COMMISSIONER OF INCOME TAX IV vs. VALLBH GLASS WORKS LTD

The present Tax Appeal challenging the order of the Income Tax Appellate Tribunal (‘ITAT’ for short) dated 07/12/2012 under Section 260A of the Income Tax Act (hereinafter referred to as ‘the Act’) has been preferred by the revenue challenging the following substantial questions of law for our consideration; 1. “Whether the appellate tribunal is right in law and on facts in confirming the order of the CIT(A) in deleting the addition of Rs.86,76,651/- on account of unaccounted production and sale of glass when assessee’s own excise records reflected production as well as assessee claimed manufacturing expenses as well as factory wages which was in contradiction to its claim that there was no production during the year?” 2. “Whether the appellate tribunal is right in law and on facts in confirming the order of the CIT(A) in deleting the addition of Rs.80,00,000/- under Section 69C of the Income Tax Act?” 3. “Whether the appellate tribunal is right in law and on facts in confirming the order of the CIT(A) in deleting the disallowance of Rs.5,00,000/- out of manufacturing and other expenses?” 4. “Whether the appellate tribunal is right in law and on facts in confirming the order of the CIT(A) in deleting the disallowance of Rs.4,27,868/- being depreciation of units which did not function during the year?”

We have heard learned Counsel, Ms. Paurami Sheth for the Department and with her assistance examined the material on record. 2. 1. The first question concerns the deletion of addition of Rs.86,76,651/- by the CIT(A) and confirmation of the same by the tribunal. It appears that the respondent-assessee engaged in the business of manufacturing glass and glass ware had filed for the Assessment Year 1994-95 the return of income showing the loss of income at Rs.13.33 lakhs (rounded off). After scrutiny of the assessment, certain additions were made by the Assessing Officer. The amount of Rs.86.76 lakhs (rounded off) was added on account of unaccounted production and sale of glass.

This was challenged before the CIT(A), which took into consideration the report of the tax auditors and held that it is an established position that no process of manufacturing of glass during the year was carried out. It was opined from the material presented before it that only packaging of the same was done alongwith the packed materials. It is also noted that that the Assessing Officer had treated the production shown in the excise record as production of glass during the year, but, in fact it was packing of glass and thus it was considered to be a basic error on the part of the Assessing Officer by the CIT(A). Hence, the addition of Rs.86.76 lakhs (rounded off) on account of sale of unaccounted production was held to be a misunderstanding on his part and accordingly, the amount was deleted.

When the Department challenged such order before the ITAT, after extensively recording the findings of CIT(A) it confirmed such deletion on the ground that this was a correct appreciation of facts by CIT(A). The issue essentially is in the realm of facts and there being no perversity in deletion of such amount by both the revenue authorities concurrently, we see no reason to interfere.

So far as the addition of sum of Rs.80 lakhs under Section 69C of the Act is concerned, the revenue has proposed the same as the second question. This amount was added by the Assessing Officer holding the same to be an unaccounted sale.

The unaccounted purchase since was not upheld while discussing the first question, the CIT(A) in a challenge made by the assessee held that the relief of deletion of Rs.80 lakhs needs to be granted in form of the assessee. Even otherwise, it was held that as the addition under Section 69C of the Act would also qualify for deduction under Section 37 of the Act for the same being business expenditure, it deleted the amount.

The tribunal was then approached by the Revenue and it concurred with the CIT(A) by holding this; “After hearing the arguments of learned DR, we are of the considered view that there was anomaly in the approach of the A.O.. On one hand, if unaccounted production at Rs.86,76,651/- was taxed and on the other hand, unaccounted purchase of Rs.80 lakhs are also taxed, then the correct position should have been that the unaccounted purchases, alleged to have been utilized for the said production, ought to have been reduced from the unaccounted production. In any case, such an ad hoc addition was uncalled for, hence learned CIT(A) has rightly deleted the same. This ground of the revenue is dismissed.” Both the CIT(A) and the tribunal have correctly dissected the facts while approaching the said issue. No ground is made out to entertain this issue.

So far as the third question is concerned, it touches the addition made by the Assessing Officer on the ground that no details were furnished by the assessee. Out of the total manufacturing and other expenses of Rs.50.42 lakhs for want of necessary details, this amount was added.

The CIT(A) when was approached by the assessee, it held that the audited accounts were available with regard to the expenses claimed by the assessee and in absence of any adverse comment by the auditors, no disallowance, out of such expenses, should be made. Again, CIT(A) was also of the opinion that unless there are cogent reasons available whenever the Assessing Officer would question the genuineness of such expenditure, amount deserves deletion.

The revenue also challenged this before the tribunal and confirming the very logic the tribunal deleted the amount. It appears that Profit & Loss account attached to evidence clearly explained this amount. No question of law arises and hence, this question requires no further consideration on merits.

The last question concerns the amount of Rs.4,27,868/- added by the Assessing Officer towards depreciation of the units on the ground that the factory at Vallabh Vidyanagar had remained closed and, therefore, such claim was not justified. The assessee aggrieved by such approach challenged the same before CIT(A), which relying upon the decision of the Jabalpur Bench in the case of Packwell Printers Vs. Assistant Commissioner of Income-tax reported in (1996)59ITD340(JAB.) held that the depreciation needs to be allowed on the entire block of assets instead of each individual assets. However, it is also observed that only those assets, which were put to use, claim was made for depreciation by the assessee and, therefore, when the claim was only in respect of those assets used during the year under consideration, it did not deny the benefit of depreciation. When challenged before the tribunal, the tribunal confirmed such deletion on the part of the CIT(A) by holding that; “Undisputedly, the assessee had carried on the business. Further, it is also not in dispute that the said factory was within the block of assets. We have noted that learned CIT(A) has placed reliance on Packwell Printers 59 ITD 340 and arrived at the conclusion that the assets in question were put to use in the business, therefore, there was no justification to deny the benefit of the depreciation. Respectfully following the decision of the Coordinate Bench, we hereby affirm the view taken by the learned CIT(A). This ground of the revenue is dismissed.”

This issue also is largely based on the facts available where both the CIT(A) and the tribunal has predominantly decided all the questions, which are based on the factual matrix. When no question of law, much less substantial question of law arises in the appeal, the Tax Appeal is dismissed. (M.R.SHAH, J.) (MS SONIA GOKANI, J.) Siji