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2017 (5) TMI 902 - AT - Income TaxG.P. determination - rejection of books of account - Held that:- The valuation of opening stock, closing stock is done on estimate by the assessee, which cannot be subjected to verification. In absence of production register, input output ratio can also not be worked out. The Assessing Officer has also noted that the assessee has not produced job work like printing, dyeing, washing, embroidery etc. The details of wastage were also not shown and was also not maintained and in view of these defects, the ld. CIT(A) had sustained the rejection of books of account. Therefore, agree with the findings of CIT(A) in respect of rejection of books of account. As far as estimation of the gross profit rate is concerned, the ld. CIT(A) has reduced it from 14% to 12% and the gross turnover of the assessee was accepted. It is pertinent to note that the comparative G.P. for the year under consideration was better than the earlier year. However, to cover the leakage of revenue on account of various defects noted in the books of account, hold that estimating lump sum addition of ₹ 80,000/- shall be reasonable and sufficient. Addition u/s 41(1) - cessation of liability in form of sundry creditors - Held that:- The assessee has not written of the amount in its books of account. The assessee has also not denied the payment of these amounts to these creditors. The genuineness of these creditors were not in doubt. Notices issued U/s 133(6) of the Act were not served on some creditors and some of them did not respond. Only four person responded negatively. The assessee requested the Assessing Officer to issue the summons U/s 131 of the Act, which he has not done. Heavy onus is on the revenue to establish that the liability shown in the books of account has been extinguished. The sickness of the assessee as well as dispute regarding the quality variation is also not in doubt. Therefore, direct to delete the balance of the amount as the revenue has failed to establish the liability in respect of these creditors. Disallowance of interest - Held that:- Assessee is having sufficient capital balance of ₹ 57,63,821.14/- to give loan of ₹ 3,06,000/-. The assessee’s own non-interest bearing funds were far in excess of the interest free advances given. Deduction claimed U/s 36(1)(iii) in respect of interest on its borrowings could not be declined. The Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd.(2009 (1) TMI 4 - BOMBAY HIGH COURT) has held that the presumption would arise that investment would be at of the interest free funds generated or available with assessee. Thus direct the Assessing Officer to delete the addition. This ground of the assessee’s appeal is allowed. Confirming the restricted disallowance @ 10% on depreciation - Held that:- Once the books of account have been rejected then no such ad hoc disallowance is called for. Further the Assessing Officer had not given any finding of personal use of conveyance, therefore, the personal use is not established. In view thereof, the ad hoc addition @ 10% sustain by the ld. CIT(A) is hereby deleted and this ground of appeal is allowed.
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