M/s. Annapurna Industries, JODHPUR V. ACIT, JODHPUR

ITA 160/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1590 (ITAT-JODHPUR)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Keywords: Capital asset converted into stock in trade; Capital asset; Depreciation; Source of fund; Capital receipt
• Section: 133A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NOS. 159, 160 & 161/JU/2012 ASSESSMENT YEAR: 2004-05 TO 2006-07 M/S ANNAPURNA INDUSTRIES VS. THE A.C.I.T F-381, M.I.A PHASE CENTRAL CIRCLE- 1 BASNI, JODHPUR JODHPUR PAN NO. AADFA 8815 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI DEPARTMENT BY : SHRI G.R. KOKANI, DR DATE OF HEARING : 04.12.2012 DATE OF PRONOUNCEMENT : 17.01.2013 ORDER PER HARI OM MARATHA, J.M. THIS IS A BUNCH OF THREE APPEALS FILED BY THE ASSES SEE IN WHICH FACTS ARE ENTWINED AND MAIN ISSUES INVOLVE D THEREIN ARE IDENTICAL, THEREFORE, FOR THE SAKE OF 2 CONVENIENCE AND BREVITY, WE ARE DECIDING THEM BY A COMMON ORDER. ITA NO. 159/JU/2012 [A.Y. 2004-05] 2. THIS APPEAL OF THE ASSESSEE-FIRM FOR A.Y. 2004-0 5 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 16.11.2010. A SEARCH U/S 132(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT', FOR SHO RT] WAS CONDUCTED AT VARIOUS BUSINESS PREMISES OF RAJ LAXMI GROUP OF JODHPUR AND SIMILAR ACTION WAS TAKEN AT THE RESI DENCE OF DIRECTORS/PARTNERS OF VARIOUS COMPANIES/FIRMS, O N 20.2.2004. DURING THIS SEARCH OPERATION MANY INCRIM INATING DOCUMENTS/EVIDENCE WERE FOUND WHICH WERE SEIZED. T HIS ASSESSEE HAD FILED RETURN OF INCOME [ROI] FOR A.Y. 2004-05 ON 31.10.2004, DECLARING TOTAL INCOME OF RS. 11,055 /-. THIS ASSESSEE DERIVES INCOME FROM MANUFACTURING OF S.S. UTENSILS. DURING THE YEAR UNDER CONSIDERATION, ITS TURNOVER WAS RS. 3,18,59,392/-, INCLUDING JOB CHARGES. A GR OSS PROFIT OF RS. 28,95,418/- WAS DECLARED GIVING A G.P . RATE OF 3 9.09%. A SURVEY U/S 133A WAS ALSO SIMULTANEOUSLY CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 20.2.2004. A PHYSICAL INVENTORY OF STOCK WAS PREPA RED DURING THIS SURVEY AND WAS TALLIED WITH THE BOOKS O F ACCOUNT. 3. THE POSITION OF THE STOCK AS PER PHYSICAL INVENT ORY AND AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS FOUND AS UNDER: ITEMS AS PER BOOKS AS PER IT SURVEY - FINISHED GOODS : 1 A. MANUFACTURING B. RESALABLESTP 7215.560 748.940 20656.00 C. FOR JOB 986.200 -SEMI FINISHED WIP 44620.470 21026.000 - RAW MATERIAL 800.00 -DEFECTIVE GOODS/ SCRAP 23552.960 10653.000 TOTAL 77124.130 53135.000 DIFFERENCE SHORT GOODS LYING AT RAJLAXMI INDUSTRIES 23989.130 TOTAL 53135.000 53135.000 4 4. TO EXPLAIN THE ABOVE ANOMALY, WHEN IT WAS SO DIRECTED TO DO, CONTENDED THAT ITS STOCK WAS LYING WITHIN THE PREMISES OF M/S. RAJ LAXMI INDUSTRIES BUT IT WAS NO T ACCEPTED BY THE A.O. THE SHORTAGE OF STOCK WAS MOSTLY OF FINISHED GOODS. THE FINISHED GOODS SHOULD HAVE BEEN SOLD, OUT OF BOOKS, AS THE SAME WERE NOT FOUND AT THE PREMISES OF THE ASSESSEE DURING PH YSICAL VERIFICATION. THE EXPENDITURE INCURRED FOR MANUFACT URING OF FINISHED GOODS IS ALREADY DEBITED IN THE ACCOUNTS SO, NO FUR THER CREDIT OF EXPENSES WAS ALLOWED. THE GROSS-PROFIT ON THE QUANT ITY OF FINISHED GOODS SO FOUND SHORT HAS BEEN WORKED OUT AS UNDER: SHORTAGE IN FINISHED GOODS 23989.130 KGS VALUE OF FINISHED GOODS @ RS. 55 PER KG RS. 13,1 9,402/- GP @ 9.09% ON RS. 13,19,402/- RS. 1,19,934/- 5. THE A.O. HAS TREATED THE SUM OF RS. 1,19,934/- A S UNRECORDED INCOME OF THE ASSESSEE ON UNRECORDED SA LE. NO MANUFACTURING EXPENSES WERE ALLOWED AS DEDUCTION AG AINST PRODUCTION OF SAID QUANTITY OF FINISHED GOODS AS T HE SAME ALREADY STAND ACCOUNTED FOR. THE SUM OF RS. 1,19,9 34/- IS THUS ADDED TO THE INCOME OF THE ASSESSEE. 5 6. AGGRIEVED, THE ASSESSEE FILED FIRST APPEAL AND T HE LD. CIT(A) HAS ALSO CONFIRMED THIS ADDITION OF RS. 1,19 ,934/-. THE ASSESSEE IS FURTHER AGGRIEVED AND HAS FILED THI S SECOND APPEAL BY RAISING THE FOLLOWING GROUNDS: 1. THE ID. CIT(A) HAS ERRED IN CONFIRMING THE PROC EEDINGS INITIATED U/S 153C IN THE CASE OF THE APPELLANT. TH E ENTIRE PROCEEDING IS BAD IN LAW AND BAD ON FACTS. 