB for Deduction u/s 80HHCThe AO noticed that the assessee received DEPB of Rs. 2,48,52,367 and credited it to the Profit & Loss Account. Following the Taxation Laws Amendment Act No. 55 of 2005, the AO reduced 90% of such profit on transfer of DEPB from the Government to the assessee. The CIT(A) upheld the AO's decision, noting that the turnover of the assessee exceeded Rs. 10 crores, and the DEPB income was correctly credited as Rs. 2,48,52,367 in the Profit & Loss Account.The Tribunal found no merit in the assessee's claim that the profit from DEPB should be considered on a receipt basis rather than an accrual basis. The Tribunal upheld the orders of the tax authorities, rejecting the assessee's contention and confirming the addition made under section 80HHC of the Act.Conclusion:The appeal filed by the assessee is partly allowed, with the issue of scrap generation and sale remanded to the AO for fresh examination, while the addition regarding DEPB receipts is upheld.