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2015 (10) TMI 2421 - AT - Income TaxDisallowance of total contract expenses - rejection of books of account of the assessee - CIT(A) allowed part relief - Held that:- The assessee has shown total turnover during the year at ₹ 14.71 crores on which net profit has been shown @ 5.02%, which was ₹ 27.98 crores and net profit rate @ 5.77% in immediate preceding year. The assessee claimed that he produced the books of account but the Assessing Officer was not available in the office but books were examined by the Inspector on behalf of the Assessing Officer. The ld Assessing Officer applied Section 145(3) and rejected the book result on the ground that required details of contract expense were not submitted before him. Therefore, we confirm the order of rejection U/s 145(3), which has not been challenged by the assessee. However, estimate made by the ld Assessing Officer and confirmed by the ld CIT(A) is higher side, which would give net profit rate of 12.84% before depreciation, which is not possible in contract business. It is also fact that required details of contract expenses were not submitted before the Assessing Officer and net profit has declined for which the assessee explained that price has gone up. He also referred the cost of inflation index for this purpose, which supports the assessee’s claim. The lower authorities also have not compared the case with other assessee’s for estimating the NP rate, therefore, in the interest of justice, we apply N.P. rate @ 5.1% on turnover of ₹ 14,71,70,861/- and remaining addition is deleted. The Assessing Officer is directed to calculate the income as per the above finding. - Decided in favour of assessee partly. Disallowance of interest and bank charges - Held that:- As decided in Ganesh Chawala Vs. Income Tax Officer [2008 (5) TMI 651 - ITAT JAIPUR] is squarely applicable wherein it has been held that the assessee having purchased properties in the preceding years out of interest-free funds, no disallowance of interest having been made in those years and there being no material on record to show that loans raised for business purposes were utilised in purchasing properties in personal name of the assessee and therefore, AO was not justified in disallowing interest The facts and circumstances of the case are identical to the case of Ganesh Chawala Vs. Income Tax Officer (supra). There was also fact that netting of interest is positive, therefore, no disallowance can be made by the Assessing Officer without establishing the direct nexus with interest bearing borrowings to immovable properties purchased. The assessee’s capital was ₹ 2,81,21,267/- is more than investment made in immovable property at ₹ 1,54,71,217/-, therefore, the ld CIT(A) was not right in confirming the addition on account of interest at ₹ 17,48,663/-. Accordingly, we reverse the order of the ld CIT(A) and allowed the assessee’s appeal on this ground. - Decided in favour of assessee.
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