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING ADDITION OF RS. 1,19,9347- BEING PROFIT ON ALLEGED SHORT STOCK FO UND DURING THE COURSE OF SEARCH PROCEEDING. 3. THE LD. CIT(A) HAS ERRED IN NOT ACCEPTING THE ASSES SEE'S CLAIM THAT SALES TAX INCENTIVE RECEIVED WAS A CAPITAL REC EIPT NOT LIABLE TO TAX. 4. THE INTEREST CHARGED U/S 234B IS BAD IN LAW AND BAD ON FACTS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. TH E LD. A.R. SHRI AMIT KOTHARI, DID NOT PRESS THE LEGAL GRO UND NO. 1 AND, HENCE, THIS GROUND STANDS DISMISSED AS NOT P RESSED. 6 8. GROUND NO. 2 IS STATED TO BE COVERED BY THE DECI SION OF THIS VERY BENCH TAKEN IN THE CASE OF M/S RAJ LAX MI INDUSTRIES VS. ACIT IN ITA NO. 149/JU20009 A.Y. 200 4-05. THE FACTS OF THIS GROUND CAN BE EASILY GATHERED FRO M THE EXTRACTED PORTION OF THE SUBMISSIONS MADE BY THE LD . A.R. SHRI AMIT KOTHARI, AS UNDER: 2.4 THE POSITION OF STOCK AS PER PHYSICAL INVENTOR Y AND AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE IS AS UNDER: ITEMS AS PER BOOKS AS PER IT SURVEY - FINISHED GOODS : 1 A. MANUFACTURING B. RESALABLESTP 7215.560 748.940 20656.00 C. FOR JOB 98 6.200 -SEMI FINISHED WIP 44620.470 21026.000 - RAW MATERIAL 800.00 -DEFECTIVE GOODS/ SCRAP 23552.960 10653.000 TOTAL 77124.130 53135.000 DIFFERENCE SHORT GOODS LYING AT RAJLAXMI INDUSTRIES 23989.130 TOTAL 53135.000 53135.000 7 2.5 IN ANOTHER CONCERN M/S EVERSHINE METALS ALSO THERE WAS A SHORT AT 14641.370 AS ON THE DATE OF SURVEY. THE FINAL POSITION OF STOCK AT THE PREMIS ES OF RAJLAXMI INDUSTRIES AS ON THE DATE OF SEARCH WAS A S UNDER : ITEMS AS PER SUMMARY P.7/38-43 CASTING MISTAKE NET AS PER IT DEPT. AS PER BOOKS - FINISHED GOODS - RLI PREMISES -LYING AT SANGARIA -DEFECTIVE GOODS 169209.000 2052.000 15695.000 9987.600 159221.400 2052.000 15695.000 80550.290 SUB - TOTAL 186956.000 9987 .600 176968.400 101240.900 DIFFERENCE 37097.000 - SEMI FINISHED GOODS -RAW MATERIAL(PATTA) -RAW MATERIAL (WIRE & HANDLE) -SCRAP -SMALL CIRCLES 114319.000 19999.000 46249.000 9999.400 114319.000 9999.400 46249.000 100829.800 21569.370 7361.140 47318.820 5984.810 TOTAL 367523.000 19987.000 347536.000 284304.838 DIFFERENCE 63231.160 GOODS OF OTHER CONCERNS : ANNAPURNA INDS. EVERSHINE METALS 23989.130 14641.370 NET DIFFERENCE 24600.660 2.6. ON THE BASIS OF ABOVE WORKING THE ASSESSEE HAD SURRENDERED THE ABOVE DIFFERENCE IN THE HANDS OF M/S RAJLAXMI INDUSTRIES, IN RESPECT OF EXCESS STOCK FOUND AT THE TIME OF SEARCH AT RS. 20,40,334 WHICH COULD 8 HAVE BEEN THE MAXIMUM POSSIBLE ADDITION ON ACCOUNT OF STOCK FOUND IN EXCESS AT THE PREMISES OF RAJLAXMI INDUSTRIES. 2.7. IT IS SUBMITTED THAT ALL THE THREE FACTORIES OF THE ASSESSEE GROUP, NAMELY M/S RAJLAXMI INDUSTRIES, M/S ANNAPURNA INDUSTRIES, AND EVERSHINE METALS WERE SITUATED IN CLOSE PROXIMITY. M/S RAJLAXMI INDUSTRI ES IS THE OLDEST CONCERN SINCE 1993 AND OTHER TWO FIRMS M /S ANNAPURNA INDUSTRIES AND M/S EVERSHINE METALS ARE COMPARATIVELY NEW, WHICH HAD COME IN 2001 AND 2002 RESPECTIVELY. M/S RAJLAXMI INDUSTRIES IS MORE POP ULAR AND SOMETIMES, THE TRANSPORT COMPANY DELIVERS THE GOODS AT SUCH PREMISES. THE SPACE AVAILABLE IN THE SAID CONCERN IS MUCH MORE AS COMPARED TO OTHER TWO UNITS , AND SOMETIMES THERE IS PROBLEM OF KEEPING THE STOCK , AND SINCE LARGE SPACE IS AVAILABLE AT M/S RAJLAXMI INDUSTRIES PREMISES, THE GOODS ARE STORED AT SUCH P LACE, BEING A SISTER CONCERN. 2. 8 IT IS ALSO SUBMITTED THAT ULTIMATELY THE APPELLANT HAD SOLD THESE GOODS AFTER POST SEARCH PERIOD, WHICH HAD ALREADY FORMED PART OF INCOME. IT IS ALSO RESPECTFULLY SUBMITTED THAT THE SIMILAR ISSUE HAD COME UP BEFORE ITAT IN APPEAL OF M/S RAJLAXMI INDUSTRIES, FOR A.Y. 2004-05 WHEREIN THE 9 CREDIT OF SHORT STOCK OF SISTER CONCERN WAS DIRECTED TO BE ALLOWED AND THE CONTENTION OF THE APPELLANT WAS ACCEPTED. 