(a) Income-tax---

----Reference---Depreciation---Investment allowance---Actual-cost---Sub sidy---Tribunal was correct in holding that subsidy could not be deducted while computing actual cost of assets for purposes of depreciation and investment allowance ---No question of law arose---Indian Income Tax Act, 1961, Ss.32, 32A & 256.

Dismissing the application for reference (i) that the Tribunal was right in law in holding that the subsidy received should not be, deducted from the cost of assets for the purpose of allowing depreciation and investment allowance. No question of law arose from its order.

CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) fol.

(b) Income-tax---

----Reference---Income from undisclosed sources---Additions on ground that there was discrepancy in stock shown in books of account and in statement made to Bank---Finding by Tribunal that there was no suppression of stock-- Tribunal was justified in deleting additions---No question of law arose-- Indian Income Tax Act, 1961, S.256.

Tribunal noticed that the books of account had not been rejected by the Department as not representing the correct stock position. The Tribunal also found that the assessee had declared a higher quantity of closing stock to the bank, for the purpose of securing a loan. The Tribunal came to the conclusion that the closing stock declared in the return filed by the assessee was based on the books of account and it should be accepted rather than the closing stock as declared to the bank which was made for the purpose of securing a loan. The Tribunal was correct in deleting the addition of Rs.1,47,557 made by the Income-tax Officer to the income declared. No question of law arose from its order.

Coimbatore Spinning and Weaving Co. Ltd. v. CIT (1974) 95 ITR 375 (Mad.) and CIT v. Ramakrishna Mills (Coimbatore) Ltd. (1974) 93 ITR 49 (Mad.) ref.

C. V. Rajan for Petitioner.

R. Janakiraman for Respondent.

JUDGMENT

N. V. BALASUBRAMANIAN, J.---These are petitions filed by the Revenue under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), to direct the Income-tax Appellate Tribunal to state a case and refer the following questions of law:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the subsidy received should not be reduced from the cost of asset for the purpose of allowing depreciation and investment allowance?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in deleting the addition of Rs.1,47,557 made by the Income-tax Officer to the income declared?"

The assessment year involved is 1982-83.

In so far as the first question is concerned, Mr. C. V. Rajan, learned counsel .for the Revenue, stated that the issue raised in the said question is fully covered by the decision in CIT v. P. J. Chemicals Ltd. (1994) 210 ITR, 830 (SC) against the Revenue. The Supreme Court in that case has held that the Central subsidy received should not be reduced from the cost of assets for the purpose of allowing depreciation and investment allowance. Following the said decision of the Supreme Court, we are of the view that the first question sought for is not a referable question of law.

The facts leading to the second question are as under:

The assessee in his return filed for the assessment year 1982-83 had shown the closing stock as on June 30, 1981, at 30, 851 kgs. of cotton and finished goods, whereas it had declared the closing stock at 31,660 kgs. to the bank for the purpose of obtaining '.loan from it. The Assessing Officer noticed that there was a discrepancy in the stock shown in the books of account and in the declaration made for obtaining the loan from the bank and the declaration made to the bank would represent the value of the closing stock and he added the value of the discrepancy amounting to Rs.1,47,557 towards the gross profit declared by the assessee. The assessee preferred an appeal before the Deputy Commissioner (Appeals) against the addition made towards the gross profits. .The Deputy Commissioner (Appeals) held that the figures of stock as shown to the bank should be deemed to be correct, and the Income-tax Officer was justified in making an addition of the sum of Rs.1,47,557 towards the gross profit. In this view of the matter, he confirmed the addition made by the Income-tax Officer. The assessee preferred an appeal before the Income-tax Appellate Tribunal. The assessee, before the Appellate Tribunal, contended that its books of account have not been rejected and the stock position reflected in its accounts tallied with the statutorily maintained R G. register maintained for excise purposes and the stock declared in the return should be taken as the correct closing and not the stock declared to the bank for the purpose of obtaining loan. On the other hand, it was urged on behalf of the Revenue that the order of the Deputy Commissioner (Appeals) did not call for any interference. The Appellate Tribunal found that the assessee has been maintaining accounts and the accounts have not been rejected by the Department as not representing the correct stock position. The Appellate Tribunal, following the decision of this Court in the case of CIT v. Ramakrishna Mills (Coimbatore) Ltd. (1974) 93 ITR 49, held that the closing stock declared in the return, which is based on, the books of account of the assessee, should be taken into consideration for the purpose of ascertaining the correct closing stock and the consequent gross profit. Accordingly, it directed the deletion of Rs.1, 47, 5 57 added by the Assessing Officer towards the gross profit declared by the assessee.

The Revenue filed an application before the Appellate Tribunal with a request to state a case to this Court and refer the question of law as set out in question No.2 extracted above. The Tribunal held that its decision was based on the facts of the case and no referable question of law arises. Aggrieved, the Revenue has preferred these tax case petitions.

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that this Court in Coimbatore Spinning and Weaving Co. Ltd. v. CIT (1974) 95 ITR 375 has held that where an assessee had, in order to obtain higher loan facilities, inflated its stock figures in the statement given to the bank, that statement should be accepted and on the basis of the decision of this Court in the above said case; the view of the Appellate Tribunal that the stock declared to the bank should be ignored for the purpose of estimating the correct closing stock and the consequent gross profit, is not correct in law.

Mr. Janakiraman, learned counsel appearing for the assessee, submitted that the finding arrived at by the Tribunal is based on the facts of the case and as the finding is one of fact, no question of law arises out of the order of the Appellate Tribunal.

We have carefully considered the rival contentions. The Appellate Tribunal noticed that the book of account have not been rejected by the Department, as not representing the, correct stock position-. The Appellate Tribunal also found that the assessee had declared a higher quantity of closing stock to the bank for the purpose of securing the loan. The Appellate Tribunal has not rejected the contention urged on behalf of the assessee that the stock position reflected in the accounts tallied with the R. G. register. In view of the above factual settings, the Appellate Tribunal come to the conclusion that the closing stock declared in the return filed by the assessee was based on the books of account and, it should be accepted rather than the closing stock as declared to the bank which was made for the purpose of securing a loan.

Though in the enclosure fled before the Appellate Tribunal in the reference application, the Revenue has stated that the stock declaration to the bank was as per actual quantities and the further declaration was verified by the assessee itself, it is not clear on what basis the statement was made in the enclosure to the reference application. We do not have any material to show that the stock balance declared by the assessee to the bank was as per the actual quantities. There is finding by the Appellate Tribunal that the stock declared to the bank was based on actual quantity. It is further seen that there is no evidence to show that the bank actually verified the stock arid found it to tally with the stock declared to it by the assessee. Hence, we have to go only by the finding of the Appellate Tribunal to the effect that the crock declared by the assessee in its return is based on the books of account of the assessee and that the accounts of the assessee have not been rejected by the Department. In view of all these facts, the Appellate Tribunal has come to the correct conclusion in holding that the stock declared in the return filed by the assessee based on the books of account is correct. We are of the opinion that a finding on the question as to what is the correct quantum of closing stock is a pure question of fact and since the finding of the Tribunal was arrived at on the basis of the materials on record, we are of the opinion that referable question of law arises out of the order of the Appellate Tribunal for our consideration. Hence, we hold that the second question sought for is not a referable question of law.

In the result, we hold that both questions Nos. l and 2 are not referable, questions of law, and we reject the tax case petitions. No order as to costs.

M.B.A./4131/FC Petition rejected.