Case Law Details

Case Name : Ankur Cm Food Products (Guj) Ltd. Vs Dy. CIT (ITAT Rajkot)
Appeal Number : ITA No. 133/Rjt/2006
Date of Judgement/Order : 13/05/2011
Related Assessment Year : 2002-03
Courts : All ITAT (4238) ITAT Rajkot (14)

Ankur Cm Food Products (Guj) Ltd. Vs Dy. CIT (ITAT Rajkot)- Ground No.2 of appeal of revenue is in respect of deletion of addition of Rs.7,01,1 19 on account of excess stock of packing material. During the course of survey at factory premises empty bags and empty pouches numbers 1,02,98,914 were found against the book stock of 83,39,051. There was excess stock of packing material of 19,59,863 pouches valuing Rs. 7,01,119. In the statement, Shri Ashok Parekh, director of the company while answering question No.3 9 stated that packing material of outside parties for which the assessee is doing job work were also at the factory premises.

Therefore, the same were not recorded in the books of account. However, the assessing officer did not accept the assessee’s contention. He made the addition of Rs.7,01,119. The CIT(A) deleted the said addition by observing that during the course of survey itself Shri Ashok Parekh has stated that stock of outside parties was laying in his premises which were not recorded in the books of account. During the assessment proceedings, the assessing officer did not raise any question about this issue. Before the CIT(A) the assessee submitted the details of packing material pertaining to Kargil India Pvt Ltd and in support it contended that it has maintained complete record of pouches received in connection with job work and therefore consumption in job work. A statement showing details were also furnished which explained the difference of stock of Rs.19,59,860. The CIT(A) examined the said statement and noticed that there was still an excess stock of Rs.10,683 empty pouches. However, the CIT (A) deleted the entire addition observing that the difference is negligible.

Ankur Cm Food Products (Guj) Ltd vs Dy.CIT

I.T.A. No. 133/Rjt/2006

(Assessment year- 2002-03)

ACIT vs Ankur Chem Food Products

I.T.A. No. 168/Rjt/2006

(Assessment year- 2002-03)

Decided by – ITAT Rajkot

Decided on – 13-05-2011

ORDER

Per AL Gehlot, AM

These cross appeals are against the order dated 15-01-2006 passed by the Commissioner of Income-tax (Appeals)-IV, Ahmedabad for the assessment years 2002- 03.

2. The first ground raised in the assessee’s appeal and ground No. 3 in revenue’s appeal is in respect of addition on account of alleged excess stock of finished salt found during the course of survey u/s 133A. The brie facts of this ground is that the assessee company is engaged in the business of manufacturing of salt. A survey u/s 1 33A was carried out on 02-02-2002. During the course of survey at the factory premises of the assesse, the following stock was found:

Description Stock  physically found during survey

Stock as per stock register maintained at factory

Finished salt

Rs. 93,37,510/

Rs. 98,92,735/

Raw salt

Rs. 44,89,650/

Rs.  47,87,516/

Total

Rs. 1,38,27,160/

Rs. 1,46,80,251/

Apart from the above stock, stock of finished goods of Rs. 42,87,210 was lying at various depots of the assessee company. A statement of Shri Ashok Champalal Parikh, director of the assessee was recorded. The relevant part of his statement has been reproduced by the assessing officer in his order on page 7 of the assessment order, which reads as below:

“Question-40: As per books, finished goods is 1,62,435 bags whose value is Rs.98,92,735/-. As per physical verification, finished goods is 1,50,741 bags whose value is Rs.93,37,510/-. Hence, there is shortage of 11,691 bags. Explain the reason for the same. In addition to this, there are 48,130 bags of finished (transit) at depots whose value is Rs.42,87,210/-. Hence, total finished goods comes to 1,98,871 bags whose value is  Rs. 1,36,24,720/-. Hence total difference comes to 36,436 bags which is in excess and whose value is Rs. 37,31,985/-. What do you want to say?

Ans:- 40: In reply to the above, it is submitted that 48,130 bags whose value is Rs. 42,87,210/- are lying in our depots and they are in transit. They are to be considered. Regarding the balance, I am unable to offer any explanation.”

