Tribunal rules in favor of assessee on deposit, raw material, and capital loss issues. Revenue appeals dismissed.

The Tribunal upheld the disallowance of the deposit written off, allowed adjustments for excess consumption of raw material for the assessee's own factory and Contract Manufacturing Units (CMUs), and permitted the long-term capital loss on redemption of preference shares. The Revenue's appeals were dismissed, and the assessee's appeals were partly allowed for the assessment years 1998-99, 1999-00, and 2004-05.

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Issues Involved:
1. Disallowance of deposit written off.
2. Addition on account of excess consumption of raw material.
3. Disallowance of long-term capital loss on redemption of preference shares.

Issue-wise Detailed Analysis:

1. Disallowance of Deposit Written Off:
The assessee claimed a deduction for deposits written off amounting to Rs. 2,63,750 with the Maharashtra State Electricity Board under Section 36(1)(vii) rws 36(2) or alternatively under Section 28 or 37 of the IT Act. The CIT(A) rejected the claim on the grounds that the conditions under Section 36(2) were not satisfied and the loss did not arise during the year under consideration. The Tribunal upheld this decision, stating that the loss should have been claimed in the year the unit was sold (F.Y. 1996-97).

2. Addition on Account of Excess Consumption of Raw Material:
The assessee, engaged in manufacturing biscuits, faced an addition of Rs. 1,32,51,851 for excess consumption of raw material based on an input-output ratio of 108.19:100. The CIT(A) allowed adjustments for empty bags of maida and excess weight of biscuits in packets but rejected the claim for wastage of 1 kg of maida per bag. For Contract Manufacturing Units (CMUs), the CIT(A) directed the AO to allow adjustments similar to those for the own factory. The Tribunal found merit in the assessee's submission that the books of accounts were audited, and there was no evidence of bogus purchases or sales outside the books. The Tribunal directed the AO to accept the book results for both own factory and CMUs, as no excess consumption was quantified for CMUs.

3. Disallowance of Long-term Capital Loss on Redemption of Preference Shares:
The assessee claimed a long-term capital loss of Rs. 35,58,718 on redemption of preference shares, arguing it was a transfer under Section 2(47) and relied on the Supreme Court decision in Anarkali Sarabhai vs. CIT. The AO treated the amount as deemed dividend under Section 2(22)(d) and disallowed the loss. The Tribunal held that redemption of preference shares is a transfer under Section 2(47), and the loss should be computed accordingly. The Tribunal rejected the AO's treatment of the amount as deemed dividend, citing Section 80(3) of the Companies Act, which states that redemption of preference shares does not reduce the share capital. The Tribunal allowed the assessee's claim for long-term capital loss.

Separate Judgments:
For the assessment years 1999-00 and 2004-05, similar issues of excess consumption of raw material and long-term capital loss on redemption of preference shares were raised. The Tribunal followed the same reasoning and conclusions as in the assessment year 1998-99, allowing the assessee's claims and dismissing the Revenue's appeals.

Conclusion:
The Tribunal's comprehensive analysis upheld the disallowance of the deposit written off, allowed the book results for both own factory and CMUs regarding excess consumption of raw material, and permitted the long-term capital loss on redemption of preference shares. The Revenue's appeals were dismissed, and the assessee's appeals were partly allowed.

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