9. WE HAVE FOUND THAT THIS STOCK IS COVERED AS IT H AS BEEN CONSIDERED IN THE HANDS OF THE OTHER CONCERN, VIDE ORDER DATED 9.12.2011 [SUPRA] PASSED BY THE TRIBUNA L IN THE CASE OF M/S RAJ LAXMI INDUSTRIES. TO SUPPORT, PARAS 4, 5 AND 6 OF THE ORDER ARE EXTRACTED VERBATIM AS UNDE R: 4. IN THIS CASE SEARCH PROCEEDINGS WERE INITIATED AND EXCESS STOCK WAS FOUND AT RS. 33,32,663. ASSES SEE SURRENDERED STOCK OF RS. 20,40,332/- IN THE RETURN OF INCOME AGAINST SURRENDER OF RS. 43,66,961/- MADE DURING COURSE OF SEARCH. THE REASON WAS EXPLAINED THAT STOCK FOUND IN THE CASE OF M/'S. ANNAPURNA INDUSTRI ES & M/S. EVERSHINE. METALS, BOTH SISTER CONCERNS, FOUND SHORT WAS LYING AT THE PREMISES OF THE ASSESSEE. THEREFORE, THE STOCK WAS SURRENDERED LESS. IT WAS A LSO SUBMITTED THAT THERE WAS A MISTAKE HE VALUE OF STOC K AS CORRECT VALUATION WAS OF RS. 33,32,663/- AGAINST VALUATION MADE AT RS. 43,66,961/-, THE MISTAKE IN CALCULATION WAS ACCEPTED BY THE ASSESSING OFFICER-. HOWEVER, IT WAS NOT ACCEPTED THAT STOCK OF TWO SIST ER 10 CONCERNS WERE LYING AT THE PREMISES OF THE ASSESSEE , THEREFORE. ASSESSING OFFICER MADE AN ADDITION OF RS. 12,9232S/-. THE ID. CIT (A) HAS ALSO NOT ACCEPT ED THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY HE 'CONFIRMED THE ADDITION MADE BY ASSESSING OFFICER. 5. THE CONTENTION RAISED BEFORE LOWER AUTHORITIES WERE REITERATED HERE BEFORE THE TRIBUNAL, IT WAS SUBMITTED THAT THERE WERE FOUR SISTER CONCERNS AND ALL THE CONCERNS ARE DOING THE SAME LINE OF BUSINESS. S AME ITEMS ARE MANUFACTURED AND TRADED BY THEM AND BUSIN ESS PREMISES WERE COMMON. IT WAS ALSO EXPLAINED THAT IT WAS ADMITTED THAT IN CASE OF OTHER SISTER CONCERNS I.E. IN CASE OF M/S. ANNAPURNA INDUSTRIES AND M/S. EVERSHIN E METALS., THERE WAS A SHORT OF STOCK TO THE EXTENT O F RS. 12 LACS OR ODD AND THERE WAS EXCESS OF THE STOCK OF TH E SAME AMOUNT IN THE HANDS OF THE ASSESSEE, IT WAS ALSO EXPLAINED THAT DUE TO OVERSIGHT AND MISTAKE, THIS F ACT COULD NOT BE REALIZED AT-THE TIME OF SEARCH AND, THEREFORE, ASSESSEE FIRM SURRENDERED THE AMOUNT. TH E ASSESSING OFFICER AND LD. CIT (A) HAS CONFIRMED ON THE BASIS OF STATEMENT ONLY. HOWEVER, THEY HAVE NOT TAK EN INTO CONSIDERATION THE FACTUAL ASPECT THAT THE STOC K OF THE SAME AMOUNT WAS FOUND SHORT IN THE HANDS OF THE 11 TWO SISTER CONCERNS WHICH WAS LYING WITH THE ASSESS EE'S STOCK. ATTENTION OF THE BENCH WAS DRAWN ON RECONCILIATION FILED BEFORE ID. CIT (A) AS WELL AS BEFORE ASSESSING OFFICER. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT ASSESSE E DESERVES TO SUCCEED ON THIS ISSUE, UNDISPUTED FACTS ARE THAT STOCKS OF M/S. ANNAPURNA INDUSTRIES AND M/S, EVERSHINE METALS, BOTH ARE SISTER CONCERNS OF THE ASSESSED, WERE FOUND SHORT OF THE SAME AMOUNT WHICH WAS FOUND EXCESS AT THE PREMISES OF THE ASSESSEE. I TEMS WERE ALSO THE SAME AND SIMILAR. THEREFORE, IN OUR V IEW, SHORT STOCK FOUND IN THE HANDS OF TWO SISTER CONCER NS AND EXCESS STOCK FOUND IN THE HANDS OF ASSESSEE FIR M SHOULD HAVE BEEN SET OFF, AS IN FACT, THE EXCESS ST OCK FOUND AT THE PREMISES OF THE ASSESSEE BELONGS TO TW O SISTER CONCERNS WHICH HAS ALREADY BEEN HANDED OVER TO SISTER CONCERNS AND THEY HAVE RECONCILED THEIR STOC K ALSO. ACCORDINGLY WITHOUT GOING INTO DETAILS FU RTHER, WE DELETE THE ADDITION OF RS. 12,92,328;'-. THIS G ROUND OF THE ASSESSEE IS ALLOWED. 12 10. IT IS CLEARLY ESTABLISHED THAT THIS ISSUE STAND S COVERED BY THE ABOVE TRIBUNAL ORDER WHERE THE SAME STOCK HA S BEEN CONSIDERED IN THE HANDS OF THE ASSESSEE. HENC E, THIS ADDITION HAS TO BE DELETED FROM THE HANDS OF THIS A SSESSEE. 11. SALES-TAX RECEIPT IS NOT LIABLE TO TAX WHEREAS AS PER THE REVENUE IT IS A REVENUE RECEIPT AND HAS TO BE T AXED ACCORDINGLY. IN THIS REGARD, RELIANCE HAS BEEN PLA CED BY THE LD. A.R. ON THE FOLLOWING DECISIONS: A. CIT VS. RUBY RUBBER WORKS LTD. (1989) 178ITR 181 (KER)(FB) IN THIS CASE SUBSIDY RECEIVED FOR REPLANTING RUBBER TREES WAS HELD TO BE A CAPITAL RECEIPT AND NOT A REVENUE RECE IPT. IT WILL BE PERTINENT TO SUBMIT THAT THIS JUDGMENT WAS CITED WITH APPROVAL BY HON 'BLE SUPREME COURT IN THE CASE OFSAHNEY STEEL & PRESS WORKS LTD. (SUPRA) AT PAGE 264 OF 228 ITR. THE HON'BLE SUPREME COURT HAS OBSERVED THAT THE SUBSIDY IN THAT CASE WAS NOT FOR THE PURPOSE OF UPKEEP OR MAINTENAN CE OF RUBBER TREES BUT IT WAS GRANTED FOR REPLANTING ONLY OLD AND UNECONOMIC TREES. WHAT WAS SOUGHT TO BE ACHIEVED WA S A PUBLIC PURPOSE OF VITAL PUBLIC INTEREST. 