3. After considering the submissions of the assessee, the assessing officer noticed that the physical stock of finished salt found during survey at the factory premises was rs.93,37,510 against stock as per stock register maintained at factory of Rs. 98,92,735.  In addition to this stock of finished salt Rs. 42,87,200 was lying at various depots of the assessee company. Hence, total stock of finished goods which includes stock physically found at factory and various depots comes to Rs. 1,36,24,720 against which the stock as per stock register maintained at factory was Rs. 98,92,735. There was excess stock of Rs. 37,31,985. The assessing officer did not accept the assessee’s contention that the observation that whatever stated by the assessee at the time of assessment proceedings is an afterthought. The assessing officer stated that the assessee does not come under the control of civil supplies authorities and hence its stock register is not maintained as per the requirement of civil supplies authorities. The assessee can prepare stock register as per its convenience. The assessing officer accordingly rejected the assessee’s explanation and made addition of Rs. 37,31,985.

4. The CIT(A) reduced the addition on the account of the finished goods. However, the CIT(A) made an addition on account of deficit of stock of raw salt on 1325 M.T. valuing at Rs.2,97,675 for which the assessing officer did not make separate addition, due to the addition of excess stock of finished salt stock. Thus, the CIT(A) sustained the addition to the extent of Rs. 8,50,900 and the balance addition of Rs.28,81 ,085 has been deleted. While deciding the issue, the CIT(A) noticed that the assessee has accepted the difference of 11,694 bags being difference in the physical stock found of 1,50,741 bags and the stock found as per the stock register maintained at the factory of 1,62,435 bags. The CIT(A) sustained the addition of Rs. 5,55,225 being the value of difference 11,694 bags found recorded short in the stock register and noting down that he did not find any substance in the submission of the assessee that difference is negligible and hence needs to be ignored. The CIT(A) was of the view that since the difference has been accepted by the assessee, the same needs to be added to total income of the assessee. As regards 48,130 bags, being stock lying at various depots of the assessee the CIT(A) noted that the AO has unnecessarily twisted the meaning of the statement of Shri Ashok C Parekh in order to make the addition. He noted that depots were neither survey nor books of account maintained at depot were examined by the assessing officer. The CIT(A) agreed with the submissions of the assessee that stock of 48,130 bags is duly accounted for and hence no adverse inference is required.
5. The ld. AR submitted during the course of survey, the survey team found that the assessee maintained stock register in the column showing opening stock, production, loading (meaning dispatch from the factory) and closing stock. The ld. AR drew our attention to details of stock found physically and stock as per register from synopsis. The ld. AR further submitted that the assessing officer worked out the difference of excess stock for Rs. 37,31,985 detailed as under:-

Particulars

No. of Bags

Amount (Rs.)

Shortage as per column b. above

11694

5,55,225

Stock lying with depots and in transit

48130

42,87,210

Difference being excess stock

36436

37,31,985

The ld.AR submitted that during the course of survey, in reply to question No. 40, the assessee explained that stock of Rs. 48,130 bags valued at Rs.40,87,210 is lying in depot as also in transit and if these are considered, the difference should be insignificant. The ld. AR submitted that the assessing officer has duly disregarded the facts as to stock as per books of account with reference to stock at depots in Kolhapur, Erode, Delhi, Indore and Bellary and in transit. The ld. AR submitted that the assessee has furnished the depot-wise details of the goods of which copy has been placed in the paper book, summary of which is as under:-

1

Kolhapur

5,411

35

2

Erode

12,607

42

3

Delhi

9,568

57

4

Indore

946

68

5

Bellary

6,033

72

6

In transit-reply to Q.36

13,565

TOTAL

48,130

6. The ld. AR submitted that the CIT(A) accepted the shortage of 11,694 bags at factory premises valued at Rs. 5,55,225. However, the CIT(A) ought to have accepted the normal loss on account of handling / shifting of salt from salt pans to the factory premises / go downs. The CIT(A) ought to have considered that salt is packed in polythene bags and are stored in open plot and in go down and there will always be some normal loss / damage and while handling by hooks, trolleys, etc. are used in loading and unloading as there are wear and tear to these polythene bags causing loss. The ld. AR submitted that the CIT(A) is not correct in making further addition of Rs. 2,97,675 on account of shortage of 1325 M.T. and material found in the course of survey that the same stands explained before the assessing officer and not being a ground of appeal though during survey, in reply to question No.41 reason for such loss was explained. The assessing officer accepted the fact that salt is manufactured in open salt pans and are raw salt is kept in the open. Therefore, there has to be loss due to evaporation, rain, cyclone etc and no addition can be made. It is also the submission of the ld. AR that during the year, the assessee manufactured 1,01,609 M.T. of salt and the shortage was 11,694 bags of 50 kgs i.e. 584.7 M.Ts i.e. 0.575% which cannot be considered as unreasonable. The ld.AR submitted that during the survey, no incriminating material or evidence indicating any unrecorded sale, etc. was found nor could the assessing officer find any discrepancy or defect in the audited books of account and the auditor has also not put any qualification to audit report. Under the circumstances, the CIT(A) ought not to have sustained the addition of Rs. 5,55,225 and Rs. 2,97,675 on account of shortage in finished goods and raw-material, respectively particularly when the assessing officer was satisfied about the loss on account of raw material.

