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2013 (6) TMI 480 - ITAT JAIPURAddition on account of gross profit rate by applying the provision of Section 145(3) - Held that:- Non-maintenance of proper stock register and production register as well as the records showing monthwise consumption of fuel and power is certainly the defects in the books of account maintained by the assessee and therefore, in our view the AO was justified in rejecting the books of account by invoking the provision of Section 145(3). Applying of higher gross profit rate - Held that:- In the case where the correct results of the activity of the assessee cannot be ascertained from the books of account due to certain defects then the only option left with the AO is to adopt the reasonable gross profit rate. In view of the facts and circumstances of the case, average gross profit rate for earlier years shall be taken as gross profit rate for the year under consideration instead of adopting the highest gross profit rate amongst earlier years. AO is directed to take average of gross profit rate of earlier years which was accepted by the Revenue. Disallowance u/s 40A(2)(b) - Held that:- Bank rate cannot be applied in the case of loan taken from related parties because of the reason that in case of bank loan, the assessee has to furnish guarantee as well as security whereas in the case of loan taken from related parties, the guarantee and physical security are not required. Accordingly, there is a difference in the rate of interest when the loan is taken without guarantee or security. Thus the interest on the loan taken from relatives which is without guarantee and security as against bank loan is always higher and therefore, the reasonable rate of interest in such a case is justified @ 18%. Accordingly direct the AO to apply the fair market rate of interest at 18% while applying the provision of Section 40A(2)(b). Disallowance of depreciation on subsidy account - CIT(A) has confirmed the addition made by the AO - Held that:- The subsidy was granted by the State Govt. to the assessee towards the eligible fix capital investment of the proposed unit of the assessee. Even otherwise, the calculation of the subsidy is based on the cost of the plant and machinery which clearly suggests that object and scheme of subsidy was to promote capital investment and accordingly the subsidy amount was dependent on the amount of investment made by the assessee in purchase of plant and machinery. Thus it is evident that there is a clear nexus between subsidy received by the assessee and investment made in the plant and machinery. Order of the CIT(A) is upheld on this issue. Disallowance on account of various expenses - Held that:- Since the assessee has not maintained proper records with respect to the expenses of telephone and usage of vehicle, therefore, the personal use of telephone as well as vehicle cannot be ruled out because the assessee is not having separate private vehicle. Further since certain expense are claimed to be made in cash and supported by self prepared vouchers, therefore, adhoc disallowance of 10% made by the authorities below on this account is also justified. Appeals of the assessee partly allowed.
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