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2016 (5) TMI 489

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..... value of the closing stock, the only conclusion which in our considered opinion can be drawn is that the books of account were properly maintained. We, therefore, hold that the learned CIT(A) was justified in cancelling the action of the AO in rejecting the books and resultantly deleting the addition - Decided against revenue Addition u/s 68 - Held that:- If the assessee, pursuant to the direction of the Assessing Officer for producing certain creditors, expresses its inability to produce the persons but places on record sufficient evidence to prove the genuineness of the deposits, the addition cannot be made under section 68 of the Act without the AO discharging his duty to summon the creditors. Once the receipt of deposits from the above six depositors is held to be genuine, the consequent disallownace of interest made by the Assessing Officer would automatically stand deleted.- Decided against revenue Addition on account of capital subsidy on sales tax - revenue or capital receipt - Held that:- The exercise of option by the assessee in paying half of the amount of deferred tax upfront thereby retaining the remaining half as subsidy, cannot convert the otherwise capital s .....

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..... t of cash credit under section 68 especially when the assessee had failed to prove the creditworthiness of the deposits despite specific requirement? 5. Whether on the facts and in the circumstances, the Hon'be ITAT was right in law in upholding the order of learned CIT(A) in deleting the addition of ₹ 21,68,938/- made by the Assessing Officer on account of capital subsidy on sales tax even though the assessee's business was already in existence and the subsidy was given after the commencement of production and was not for setting up of the industry and that the same is in contravention of the decision of Hon'ble Supreme court in the case of Sahney Steel Press Works Limited etc. vs. CIT reported in 228 ITR 253 (SC)? 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. Return of income declaring total income of ₹ 1,46,73,940/- was filed by the assessee company on 31.10.2005. Assessment was completed under section 144 of the Act by making certain additions at an assessed income of ₹ 4,18,94,110/- vide order dated 18.12.2007, Annexure A.1. Firstly, the Assessing Officer made an additio .....

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..... assessment proceedings, it was noticed by the Assessing Officer that the GP rate of the assessee had reduced from 18.52% from the preceding year to 15.71%. On being asked, the assessee explained that there was an increase in the prices of steel round bar during the year which led to the decline in the gross profit rate. The Assessing Officer observed that certain expenses forming part of the computation of the gross profit had reduced as a percentage of sales in comparison with the preceding year. Rejecting the books of account, the Assessing Officer adopted the gross profit rate of the preceding year at 18.52% which resulted into making of GP addition of ₹ 1.19 crore. The CIT(A) on appeal by the assessee deleted the addition holding that the Assessing Officer had assigned no reason for rejecting the books of account. The Assessing Officer had not controverted the quantity or value of the closing and opening inventory. The books of account were properly maintained by the assessee. It had maintained all the stock registers required for the purposes of the payment of excise duty. The Tribunal upheld the said findings. The relevant findings recorded by the Tribunal on this issue .....

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..... in rejecting the books and resultantly deleting the addition of ₹ 1.19 crore on this score. Learned counsel for the appellant-revenue has not been able to show any illegality or perversity in the said findings. 5. The second issue was with regard to addition of ₹ 45,94,710/- made by the Assessing Officer under Section 68 of the Act. The assessee received fixed deposits from nine persons for a total sum of ₹ 54.75 lacs. The Assessing Officer called upon the assessee to prove the genuineness of the transaction of receipt of FDRs from these persons with necessary evidence. The assessee filed some details and also produced one of such depositors. In the absence of the assessee producing the other creditors, the Assessing Officer held that the deposits amounting to ₹ 44 lacs received from six persons were bogus. The assessee had also claimed deduction in respect of interest paid on such FDRs to its depositors. The Assessing Officer made further addition for ₹ 1,94,7100/- being the amount of interest paid in respect of about six credits, making a total addition of ₹ 45.94 lacs. The CIT(A) deleted the said addition holding that the Assessing Off .....

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..... as with regard to addition of ₹ 21,68,938 on account of capital subsidy on sales tax. The assessee received a subsidy of sales tax amounting to ₹ 21,68,938/- which was claimed as a capital receipt not chargeable to tax. On being asked as to why the subsidy be not treated as revenue receipt, the assessee stated that it was given as per the scheme of the State Government for encouraging the industries to set up their units in rural areas and for compensating for the hardship in setting up such industries in remote rural areas. The Assessing Officer treated this amount as revenue by relying upon judgment of the Apex Court in Sahney Steel and Pass Works Limited vs. CIT, 228 ITR 253. The CIT(A) treated this amount as capital receipt holding that if the purpose of the subsidy was to help the assessee to set up its business or complete a project, the amounts must be treated to have been received for capital purpose. The Tribunal after considering the matter upheld the deletion made by the CIT(A) observing that if some subsidy is given for encouraging the industries for setting up units in the remote or rural areas etc. then such subsidy assumes the character of a capital r .....

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