7. The ld.AR, without prejudice to the main submission, submitted that any shortage in stock attract addition on account of profit and not the full value. The ld. AR in support of his contention relied upon the following decisions:

CIT vs Samir Synthetics Mill 326 ITR 410 (Guj)

CIT vs President Industries 258 ITR 654 (Guj)

CIT vs Friends Bruquiettes Industries 155 Taxman 165 (All)

8. The ld. DR, on the other hand, relied upon the order of the assessing officer and submitted that the assessing officer has made the addition on the basis of facts and material collected during the course of survey. A statement was also recorded during the course of survey which has been considered by the assessing officer before making the addition. The ld. DR submitted that as per the physical stock found during the course of survey and after considering the stock lying in the depots and in transit the assessing officer has rightly calculated excess stock difference of Rs. 36,436 bags valued at Rs. 37,31,985. The ld.DR submitted that the CIT(A) has wrongly deleted the addition.

 9. We have heard the learned representatives of the parties, record perused. It is case of survey under section 1 33A of the Act. The objects for conducting survey are –

I) Whether the persons carrying on business maintain regular books of account or whether they prepare account books at the end of the year for the purpose of filing the return;

II) Whether they make correct entries in their books of account;

III) Whether cash in hand and stock- in-trade tally with the entries in the account books;

IV) Whether their documents are indicating unaccounted purchases and sales etc.;

V) Whether there exist other valuable articles or things connected with business which are not disclosed in books of accounts.

 9.1 As stated above that survey is undertaken to check the stocks also. For checking all types of stock, raw-material, finished goods and semi ­finished goods, some exercise of calculation as per normal method of MATHEMATICAL calculation and accounting principles is required. The survey team should take physical stock of all items lying at all places, factory, go down, store, depot and others, a list of such goods showing quantity as well as value of the stock is required to be prepared. The said list of goods is required to be compared with the goods recorded in books of account and a stock register. If any difference is found between the physical stock list and books of account, necessary explanation is required to be obtained from the assessee. And after considering the explanation of the assessee, still any difference is found, Same is required to be considered for the purpose of calculation of unaccounted income and investment in stock. It is pertinent to note that two things are important in respect of calculation of unaccounted income or investment. First thing is that the list prepared after physical verification of the goods must be true and correct and there should not be any lapses or defects in preparation of the list. Secondly, the stock recorded in books of account and stock register was updated and quantity/value properly recorded in the books of account as per the regular method followed by the assessee. In the case of either of the thing is not correct, under that circumstances, it is very difficult to say that difference is unaccounted income/investment because in that case actual position of goods can be ascertained. There can be only presumption by taking help of that incomplete list of the stock regarding income / investment in stock.

9.2 In the light of above discussions if we considered the facts of the case under consideration we find that stock found physically at factory premises was rs. 1,50,741 bags valuing Rs. 93,37,510 whereas the stock as per stock register maintained at factory premises was Rs.1,62,435 bags valuing Rs. 98,92,735. A physical stock of 11,694 bags was found short of which value was Rs. 5,55,225. The assessing officer mixed up this shortage of 11,694 bags found during the course of survey in the factory premises and stock lying with depots and in transit of 48,130 bags amounting to Rs. 42,87,210 and after giving set off of this shortage, the assessing officer calculated difference of excess stock of 36,436 bags amounting to Rs .37,31,985. Another important fact of this case is that in reply to question NO. 40 Shri Ashok C Parikh has clearly stated in his reply to question No. 40 that he was unable offer any explanation regarding the balance stock except 48130 bags lying in depot and in transit. The CIT(A) observed that the assessing officer has twisted the meaning of the statement of Shri Ashok Parekh and recorded some crucial facts that depots of the assessee were neither surveyed nor books of account maintained at depot were examined during the course of survey. There is no material on record nor has been pointed out during the course of hearing that during survey, the physical stock lying at the depots of the assessee were physically checked and calculated the physical stock and compared the same with the books of account maintained at depot by the assessee. In absence of such exercise in respect of physical verification of the stock any difference noticed is merely presumption and cannot said to be actual position of the stock. As discussed above that after exercising such procedure, excess or shortage of the stocks can be determined. The amount of income/investment in such excess stock calculated can be said to be income/ invested in stocks out of the books and that type of addition is only warranted. In the case under consideration facts are very clear that that during the course of survey, the above type of exercise, i.e. physical verification of stock lying at depots and books of maintained at the depots were not examined, under the circumstances, it cannot be held that there was actual excess or shortage of stock. In absence of such finding addition is not warranted.