13 B. GADIA WIRES VS. CIT (1989) 178 ITR 596 (MP) IN THIS CASE ALSO SALES TAX SUBSIDY GRANTED TO INDU STRIES SET UP IN BACK WARD AREAS IN THE STATE WAS HELD TO BE C APITAL RECEIPT NOT LIABLE TO TAX. C. CIT VS. PLASTICHEM (1988) 174 ITR 546 (MP) 'HELD, THAT THE SALES TAX SUBSIDY GRANTED TO THE AS SESSEE UNDER THE SCHEME FRAMED BY THE GOVERNMENT OFMADHYA PRADESH FOR GRANT OF SUBSIDY / INTEREST-FREE LOAN F OR SUBSTANTIAL EXPANSION OF THE EXISTING INDUSTRIAL UN IT WAS A CAPITAL RECEIPT AND HENCE WAS ENTITLED TO EXEMPTION FROM INCOME-TAX.CIT VS. DUSAD INDUSTRIES (1986) 162 ITR 784 (MP) FOLLOWED; CIT VS. SAHNEY STEEL & PRESS WORKS LID. ( 1985) 152 ITR 39 (AP) REFERRED TO. D. CIT VS. P.J. CHEMICALS LTD. (1994) 210 ITR 830 ( SC) 'WHERE GOVERNMENT SUBSIDY IS INTENDED AS AN INCENTI VE TO ENCOURAGE ENTREPRENEURS TO MOVE TO BACKWARD AREAS A ND ESTABLISH INDUSTRIES, THE SPECIFIED PERCENTAGE OF T HE FIXED CAPITAL COST, WHICH IS THE BASIS FOR DETERMINING TH E SUBSIDY, BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QU ANTIFY THE FINANCIAL AID, IS NOT A PAYMENT, DIRECTLY OR IN DIRECTLY, TO MEET ANY PORTION OF THE 'ACTUAL COST'. THE EXPRESSI ON 'ACTUAL COST' IN SECTION 43(1) OF THE INCOME-TAX ACT, 1961, NEEDS TO BE INTERPRETED LIBERALLY. SUCH A SUBSIDY DOES NOT PART AKE OF THE 14 INCIDENTS WHICH ATTRACT THE CONDITIONS FOR ITS DEDU CIBILITY FROM 'ACTUAL COST'. THE AMOUNT OF SUBSIDY IS NOT TO BE DEDUCTED FROM THE 'ACTUAL COST' UNDER S. 43(1) FOR THE PURPOSE OF CALCULATION OF DEPRECIATION, ETC. ' IN THIS CASE ALSO, THE HON'BLE SUPREME COURT HAS HE LD THAT THE PURPOSE AND OBJECT IS DECISIVE FOR DETERMINING THE TRUE NATURE AND CHARACTER OF THE SUBSIDY GRANTED. THAT I S WHY, THE SUBSIDY GRANTED @ 10% / 15% WITH REFERENCE TO COSTS OF FIXED ASSETS WAS NOT DEDUCTED FROM THE COST OF ASSETS UND ER S.43(L) FOR PURPOSES OF GRANTING DEPRECIATION, AS T HE SUBSIDY WAS GRANTED FOR ENCOURAGING THE SETTING UP AND EXPA NSION OF INDUSTRIES IN THE NOTIFIED BACK WARD AREA. E. CIT VS. DUSAD INDUSTRIES (1986) 162ITR 784 (MP) IN THIS CASE THE SALES TAX SUBSIDIES RECEIVED FOR S ETTING UP INDUSTRIES IN BACKWARD AREAS WAS HELD TO BE CAPITAL RECEIPT NOT LIABLE TO TAX. THIS JUDGMENT WAS FOLLOWED BY HO N'BLE MP HIGH COURT IN VARIOUS SUBSEQUENT JUDGMENTS SUCH AS CASES REPORTED IN 188 ITR 187 AND 224 ITR 43. F. GREENHAM ESTATE (P) LTD. VS. STATE OF TAMIL NADU (1997) 226 ITR 929 (MAD) 15 IN THIS CASE THE SUBSIDY RECEIVED BY THE ASSESSEE F ROM RUBBER BOARD UNDER REPLANTING SUBSIDY SCHEME, 1970 WITH TH E OBJECT TO ENCOURAGE REPLANTATION OF RUBBER TREES WAS HELD TO BE A CAPITAL RECEIPT NOT LIABLE TO TAX. THE EON 'BLE MAD RASS HIGH COURT INTER ALIA FOLLOWED THE JUDGMENT OF HON'BLE S UPREME COURT KALPETTA ESTATES LTD. VS. CIT (1996) 221 ITR 601 (SC) AND THE JUDGMENTS REPORTED IN 188 ITR 262 (MAD) AND 178 ITR 181 (KER)(FB). G. CIT VS. CHITRA KALPA (1989) 177 ITR 540 (AP) IN THIS CASE THE SUBSIDY GRANTED BY THE STATE GOVE RNMENT TO PRODUCER OF FEATURE FILMS IN THE STATE WAS HELD TO BE A SUBSIDY IN THE NATURE OF INDUCEMENT FOR PRODUCTION OF A CAP ITAL ASSETS AND WAS HELD TO BE NOT A REVENUE RECEIPT. IT WILL B E PERTINENT TO MENTION THAT THIS JUDGMENT HAS BEEN ACCEPTED BY THE BOARD AND A CIRCULAR NO. 541 DT.25* JULY, 1989 WAS ISSUED IN WHICH IT HAS BEEN STATED THAT SUBSIDY GRANTED BY THE STATE GOVER NMENT TO PRODUCERS FOR THE PRODUCTION OF FEATURE FILMS IN RE GIONAL LANGUAGES SHOULD BE REGARDED AS CAPITAL RECEIPT NOT LIABLE TO TAX. THIS CIRCULAR HAS BEEN PUBLISHED IN 179ITR 30 (ST). H. SADICHHA CHITRA VS. CIT (1991) 189 ITR 774 (BOM) IN THIS CASE SUBSIDY GRANTED BY GOVERNMENT TO MARAT HI FILM PRODUCERS TO PRODUCE NEW AND BETTER FILMS WAS REGAR DED AS A 16 SCHEME FORMULATED IN PUBLIC INTEREST TO ENCOURAGE G ROWTH OF INDUSTRIES. IT WAS HELD THAT THE SUBSIDY DID NOT CO NSTITUTE REVENUE RECEIPT ASSESSABLE TO TAX. IITO VS. SHARMA BROS. (1999) 68ITD 32 (JAB) 'THE SUPREME COURT IN THE CASE OFSAHNEY STEEL & PRE SS WORKS LTD. (SUPRA) HAD EXAMINED THE DIFFERENT TYPES OF SU BSIDIES RECEIVED BY DIFFERENT ASSESSEES AND HAVE HELD THE R ECEIPT OF SUBSIDY BY THE ASSESSEE BY WAY OF REFUND OF SALES T AX, SUBSIDY ON POWER CONSUMPTION, REFUND