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2015 (11) TMI 1673 - AT - Income TaxAddition of trading result - assessee has not maintained stock register and the entire purchase and sale bills were not produced - Held that:- AO looking to the huge volume of bills and details could have asked for purchase and sale bills on test check basis i.e., on sample basis to tally as per the entries in the books of accounts, which he has not done; secondly, the AO has applied the Gross Profit Rate of 25% without considering the assessee’s past history or any other material or comparability; before the CIT(A) and before us, it has been submitted that the gross profit ratio was 19.99% as compared to 18% in the earlier years and overall net profit has also increased. Thus, there may not be any prima facie inference that assessee’s profit is not in commensurate with the earlier years’ so as to doubt the correctness of the profit shown by the assessee; and lastly, the manner in which the AO has worked out the gross profit on the basis of selected samples is also not a correct approach and if going by the trading result and gross profit of various items, it can be very well held that assessee’s profit and trading results are much better this year, hence, the observation and the finding of the CIT(A) cannot be deviated from and accordingly, the same is affirmed - Decided against revenue Disallowance of commission - Held that:- AO has made an ad-hoc disallowance on this score on the ground that firstly, there is enhancement of rate of commission from 2.5% to the rate of 3.25%; secondly, some of the commission agents are also the relatives of the assessee. Such a basis drawn by the AO for making the disallowance cannot be sustained for the reason that, the Ld. CIT(A) has clarified that overall rate of commission paid is @ 3% on the total turnover and not 3.25% and the commission has been paid uniformly to all the parties including the relatives. Out of 11 party, only 2 are relatives, therefore, it cannot be held that any unreasonable payment have been made to the relatives as compared to the outsiders. Such an ad-hoc disallowance of payment of commission made by the AO cannot be sustained. Disallowance as part of interest claimed - Held that:- The reason given by the CIT(A) for deleting the disallowance of interest is absolutely correct, because the rate of interest paid by the assessee on unsecured loan during the year @ 12% is still quite less as compared to the interest paid to the bank @13.25% which was on hypothecation of stocks. Thus, the reasoning of the CIT(A) on this score is affirmed. Addition u/s 40(a)(ia) - retrospectivity - Held that:- We find that out of disallowance of ₹ 21,95,605/- the same has been reduced to ₹ 9,43,446/- on the ground that in the case, five such party’s the income was above taxable limit. Before us, the Ld. Counsel made a statement that these recipient have included the said amount on interest in the return of income, therefore, such a disallowance cannot be made in view of the newly inserted Proviso to section 40(a)(ia) w.e.f. 1.4.2013. The Hon’ble Delhi High Court in the case of Landmark Townships Pvt Ltd (2015 (9) TMI 79 - DELHI HIGH COURT) has held that such a Proviso has to be given retrospective effect. Thus, respectfully following the decision of Delhi High Court, we hold that in case recipients have included ‘interest income’ in their return of income then ‘no disallowance should be made’. Accordingly, we direct the AO to verify the contention of the assessee and give consequential relief. Accordingly, ground raised by the assessee is treated as partly allowed.
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