9.3 Now the question remains to be seen here is the stock of the factory, where the physical verification has been carried out as discussed above and a shortage of 11,694 bags was found of which value is Rs. 5,55,225. These facts show that either there is a loss of goods in process or has been sold out of the books. If the goods have been sold out of the books, then in such cases only profit can be added to the income of the assessee and not the gross amount. The contention of the ld. AR that such shortage is on account of normal process of goods as salt is packed in polythene bags and is stored in the open plot which is bound to be damaged while handling The ld.AR pointed out that such shortage is only 0.575% of total production and such loss is not unreasonable considering the nature of goods / salt manufactured by the assessee. This contention of the ld. AR is acceptable because at the time of survey no incriminating document or other material were found which would show that the assessee has sold the goods out of the books of account. Therefore, such contention of the assessee cannot be put aside . We, therefore, find that the CIT(A) has rightly deleted the addition made by the assessing officer. However, the CIT(A) is not correct in sustaining addition which is on account of shortage of physical stock as per discussion made above. We, therefore order deletion of Rs. 5,5 5,225 sustained by the CIT(A) on this account.

10. The CIT Enhanced the addition by making addition on account of finished stock of raw salt 1325 M.T. valuing Rs. 2,97,675. The addition is also not sustainable as in case of finished goods or raw material of salt found the addition cannot be made for the gross amount. In case of deficiency in raw material, stock, if any, the income which is generated by such shortage of raw material can be added. But it is to be noted that the assessing officer did not make any addition on this account and the submission of the assessee that the assessee has furnished the necessary explanation and details which were found satisfactory by the assessing officer, therefore, no addition was made. The CIT(A) made the addition merely on the basis of difference in calculation without examining any details. Even otherwise, the addition of deficiency/ shortage in raw salt / raw material cannot be made as discussed above. We, therefore, delete the addition of Rs. 2,97,675 made by the CIT(A). As a result sole ground of the assessee is allowed and ground No.3 of the revenue is rejected.

11. Now we come to the other grounds of appeal raised by the revenue in its appeal. The first ground is in respect of deletion of addition of Rs. 19,36,064 u/s 40A(2)(b) of the Act. The brief facts of this ground are that the assessee company has purchased raw salt from associate concerns Dungarshi Salt Works Pvt. Ltd. and from other concerns also. The assessing officer was of the view that average purchase rate in case of associate concern in terms of section 40A(2)(b) of the Act is more than purchases from outside concern. The relevant findings of the assessing officer reproduced by the CIT(A) in his order on pages 2 & 3 are as under:

“The assessee had purchased total raw salt of 204999.97 Metric ton out of which 26800.445 Metric ton was purchased from sister concerns. Total payment of Rs. 4,35,03,682/- is made by the assessee, out of which, payment of Rs. 73,70,387 is made to sister concerns. Hence, details of payment and rates are summarised as under:

Description Quantity Amount Rate
(MT)

(Rs.)

(Rs./MT)
Total purchase 204999.970 43503682 212.21
Sister concerns 26800.445 7370387 275.01
Outside concerns 178199.525 36133295 202.77

Hence, it is seen that purchase from sister concerns is 13.07% of total purchases in terms of quantity, however, the same is 16.94% of total purchases in terms of amount. Average rate of purchase from sister concerns is 35.63% higher as compared to average rate of purchase of outside concerns. Moreover, average rate of purchase from sister concerns is 25.59% higher than overall average rate of purchase. Hence it is seen that rate of purchase from sister concerns is much higher than average rate of purchase from outside parties.”

After considering assessee’s submission the assessing officer made addition of Rs.19,36,064 u/s 40A(2)(b) of the Act.