OF WATER TAX, ETC., AS REVENUE RECEIPT. THE SUPREME COURT ON EXAMINING THE SCHEME WAS OF THE VIEW THAT ALL THE INCENTIVES RECEIVED BY THE AS SESSEES WERE PRODUCTION INCENTIVES. HOWEVER, IN THE SAME DECISIO N, THEIR LORDSHIPS HAVE APPROVED THE DECISION OF VARIOUS HIG H COURTS, IN WHICH THE SUBSIDIES WERE HELD TO BE CAPITAL RECEIPT AS IN THE CASE OF SADICHHA CHITRA VS. CIT (1991) 187 ITR 774 / 55 TAXMAN 247 (BOM) AND CIT VS. RUBY RUBBER WORK LTD. (1989) 178 ITR 181/46 TAXMAN 1 (KER)(FB). THEREFORE, THE CONTENTIO N THAT AFTER THE DECISION OF SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA) ALL SUBSIDIES ARE TO BE TREATED AS REVENUE RECEIPT CHARGEABLE TO TAX, WAS MIS-PLACED. THE RECEIPT OF ENTERTAINMENT SUBSIDY, WHICH WAS UNDER CONSIDERA TION IN THE INSTANT APPEAL, WAS NOT CONSIDERED BY THE SUPREME C OURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA).IN THE CASE OF KALPETTA ESTATES LTD. VS. CIT (1996) 221 ITR 601/87 TAXMAN 281 (SC) THE REVENUE ITSELF AT THE TIME OF HEARING BEFORE THE 17 SUPREME COURT CONCEDED THAT THE RE-PLANTATION SUBSI DY RECEIVED BY THE PLANTERS FROM RUBBER BOARD, WAS TO REVENUE RECEIPT. THE JABALPUR BENCH OF THE TRIBU NAL, AFTER EXAMINING THE SCHEME OF ENTERTAINMENT SUBSIDY IN THE CASE OFAGARWAL M.J. ENTERPRISES VS. DY. CIT (IT APP EAL NO. 746 (JAB) OF 1992), HAD HELD THAT THE SUBSIDY TO BE CAP ITAL RECEIPT.' J. BHUSHAN STEELS & STRIPS LTD. VS. DY. CIT (2004) 91 TTJ (DEL) 108 'HELD : INSTEAD OF GRANTING SUBSIDIES WHICH WAS ALS O RELATABLE TO THE CAPITAL INVESTED BY THE ASSESSEE OR THE INVE STMENT IN THE FIXED ASSETS, THE UP GOVERNMENT THOUGHT IT FIT NOT TO GIVE ANY AMOUNT BY WAY OF SUBSIDY AND THEN COLLECT THE S AME BY WAY OF SALES-TAX. THE GOVERNMENT, THEREFORE, QUANTIFIES THE SUBSIDIES PAYABLE BY IT TO VARIOUS I NDUSTRIES IN THE SPECIFIED AREAS AND INSTEAD OF GIVING SUCH S UBSIDY TO THEM, THE GOVERNMENT EXEMPTED THE INDUSTRIES FROM P AYING THE SALE-TAX COLLECTED TO THE EXTENT OF QUANTIFIED AMOUNT. IT WILL NOT BE OUT OF PLACE TO MENTION THAT THE AMOUNT OF SALES-TAX COLLECTED EXCEEDING THE COMPUTED AMOUNT T HE ASSESSEE WAS LIABLE TO PAY SUCH EXCESS SALES-TAX CO LLECTED. THOUGH THE SUBSIDY / GRANT ALLOWED BY THE GOVERNMEN T APPEARS TO BE IN THE NATURE OF EXEMPTION / REDUCTIO N IN THE AMOUNT OF SALES-TAX PAYABLE BY THE APPELLANT-COMPAN Y, ACTUALLY, HOWEVER, THE SALES-TAX AMOUNT IS SIMPLY A MEASUREMENT OF THE SUBSIDY TO BE ALLOWED BY THE STA TE 18 GOVERNMENT. THE SUBSIDIES ARE PURELY GRATUITOUS IN NATURE AND CANNOT BE CONSIDERED TO BE AN ASSISTANCE PROVID ED TO THE APPELLANT-COMPANY FOR CARRYING ON ITS BUSINESS OPER ATION IN A DAY-A-DAY MANNER. ON THE OTHER HAND, THE SUBSIDY HAS BEEN GRANTED SPECIALLY FOR THE PURPOSE OF PROMOTION AND DEVELOPMENT OF THE INDUSTRIES IN THE BACKWARD AREAS OF THE STATE. THE AMOUNT RECEIVED B THE ASSESSEE WAY OF EX EMPTION OF SALES-TAX PAYMENT, WAS NOT A TRADING RECEIPT AND , THEREFORE, THE CIT(A) HAS RIGHTLY HELD THAT THE AMO UNT RECEIVED BY THE ASSESSEE WAS CAPITAL RECEIPT AND NO T LIABLE TO TAX UPTO THE LIMITS COMPUTED IN ACCORDANCE WITH NOT IFICATION OF THE STATE GOVERNMENTSENAI RAM DUNGERMAL VS. CIT (1961) 42 ITR 392 (SC) AND CIT VS. BALRAMPUR CHINI MILLS L TD. (1998) 149 CTR (CAL) 232 : (1999) 238 ITR 445 (CAL) APPLIE D; SAWHNEY STEELS & PRESS WORKS LTD. VS. CIT (1997) 14 2 CTR (SC) 261 : (1997) 22 ITR 253 (SC) DISTINGUISHED. 12. THE SALES-TAX INCENTIVE SCHEME SHOWS THAT SUCH EXEMPTION IS GRANTED FOR THE SETTING-UP AND GROWTH OF INDUSTRIES IN THE STATE OF RAJASTHAN WITHIN THE NOT IFIED PERIOD, WHICH IS FURTHER BASED ON THE ELIGIBLE FIXE D CAPITAL INVESTMENT IN THE NEW INDUSTRIAL UNDERTAKING. THUS , THE OBJECT OF THIS INCENTIVE IS FOR THE SETTING UP, GRO WTH OF AND EXPANSION OF INDUSTRIES IN THE NOTIFIED PERIOD AND 19 NOTIFIED AREAS OF MANUFACTURING ACTIVITIES. IN OUR CONSIDERED OPINION, THE MERE FACT THAT MODE OF PAYM ENT OF SUBSIDY IS BY WAY OF SALES-TAX EXEMPTION FOR THE NOTIFIED PERIOD WILL NOT ALTER THE TRUE NATURE AND OBJECT OF GRANT OF SUCH A SUBSIDY, WHICH IS DONE FOR ACHIEVIN G THE OBJECT OF GROWTH OF INDUSTRIES IN THE NOTIFIED PERI OD