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2016 (5) TMI 489 - PUNJAB AND HARYANA HIGH COURT

2016 (5) TMI 489 - PUNJAB AND HARYANA HIGH COURT - [2016] 386 ITR 154 - Addition on account of fall in GP rate - ITAT deleted the addition - Held that:- The assessee has placed on record a copy of chart, which was also filed before the Assessing Officer to demonstrate that there has been an alarming increase in the price of steel round bar. For example, the rate per mt. of raw material purchased from RINL increased from ₹ 20,350/- in the preceding year to ₹ 26,900/- in the current ye .....

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ssessing officer has not pointed out any mistake in the quantitative records maintained by the assessee or the 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 .....

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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 subsidy into an item of revenue. The Special Bench of the Tribunal in Sulzer India Limited vs. DCIT, (2010 (11) TMI 728 - ITAT, MUMBAI) has held that the payment of net present value aga .....

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ax Act, 1961 (in short, the Act ) against the order dated 19.1.2015, Annexure A.III, passed by the Income Tax Appellate Tribunal, New Delhi (In short, the Tribunal ) in ITA No.534/Del/2009 for the assessment year 2005-06, claiming following substantial questions of law:- 1. Whether on the facts and in the circumstances, the Hon'ble ITAT was right in law in upholding the order of learned CIT(A) in deleting the addition of ₹ 1,19,93,081/- made by the Assessing Officer on account of unexp .....

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he Assessing Officer, the CIT(A) and before the learned ITAT? 3. Whether on facts and circumstances of the case, the learned ITAT was justified in law in upholding the deletion of addition on account of low gross profit by holding that the books of account of the assessee could not be rejected by the Assessing Officer despite the Assessing Officer's findings based on hard data that correct profits could not be deduced from the assessee's books? 4. Whether on the facts and in the circumst .....

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ade 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 narra .....

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the addition holding that no difference or defect had been detected by the Assessing Officer in the purchases and in the turnover of the company which had been accepted by the Assessing Officer. Aggrieved by the order, the revenue filed appeal before the Tribunal. The Tribunal upheld the deletion made by the CIT(A). Secondly, the Assessing Officer made an addition of ₹ 45,94,710/- on account of cash credit under section 68 of the Act since the assessee had failed to prove the creditworthi .....

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receipt of deposits amounting to ₹ 44 lacs from the depositors was held to be genuine, the consequent disallowance of interest amounting to ₹ 1,94,710/- by the Assessing Officer would automatically stand deleted. Thirdly, the Assessing Officer made an addition of ₹ 21,68,938/- on account of capital subsidy on sales tax. The CIT(A) deleted the said addition holding that the subsidy was given not to enable the assessee to run the business more profitably but in setting up of the .....

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eletions made by the CIT(A) on all the issues. The first issue was with regard to addition of ₹ 1,19,93,981/- made by the Assessing Officer on account of fall in GP rate from 18.52% in the preceding year to 15.71% during the year in question. During the 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 s .....

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n 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 read thus:- 4. After considering the ri .....

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cord that the assessee is engaged in a manufacturing activity and has maintained all the stock registers required for the purposes of the payment of excise duty. The Assessing Officer has not controverted the quantity or value of the closing and opening inventory. There is no dearth of judicial precedents unanimously holding that books of account cannot be rejected on the solitary reason of decline in the gross profit rate. Since the Assessing Officer was swayed only by the decline in the GP rat .....

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nt year, thereby registering an increase of 32%. In the like manner, there is increase in the rate of raw material from other parties ranging between 19% to 36%. This chart indicates that the input costs became costly in the instant year in comparison with the rates prevailing in the preceding year which led to the reduction in the overall profitability. The AO has not contradicted the contents of such chart. When we consider this factor pushing down the gross profit rate coupled with fact that .....

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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 produce .....

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the said addition holding that the Assessing Officer had not given any adverse remarks and the assessee had furnished elaborate details regarding the deposits of such depositors giving their PAN and the bank accounts showing all particulars. The Tribunal upheld the order passed by the CIT(A) observing that once the receipt of deposits amounting to ₹ 44 lacs from the six depositors was held to be genuine, the consequent disallowance of interest amounting to ₹ 1,94,71/- would automati .....

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Assessing Officer in the course of assessment proceedings. If the Assessing Officer directs the assessee to produce the creditors, it becomes the duty of the assessee to produce the creditors so as to establish the genuineness of the credits to the satisfaction of the AO. This rule is not infallible. 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 .....

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44 lac from the above six depositors is held to be genuine, the consequent disallownace of interest amounting to ₹ 1,94,710/- made by the Assessing Officer would automatically stand deleted. We, therefore, uphold the impugned order in deleting the addition of ₹ 45.94 lacs. No material was placed on record by the learned counsel for the appellant to controvert the findings recorded by the Tribunal. 6. The next issue was with regard to addition of ₹ 21,68,938 on account of capita .....

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ated 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 encourag .....

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revenue receipt, is its nature and object. 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 receipt. On then other hand, if subsidy is given for enabling an assessee to run its business more profitably, then it would amount to an operational subsidy chargeable to tax. It is clear from the assessee's submissions reproduced in the assessment order that the subsidy was given to the .....

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