12. The CIT(A) examined the issue in details and found that the assessee had demonstrated his case by furnishing the complete details of purchase. On perusal of the details the CIT(A) found that the purchasing rate in the month of June from Arihant Salt Industries was Rs.102 per M.T. and from the same concern the salt in subsequent month have been purchased @ Rs.235 per M.T. Similarly from Dungarshi Salt Works Ltd the purchase rate varied from Rs. 225 per M.T. to Rs.335 per M.T. The CIT(A) found that similar was the case of other concerns, viz. Narayan Salt Industries Rs. 160 to Rs.225; Raj Industries Rs.201 to Rs.225; Shivkrupa Salt Rs. 201 to Rs. 294 and Udit Trading Rs. 232 to Rs.295. The CIT(A) observed that the figure itself is fixed that there is variation in the quality which has not been proved by the description given in the invoices. It is also observed by the CIT(A) that there is variation in the quality of salt though all the raw salt purchased come to common pool out of which the finished salt is manufactured has to be accepted that it was not able to furnish any specific evidence. The CIT(A) also examined the issue from the point of view that the expenditure is not excessive or unreasonable having regard to the fair market value of goods, services or facilities for which the payment is made. The CIT(A) found that the rate at which the associate concerns, viz. Dungarshi Salt Works Pvt Ltd has sold salt to the assessee are comparabl with the rates of sale to other parties, on the same day i.e. on 06-07-2001. The said company sold common salt at Rs.250 per MT to the assessee company under bill NO.66 dated 06-07-2001 and on the same day that company sold common salt at Rs.260 per M.T. to unconnected party, M/s Kesri Industries under bill No.68. The CIT(A) also quoted another bill No.121 dated 05th December, 2001 and bill No.117 dated 05th December, 2001 and found that the assessee had demonstrated that goods were purchased from the associate concern by the assessee at market rate. The CIT(A) held that the facts of the case clearly proved that the assessing officer did not appreciate the full facts of the case and has wrongly alleged that the expenditure is excessive or unreasonable having regard to the fair market value. The CIT(A) also examined the issue from the point of view of tax paid by associate concern and noted that Dungarshi Salt Works Pvt Ltd is assessed to tax and has paid tax for the year under consideration. Another concern, M/s Laxmi Trading has also paid taxes whereas the assessees has incurred heavy losses for the year under consideration as well as have substantial carry forward loss. So the intention is not to avoid payment of legitimate tax.

13. The ld.DR relied upon the order of the assessing officer and submitted that the assessing officer made the addition on the basis of facts as observed from the books of account. The explanation given by the assessee was general in nature. The assessing officer found that the assessee has followed the provisions of section 40A(2)(b) of the Act. The ld.DR submitted that the CIT(A) without appreciating the facts noted by the assessing officer has deleted the addition.

14. The ld.AR, on the other hand, submitted that the assessee has purchased the raw salt ranging from Rs. 102 to Rs. 334 per M.T. depending upon various factors like quality, market condition, season, etc. The ld.AR submitted that the assessing officer observed that average cost of purchases was Rs.212.21 per MT whereas the average cost paid to sister concern is Rs.275.01 per M.T. However, during the assessment proceedings the assessee furnished the details to demonstrate that purchases from outside parties were at Rs.330 per M.T. The ld.AR relied upon the order of CIT. While referring to the judgement of the Honourable jurisdictional High Court in the case of Whole time Transformers Pvt Ltd vs CIT 129 ITR 104 (Guj) wherein the Court followed a principle that the assessing officer is expected to exercise his jurisdiction in a reasonable and fair manner. It should be borne in mind that the provisions is made to check evasion of tax through excessive or unreasonable payment to relative and associate concerns and should not be applied in a manner which will cause hardship to bona fide cases.
15. We have heard the learned representatives of the parties, record perused. We find that before deleting the addition the CIT(A) has examined the issue from various angles and found that addition u/s 40A(2)(b) cannot be made as there was no material found on the basis of which it can be said that the assessee has made excessive or unreasonable payments having regard to the fair market value of the goods to associate concerns. The assessee has demonstrated this aspect and the CIT(A) in detailed discussion recorded the fact that expenditure was neither excessive or unreasonable having regard to the fair market value of the goods. Since there is no violation of section 40A(2)(b) we do not find any infirmity in the order of the CIT(A) in deleting the addition.