AND IN THE NOTIFIED MANNER. THE HON'BLE APEX COURT HAS VE RY SUCCINCTLY LAID DOWN A RULE TO TEST THE NATURE OF S UCH A SUBSIDY, WHILE DECIDING THE CASE OF SAHWNEY STEELS & PRESS WORKS LTD VS. CIT [1997] 228 ITR 253 [SUPREME COURT ]. ACCORDING TO THIS DECISION, THE CHARACTER OF SUBSID Y IN THE HANDS OF THE RECIPIENT, WHETHER IT IS REVENUE OR CA PITAL, IS TO BE DETERMINED HAVING REGARD TO THE PURPOSE FOR W HICH THE SUBSIDY IS GIVEN. THIS ISSUE STANDS FULLY COVE RED BY THE DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. RELIANCE INDIA LTD. REPORTED IN [2004] 88 ITD 2 73 [MUM] [SB]. THE SPECIAL BENCH HAS HELD AS UNDER: THE SPECIAL BENCH CONSIDERED THE QUESTION AS TO WH ETHER THE SALES TAX INCENTIVE ALLOWED TO THE COMPANY IN T ERMS OF THE RELEVANT GOVT. ORDER CONSTITUTES CAPITAL RECEIP TS NOT 20 LIABLE TO TAX. THE SPECIAL BENCH CONSIDERED CATENA OF JUDGMENTS ON THIS POINT AND HAS EXPLAINED THE PRINC IPLES EMERGING FROM ALL THOSE JUDGMENTS, WHICH EXPLAINS A S TO WHEN A SUBSIDY CAN BE TREATED AS CAPITAL RECEIPT AN D WHEN IT SHOULD BE TREATED AS A REVENUE RECEIPT. THE HON'BLE SPECIAL BENCH CAREFULLY CONSIDERED THE RATIO OF JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF SAHANY STEELS & PRESS WORKS LTD. VS. CIT (1997) 228 ITR 253 (SCO AND HAS REPROD UCED THE RELEVANT EXTRACT OF THE SAID JUDGMENTS AT VARIOUS P LACES IN THEIR DECISION. THE FOLLOWING EXT4RACTS APPEARING A T PAGE 262 & 263 OF 228 ITR REPRODUCED AT PAGE 303 OF 88 ITD A RE AS UNDER : 'IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUBS IDY IN THE HANDS OF THE RECIPIENT-WHETHER REVENUE OR CAPITAL-W ILL HAVE TO BE DETERMINED BY HAVING REGARD TO THE PURPOSE OF WHICH THE SUBSIDY DETERMINED BY HAVING REGARD TO THE PURP OSE FOR WHICH THE SUBSIDY IS GIVEN. IF IT IS GIVEN BY WAY O F ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TRADE OR BUSI NESS, IT HAS TO BE TREATED AS TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMMATERIAL'. THE HON'BLE ITAT SPECIAL BENCH IN THE CASE OF RELI ANCE INDUSTRIES LTD. (SUPRA) AFTER CONSIDERING SEVERAL J UDGMENT OF HON'BLE APEX COURT, VARIOUS HIGH COURTS AND TRIB UNAL, RENDERED THE AFORESAID DECISION, THE GIST OF WHICH HAS BEEN 21 APTLY SUMMARIZED IN THE HEAD NOTE. THE RELEVANT EXT RACT FROM THE HEAD NOTE IS REPRODUCED BELOW : FROM 88 ITD AT PAGE 275 ... 'THE SCHEME FRAMED BY THE GOVERNMENT OF MAHARASHTRA IN 1979 AND FORMULATED BY ITS RESOLUTION DATED 5.1.198 0 HAD BEEN ANALYSED IN DETAIL BY THE TRIBUNAL IN ITS ORDE R IN THE ASSESSEE'S CASE FOR THE EARLIER ASSESSMENT YEAR, I. E., 1985- 86. ON AN ANALYSIS OF THE SCHEME, THE TRIBUNAL HAD COME TO THE CONCLUSION THAT THE THRUST OF THE SCHEME WAS TH AT THE ASSESSEE WOULD BECOME ENTITLED FOR THE SALES TAX INCENTIVE EVEN BEFORE THE COMMENCEMENT OF THE PRODUCTION, WHICH IMPLIED THAT THE OBJECT OF THE IN CENTIVE WAS TO FUND A PART OF THE COST OF THE SETTING UP OF THE FACTORY IN THE NOTIFIED BACKWARD AREA. THE TRIBUNAL HAD AT MORE THAN ONE PLACE STATED THAT THE THURST OF MAHARASHTRA SCHEME WAS THE INDUSTRIAL DEVELOPMENT O F THE BACKWARD DISTRICTS AS WELL AS GENERATION OF EMP LOYMENT THUS, ESTABLISHING A DIRECT NEXUS WITH THE INVESTME NT IN FIXED CAPITAL ASSETS. IT HAS BEEN FOUND THAT THE EN TITLEMENT OF THE INDUSTRIAL UNIT TO CLAIM ELIGIBILITY FOR THE INCENTIVE AROSE EVEN WHILE THE INDUSTRY WAS IN THE PROCESS OF BEING SET UP. ACCORDING TO THE TRIBUNAL, THE SCHEME WAS ORIEN TED TOWARDS AND WAS SUBSERVIENT TO THE INVESTMENT IN FI XED CAPITAL ASSETS. THE SALES TAX INCENTIVE WAS ENVISAGED ONLY AS AN ALTERNATIVE TO THE CASH DISBURSEMENT AND BY ITS VERY 22 NATURE WAS TO BE AVAILABLE ONLY AFTER PRODUCTION COMMENCED. THUS, IN EFFECT, IT WAS HELD BY THE TRIB UNAL THAT THE SUBSIDY IN THE FORM OF SALES TAX INCENTIVE WAS NOT GIVEN TO THE ASSESSEE FOR ASSISTING IT IN CARRYING OUT THE BUSINESS OPERATIONS. THE OBJECT OF THE SUBSIDY WAS TO ENCOURAGE THE SETTING UP OF INDUSTRIES IN THE BACKW ARD AREA. THUS, THE INTERPRETATION OF THE TRIBUNAL, OF THE RA TIO LAID DOWN IN THE JUDGMENT OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD. 