Commissioner of Income - Tax vs India Fruits (P.) Ltd.

P. Venkatarama Reddi, J.—The revenue seeks reference of the following two questions in this application u/s 256(2) of the income tax Act : 1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that there is nothing erroneous or illegal in the system of accounting followed by the assessee in respect of the scrap/waste generated in the manufacturing process ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessee-company is entitled to include the CCS also for the purpose of calculation of 20 per cent profits of business even if it is established as a revenue receipt ?

As far as the first question is concerned, we do not think that any arguable point of law arises for consideration. The system of accounting, as far as the scrap is concerned, was being accepted by the department for several years and the system of valuation of closing stocks of scrap was also accepted by the Tribunal for earlier years. 2. As regards the second question (cash compensatory support), the Tribunal was purported to have followed the decision in Commissioner of Income Tax Vs. Maddi Venkataratnam and Co. (P.) Ltd., . But the learned standing counsel submits that the said decision is distinguishable and does not resolve the controversy. The question whether the amount of Rs. 9 lakhs deposited with the IDBI is deductible u/s 32A & B of the income tax Act seems to be a debatable question. The learned counsel for the respondent, however, submits that in the light of the amendment of section 28 with retrospective effect, the controversy does not survive for consideration. The same is disputed by the learned standing counsel. The Tribunal has not adverted to the amendment. The impact and applicability of the amendment as regards section 32A and 32B is a point to be decided by the High Court, according to the learned standing counsel. Keeping in view the nature of controversy, hence, a question of law arises out of the order of ITAT. We consider it a fit case to direct reference of the second question for the decision of the High Court.

Accordingly, the ITC is partly allowed.