16. Ground No. 2 of appeal of revenue is in respect of deletion of addition of Rs.7,01,1 19 on account of excess stock of packing material. During the course of survey at factory premises empty bags and empty pouches numbers 1,02,98,914 were found against the book stock of 83,39,051. There was excess stock of packing material of 19,59,863 pouches valuing Rs.7,01,1 19. In the statement, Shri Ashok Parekh, director of the company while answering question No.3 9 stated that packing material of outside parties for which the assessee is doing job work were also at the factory premises. Therefore, the same were not recorded in the books of account. However, the assessing officer did not accept the assessee’s contention. He made the addition of Rs. 7,01,119. The CIT(A) deleted the said addition by observing that during the course of survey itself Shri Ashok Parekh has stated that stock of outside parties was laying in his premises which were not recorded in the books of account. During the assessment proceedings, the assessing officer did not raise any question about this issue. Before the CIT(A) the assessee submitted the details of packing material pertaining to Kargil India Pvt Ltd and in support it contended that it has maintained complete record of pouches received in connection with job work and therefore consumption in job work. A statement showing details were also furnished which explained the difference of stock of Rs. 19,59,860. The CIT(A) examined the said statement and noticed that there was still an excess stock of Rs. 10,683 empty pouches. However, the CIT (A) deleted the entire addition observing that the difference is negligible.

17. The ld. DR reiterated the submissions which were made in respect of addition made on account of excess stock in ground No. 3 of revenue’s appeal and ground No. 1 of assessee’s appeal. The ld. DR submitted that the addition was made on the basis of material found at the time of survey. The CIT(A) without appreciating the facts has deleted the addition.
18. The ld.AR, on the other hand, relied upon the order of CIT(A) and submitted that the assessing officer without appreciating the fact that the material belonged to third party lying in the factory of the assessee was included in the inventory. During the course of survey vide reply to question No. 39 the assessee explained that they are carrying on the job work of M/s Kargil India Pvt Ltd who supplied the packing material which were kept in the premises of the assessee. The ld.AR submitted that the CIT(A) has deleted the addition after considering the details of reconciliation filed by the assessee.

19. We have heard the learned representative of the parties, perused the record. We find that during the course of survey itself the assessee submitted that some of the raw material is in respect of the job work carried out by the assessee for third parties which were not included in their stock. The assessee has demonstrated this aspect by submitting the details and reconciliation. This has been recorded by the CIT(A) in his order. There is no contrary material neither on record nor has been pointed out. In the light of the fact we do not find any infirmity in the order of the CIT(A). The order of CIT(A) is confirmed.

20. Ground No.4 of appeal of revenue is in respect of excess depreciation of Rs. 5,16,090. The brief facts of this issue is that during the assessment proceedings the assessing officer noticed that the assessee ha reduced amount of fixed assets from cost of building Rs. 15,60,000 and cost of plant and machinery Rs. 14,40,000 totalling Rs. 30 lakhs. The assessing officer asked the assessee to explain why Rs. 30 lakhs is reduced from cost of machines whereas the subsidy of Rs. 60 lakhs was sanctioned. The assessee submitted that though the State Government has sanctioned subsidy of Rs. 60 lakhs but the assessee has received only subsidy of Rs. 30 lakhs. Rs. 41.98 lakhs in the year under consideration and rs. 1.198 lakhs in the subsequent year which have been accounted for on the basis of actual receipt in respective assessment year. It was submitted by the assessee that as per paragraph 13 of AS-12 accounting for government grants the government grant should not be recognised until there is a reasonable assurance that the grant will be received. Accordingly subsidy was accounted for on actual receipt basis. The assessing officer did not accept the assessee’s submission and reduced the cost of the assets and made addition of Rs. 5,16,090 on account of recalculation of depreciation claim. The CIT(A) accepted the assessee’s contention and deleted the addition.
21. We have heard the learned representatives of the parties. We find that the assessee has followed a particular system of accounting which is in accordance with AS-12 issued by Institute of Chartered Accountants of India. The assessee has followed the system of accounting to reduce the value of assets on actual receipt of subsidy and claimed the depreciation accordingly. The subsidy which has not been received cannot be reduced. The subsidy of Rs.1 1,98,000 was received in succeeding year and accordingly the written down value was reduced in respective year. In the light of above discussion we do not find any infirmity in the order of CIT(A).

22. In the result, appeal filed by the assessee is allowed and appeal filed by the revenue is dismissed.

Order pronounced in the open court on 13-05-2011.

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