'S CASE (SUPRA) COULD NOT BE STA TED TO BE ERRONEOUS. THE TRIBUNAL DID RECOGNISE. AS THE SU PREME COURT ITSELF RECOGNISED, THAT, THE OBJECT WITH WHIC H THE SUBSIDY IS GIVEN IS DECISIVE. IT DID RECOGNIZE, FOLLOWING THE DISTINCTION POINTED OUT BY THE SUPREME COURT THAT I F THE SUBSIDY IS GIVEN FOR SETTING UP OR EXPANSION OF THE INDUSTRY IN A BACKWARD AREA, IT WILL BE CAPITAL RECEIPT, IRR ESPECTIVE OF THE MODALITY OR THE SOURCE OF FUNDS THROUGH OR FROM WHICH IT IS GIVEN AND THAT IF MONIES ARE GIVEN FOR ASSISTING THE ASSESSEE IN CARRYING OUT THE BUSINESS OPERATIONS ON LY AFTER, AND CONDITIONAL UPON, THE COMMENCEMENT OF PRODUCTIO N, IT WILL BE REVENUE RECEIPT. IT WAS ONLY FOR THE PURPOS E OF BRINGING OUT THAT DISTINCTION, THAT THE TRIBUNAL HA D ANALYSED THE FEATURES OF THE MAHARASHTRA SCHEME OF 1979 AND HAD COME TO THE CONCLUSION THAT THE SUBSIDY GIVEN UNDER THE SCHEME HAD A DIRECT NEXUS WITH THE FIXED CAPITAL IN VESTMENT 23 AND THAT IT COULD NOT BE SAID THAT THE SUBSIDY WAS GIVEN WITH THE OBJECT OF ASSISTING OR LENDING A HELPING H AND TO THE ASSESSEE IN ITS BUSINESS OPERATIONS. THE TRIBUNAL WAS, THUS, AWARE OF THE DISTINCTION BE TWEEN THE SUBSIDY GIVEN WITH THE OBJECT OF SETTING UP THE INDUSTRY AND THE SUBSIDY GIVEN AFTER THE INDUSTRY COMMENCES PRODUCTION AND CONDITIONAL UPON THE COMMENCEMENT OF PRODUCTION. FACTUALLY, THE TRIBUNAL FOUND THAT THE ASSESSEE'S CASE WHICH FELL UNDER THE MAHARASHTRA SC HEME WAS AS CASE WHERE THE SUBSIDY WAS GIVEN FOR THE PUR POSE OF FACILITATING THE ASSESSEE TO SET UP AN INDUSTRY IN PATALGANGA, GAIDAD DISTRICT, WHICH WAS A NOTIFIED A REA. THE ACTUAL DISBURSEMENT TOOK PLACE AFTER THE ASSESS EE COMMENCED PRODUCTION, BUT, ACCORDING TO THE TRIBUNA L, IT WAS ONLY A MODE OF DISBURSEMENT AND HAD NOTHING TO DO WITH THE OBJECT FOR WHICH THE SUBSIDY WAS GIVEN. THUS, IT WAS FOUND THAT THE TRIBUNAL DID NOTICE THE CRUCIAL OBSE RVATIONS OF THE SUPREME COURT IN SAHNEY STEEL & PRESS WORKS LTD. 'S CASE (SUPRA) WHICH GAVE PRIMACY TO THE OBJECT OF TH E SUBSIDY OVER THE FACT THAT IT WAS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION. [PARA 30]. THE TRIBUNAL'S OBSERVATIONS MADE ON THE BASIS OF TH E OBSERVATIONS OF THE SUPREME COURT IN SHANEY STEEL & PRESS 24 WORKS LTD. 'S CASE (SUPRA) ALSO SHOWED THAT THE TRI BUNAL WAS ALIVE TO THE DISTINCTION BETWEEN THE CHARACTER OF T HE SUBSIDY GIVEN WITH THE OBJECT OF PROMOTING INDUSTRI AL GROWTH IN A PARTICULAR AREA AND THE SUBSIDY GIVEN C ONDITIONAL UPON THE COMMENCEMENT OF PRODUCTION AND AFTER ACTUA L COMMENCEMENT OF PRODUCTION. IT IS NOT CORRECT TO UNDERSTAND THE JUDGMENT AS LAYING DOWN THE BROAD PROPOSITION THAT WHEREVER THE SUBSIDY IS GIVEN AFTE R THE COMMENCEMENT OF PRODUCTION AND CONDITIONAL UPON THE SAME, IT SHOULD BE TREATED AS A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE, IRRESPECTIVE OF THE OBJECT FOR WHI CH THE SUBSIDY IS GRANTED. THE OBJECT FOR WHICH THE SUBSID Y IS GRANTED TAKES PRIMACY OVER THE FACT THAT IT IS GIVE N AFTER THE COMMENCEMENT OF PRODUCTION AND CONDITIONAL UPON THE SAME. THE SUPREME COURT ITSELF RECOGNISED THAT POSITION H AD BEEN AMPLY MADE CLEAR IN ITS OBSERVATIONS. [PARA 33 ] THE INSTANT BENCH WAS, THEREFORE, UNABLE TO SHARE T HE OPINION EXPRESSED IN BQJAJ AUTO LTD.S' CASE (SUPRA) THAT THE TRIBUNAL IN ITS ORDER IN THE CASE OF THE ASSESSEE F OR THE ASSESSMENT YEAR 1985-86 DID NOT CORRECTLY INTERPRET THE RATIO LAID DOWN BY THE SUPREME COURT IN SAHNEY STEE L & PRESS WORKS LTD. 'S CASE (SUPRA). [PARA 34] THUS, THE PURPOSE AND OBJECT OF THE SCHEME UNDER WH ICH THE SUBSIDY IS GIVEN OF MORE FUNDAMENTAL IMPORTANCE THAN 25 THE FACT THAT THE SUBSIDY IS RECEIVED AFTER THE COMMENCEMENT OF PRODUCTION OR CONDITIONAL UPON IT. HENCE, THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE AS SESSMENT YEAR 1985-86 HAD CORRECTLY INTERPRETED AND UNDERSTO OD THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE S AHNEY STEEL & PRESS WORKS LTD. 'S CASE (SUPRA) [PARA 37] ACCORDINGLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE-COMPANY WAS JUSTIFIED IN ITS CLAIM THAT THE SALES-TAX INCENTIVE ALLOWED TO IT DURING THE PREVIOUS YEAR IN TERMS OF THE RELEVANT GOVERNMENT ORDER CONSTITUTED CAPITAL RECEIPT AND WAS NOT TO BE TAKEN INTO ACCOUNT IN COMPUTATION OF TOTAL INCOME. 