CIT vs. GARG ACRYLICS LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 700/2012 . . . CIT ..... Appellant . Through: Mr Sanjeev Sabharwal, Sr. Standing Counsel with Mr Puneet Gupta, Jr. Standing Counsel. . versus . . . GARG ACRYLICS LTD ..... Respondent . Through: Ms Meera Bhatia, Advocate. . . . CORAM: . HON'BLE MR JUSTICE BADAR DURREZ AHMED . HON'BLE MR JUSTICE R.V.EASWAR . . . O R D E R . 07.01.2013 . . . We have heard the learned counsel for the appellant. The only question which according to us could arise for consideration would be with regard to the sales tax subsidy received by the respondent ? assessee being in the nature of a capital receipt or revenue receipt. The Tribunal held that this is in the nature of a capital receipt whereas according to the revenue it should be a revenue receipt. A similar question has been admitted for hearing in CIT v. Bhushan Steel and Strips Ltd.: ITA No.315/2003 on 25.05.2006. Consequently, we are admitting this appeal on the following substantial question of law: . ?Whether the Income Tax Appellate Tribunal erred in holding that the subsidy of sales tax received by the assessee of `2,46,12,660/- was a capital receipt and not a revenue receipt?? . . . We may point out that the learned counsel for the respondent urged that the issue with regard to the addition of `1,84,94,428/- also ought to be considered by this Court as a question of law. That addition was deleted by the CIT (Appeals) as well as by the Tribunal on the ground that the assessing officer had wrongly rejected the books of accounts merely because the percentage of profit in the year had dipped below the usual percentage. In this connection the Tribunal held as under: - . ?16. We have heard the learned Departmental Representative who strongly supported the discussions in the assessment order. The learned counsel for the assessee, on the other hand, supported the order of the CIT (Appeals) and has relied upon the detailed submissions made before the CIT (A) which are part of the proper book in pages 34 to 52. The rejection of the books of accounts by the A.O according to him was not justified, as the A.O has not pointed out any defects in the maintenance of the books of accounts. All the purchases and the sales are duly entered into books of accounts. The manufacturing expenses, opening stocks and closing stocks are duly supported by the stock registers maintained. The fall in the gross profit is adequately explained before the A.O. According to him there is no reason why the books of accounts of the assessee require rejection. The sales of the company are made mostly o enterprises in the medium and large scale sectors and the payments are invariably received in cheques. The purchases and the expenses have all been fully supported by vouchers and documented and paid through regular banking channels. Exhaustive records were maintained and were scrutinized by the Excise authorities who did not find any errors therein. The A.O is also not justified in arriving at an artificial average cost to say that the assessee has falsified the trading results. . . . 17. We have carefully gone through the records and are unable to find any merit in the contention of the A.O in rejecting the books of accounts duly maintained in the ordinary course of business. They are duly audite as required under the Income-tax Act and they have been accepted by the Sales-tax and Excise authorities. The A.O cannot simply reject the books of accounts on the reasoning that there has been slight fall in the gross profit without bringing to surface the defects that existed in the maintenance of the books of accounts. The A.O has not made any such attempt to justify his action. Therefore, in our view, the CIT (Appeals) was perfectly justified in deleting such an addition made without any basis or reason. The assessee has maintained quantitative details in respect of the stocks dealt with by the assessee. Having regard to the method of accounting regularly employed by the assessee, we do not accept the theory as propounded by the A.O to reject the books of accounts and determine the profit at an arbitrary figure of 15% on the declared turnover. The order of the CIT (Appeals) on this issue is upheld.? . . . We feel that this is a pure question of fact and not a question of law, much less a substantial question of law. Consequently, the appeal is admitted only in respect of the question with regard to sales tax subsidy as indicated above. The printing of paper-books is dispensed with. The appellant is given liberty to file additional documents which were part of the record of Tribunal. The same be done within four weeks. . . . Tag along with ITA No.315/2002. . . . . . BADAR DURREZ AHMED, J . . . . . . . R.V.EASWAR, J . JANUARY 07, 2013 . hs . . . . . $ 2 .