2013 (8) TMI 998 - AT - Income Tax

Addition made on account of difference in stock admitted during survey and declared in profit and loss account - Held that - There is uncontroverted finding in the impugned order that the learned CIT(A) duly verified different silver accounts which were submitted by the assessee during survey and the Assessing Officer overlooked the stock of silver/silver ornaments copies of which were made available at the time of survey. The correct excess stock of silver was 71.295 kms valued at Rs. 7, 40, 515/- which was offered by the assessee in its profit and loss account. We are also in agreement with the finding of the learned CIT(A) that so far as the shortage in gold ornaments is concerned only profit embedded in the sale can be taken as income of the assessee. There is further uncontroverted finding that correct difference of income has been offered by the assessee in its profit and loss account. In view of these facts we find no infirmity in the conclusion drawn in the impugned order. It is affirmed. Disallowance made on account of interest expenses - Held that - There is uncontroverted finding in the impugned order that the same rate of interest was paid by the assessee in last year and no such disallowance was made. Even otherwise unless and until corroborative material is brought on record it is not expected from the Assessing Officer to conclude that the interest rate of 15% was too high. At the same time the interest rate on secured loan from banks cannot be compared with interest rate on unsecured loan. The businessman knows his interest best. The Assessing Officer is not expected to sit in the chair of the businessman and decide the reasonableness of rate of interest that too without bringing any corroborative material on record. In view of these facts on this ground also we find no justification to interfere with the conclusion drawn by the learned CIT(A)

Summary

Issues:
1. Addition of Rs. 12,57,128 on account of difference in stock
2. Deletion of disallowance of Rs. 2,74,779 made on interest expenses

Issue 1: Addition of Rs. 12,57,128 on account of difference in stock:
The Revenue challenged the order deleting the addition of Rs. 12,57,128 based on the difference in stock admitted during survey and declared in the profit and loss account. The Revenue contended that the assessee accepted undisclosed income due to a shortage of gold ornaments and excess stock of silver. The Assessing Officer did not accept the plea of the assessee, leading to the impugned addition. However, on appeal, the CIT(A) found that the assessee disclosed the correct difference in income in the profit and loss account. The CIT(A) verified the stock of silver overlooked by the Assessing Officer during the survey, leading to the conclusion that the addition was unwarranted. The Tribunal upheld the CIT(A)'s decision, affirming no infirmity in the conclusion drawn in the impugned order.

Issue 2: Deletion of disallowance of Rs. 2,74,779 made on interest expenses:
The disallowance of Rs. 2,74,779 on interest expenses was challenged by the Revenue. The Assessing Officer disallowed the amount as excessive interest paid to specified persons under section 40A(2)(b). However, the CIT(A) found that the borrowed funds were used for the business, and the interest rate of 15% was reasonable based on past practices and market rates. The Tribunal agreed with the CIT(A) that the Assessing Officer failed to provide corroborative material to conclude the interest rate was too high. It was noted that the interest rate on secured loans cannot be compared with unsecured loans, and the businessman's decision on interest rates should be respected. The Tribunal upheld the CIT(A)'s decision, finding no justification to interfere.

In conclusion, the Tribunal dismissed the Revenue's appeal on both issues, upholding the CIT(A)'s decisions.