13. WE HAVE NOTICED THAT THE HON'BLE SPECIAL BENCH HAS CONSIDERED THE CASE OF CIT VS. PONNI SUGARS & CHEMI CAL LTD [2003] 260 ITR 605 [MAD]. THE HON'BLE MADRAS HIGH COURT, WHILE DECIDING THE CASE OF PONNI SUGARS [SUPRA] HAS REFERRED TO THE CASE OF CHENGALRAYAN C-OPERATIVE SU GAR MILLS LTD. VS. CIT 261 ITR 575 [MAD]. 26 14. THE LAST GROUND IS REGARDING CHARGING OF INTERE ST U/S 234B OF THE ACT. THE CHARGING OF INTEREST IS NOW MANDATORY BUT CONSEQUENTIAL RELIEF HAS TO BE GRANTE D TO THE ASSESSEE. THIS GROUND CANNOT BE ALLOWED. 15. IN VIEW OF THE ABOVE DECISIONS, PARTICULARLY TH AT OF THE SPECIAL BENCH RENDERED IN THE CASE OF DCIT VS. RELIANCE INDIA LTD REPORTED IN [2004] 88 ITD 273 [M UM] [SB], WE HAVE TO DECIDE THAT THIS SALES-TAX INCENTI VE IS CAPITAL IN NATURE. BUT THE QUESTION WHICH REMAINS IS IF THE ASSESSEE IS CLAIMING THIS BENEFIT TWICE AND IF THE PROVISION OF SECTION 43B, AS AMENDED, WOULD HAVE AN Y IMPACT ON THE DECISION MAKING OF THIS ISSUE. THIS ISSUE REMAINS TO BE EXAMINED IN ITS CORRECT PERSPECTIVE. THEREFORE, WE HAVE TO RESTORE THIS ISSUE TO THE FIL E OF THE LD. CIT(A) WITH A DIRECTION THAT HE SHALL DECIDE TH SAME AFRESH AS PER LAW. WE ALLOW THIS GROUND OF APPEAL FOR STATISTICAL PURPOSES ONLY. 27 16. ACCORDINGLY, WE ALLOW THIS APPEAL FOR A.Y. 2004 -05 PARTLY AND PARTLY FOR STATISTICAL PURPOSES. ITA NOS. 160 & 161/JODHPUR/2012 A.Y. 2006-07 17. BOTH THE APPEALS OF THE ASSESSEE, FOR A.YS. 200 5-06 AND 2006-07, ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. CIT(A) DATED 16.11.2010. FOLLOWING GROUNDS HAVE BEEN RAISED IN A.Y. 2005-06: 1. THE LD. CIT(A) HAS ERRED IN SUSTAINING ADDITION OF RS. 1,39,200/- BY APPLICATION OF G.P. RATE. 2. THE LD. CIT(A) HAS ERRED IN NOT ACCEPTING THE A SSESSEE'S CLAIM THAT SALES TAX INCENTIVE RECEIVED WAS A CAPIT AL RECEIPT NOT LIABLE TO TAX. 3. THE INTEREST CHARGED U/S 234B IS BAD IN LAW AND BAD ON FACTS. 18. IN A.YS. 2005-06 AND 2006-07 SIMILAR GROUNDS REGARDING SALES-TAX INCENTIVES HAVE BEEN RAISED. W ITH THE HELP OF SAME REASONINGS, WE DECIDE THE ISSUE REGARD ING SALES-TAX INCENTIVE AND RESTORE BACK THIS ISSUE TO THE FILE 28 OF THE LD. CIT(A) WITH SIMILAR DIRECTIONS. THE GRO UNDS REGARDING CHARGING OF INTEREST U/S 234B ARE DISMISS ED BOTH THE YEARS ALSO. 19. IN A.Y. 2005-06, ONE MORE ISSUE VIDE GROUND NO. 1 OF THE APPEAL HAS BEEN RAISED. THIS ISSUE RELATES TO SUSTAINED TRADING ADDITION OF RS. 1,39,200/-. THE FACTS APRO POS THIS GROUND ARE THAT THE A.O. HAS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HAS ADOPTED GROSS PROFIT RATE O F 8% INSTEAD OF GROSS PROFIT RATE OF 7.70% DECLARED BY T HE ASSESSEE. THE REASONS FOR REJECTION OF THE BOOKS O F ACCOUNT OF THE ASSESSEE IS THE PROCEEDINGS UNDERTAK EN BY THE COMMERCIAL TAXES DEPARTMENT WHO CONDUCTED SURVE Y AT THE ASSESSEES BUSINESS PREMISES ON 10.1.2005. A DISCREPANCY IN THE STOCK OF FINISHED GOODS AND SCRA P WAS NOTICED AS PER PHYSICAL VERIFICATION AND THE BOOKS OF ACCOUNT. ON THAT BASIS ONLY, THE A.O. HAS REJECTED THE ASSESSEES BOOKS. IN OUR CONSIDERED OPINION, THE A .O. HAS NOT PIN-POINTED ANY DEFECT MUCH LESS ANY MATERIAL D EFECT IN THE BOOKS OF ACCOUNT, THEREFORE, THE REJECTION O F BOOKS 29 AND APPLICATION OF PROVISION OF SECTION 145(2) ARE NOT JUSTIFIED. OTHERWISE ALSO, THERE IS NO MATERIAL DI FFERENCE BETWEEN THE GROSS PROFIT RATE OF 7.70% DISCLOSED BY THE ASSESSEE AS AGAINST WHICH THE A.O. HAS ADOPTED RATE OF 8%. ACCORDINGLY, WE DO NOT APPROVE THE REJECTION OF BOO KS OF ACCOUNT AND HENCE ORDER TO DELETE THIS ADDITION OF RS. 1,39,200/-. GROUND NO. 1 OF THIS APPEAL IS ALLOWED . 20. TO SUM UP, THE APPEAL FOR A.Y. 2004-05 IS PARTL Y ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . THE APPEAL FOR A.Y. 2005-06 IS PARTLY ALLOWED AND PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THE APPEAL FOR A .Y. 2006- 07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 17 TH JANUARY, 2013. SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH JANUARY, 2013 VL/- 30 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR