1998 (2) TMI 143 - AT - Income Tax

Tribunal dismisses Revenue's contentions on various additions and upholds CIT(A)'s findings

The Revenue's contentions for various additions were dismissed by the Tribunal. The addition for suppressed production, excessive consumption, interest ... - Issues Involved:1. Deletion of addition for suppressed production.2. Deletion of addition for excessive consumption shown by the assessee.3. Deletion of addition for interest paid to 14 BOIs.4. Treatment of additions/disallowances under Section 43B for interest under Section 215.5. Treatment of interest income and Kasar as part of business income for deductions under Sections 80HH and 80-I.Issue-wise Detailed Analysis:1. Deletion of Addition for Suppressed Production:The Revenue contended that the CIT(A) erred in deleting an addition of Rs. 51,45,941 for suppressed production based on presumed excess consumption of packing material and uniform production rates by packing machines. The CIT(A) had deleted this addition by following his order for the assessment year 1986-87. The Tribunal upheld the CIT(A)'s finding, noting that the facts and reasoning were identical to those discussed in their order for the assessment year 1986-87. Consequently, this ground raised by the Revenue was dismissed.2. Deletion of Addition for Excessive Consumption Shown by the Assessee:The AO made an addition of Rs. 6,56,255 for excessive consumption of raw materials, based on a statement by Areez P. Khambhatta regarding bogus purchases and the absence of statutory registers. The CIT(A) found that the statement did not pertain to the relevant accounting year and that necessary corrections had been made for stock shortages. The CIT(A) also noted that the imports and consumption were recorded in the books of account. The Tribunal agreed with the CIT(A), stating that the addition was based on estimates without cogent reasons and that a nominal increase in raw material consumption was reasonable due to manual preparation. Thus, this ground was dismissed.3. Deletion of Addition for Interest Paid to 14 BOIs:The AO disallowed interest of Rs. 3,78,782 paid to 14 BOIs, arguing that the distribution was from income, not corpus, and thus was a colourable device under McDowell & Co. The CIT(A) disagreed, stating that the distribution was of corpus, not income, and that the BOIs were real entities. The Tribunal upheld the CIT(A)'s decision, noting that the distribution was genuine and not a tax avoidance device. The interest was allowed under Section 36(1)(iii) based on precedents from the Gujarat High Court and the Ahmedabad Tribunal. This ground was dismissed.4. Treatment of Additions/Disallowances Under Section 43B for Interest Under Section 215:The Tribunal noted that the facts and arguments were identical to those in their order for the assessment year 1986-87. They applied the same reasoning and declined to interfere, dismissing this ground.5. Treatment of Interest Income and Kasar as Part of Business Income for Deductions Under Sections 80HH and 80-I:The Tribunal reiterated their decision from the assessment year 1986-87, treating interest income as part of business income for deductions under Sections 80HH and 80-I. Regarding Kasar, the Tribunal held that it was a trade discount and part of business income, thus qualifying for deductions. This ground was dismissed.General Grounds:Grounds 6 and 7 were general in nature and did not require specific comments. The appeal was dismissed in its entirety.