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2019 (10) TMI 773 - AT - Income TaxRejection of books of account and estimation of gross profit - HELD THAT:- In the present case, basis of rejection of rejection of accounts by the Assessing Officer was totally erroneous and uncalled for. The Assessing Officer has not given any reason which would fall within the four corners of the ingredients as stipulated u/s. 145 (3) of the Act. Basis of making the addition on the basis of G.P. is also unsustainable, as making the GP addition on the basis of earlier year or future year is not called for when the rejection of books of account was found to be unsustainable. As in the present case, we do not agree with the finding of the lower authorities with respect to the rejection of books of account and in consequence thereof, we have no hesitation to hold that the GP rate of 16% is also erroneous and liable to be set aside. We may further mention that in the similar circumstances, the remand report was submitted by the Assessing Officer for the assessment year 2012-13 and the ld. CIT(A) had deleted the addition of ₹ 82.68 crores based on the remand report of the Assessing Officer. Books of Accounts maintained in regular course of business cannot be rejected unless there are strong and sufficient reasons to indicate that they are unreliable. In the present case, basis of rejection of rejection of accounts by the Assessing Officer was totally erroneous and uncalled for. The Assessing Officer has not given any reason which would fall within the four corners of the ingredients as stipulated u/s. 145 (3) of the Act. Basis of making the addition on the basis of G.P. is also unsustainable, as making the GP addition on the basis of earlier year or future year is not called for when the rejection of books of account was found to be unsustainable. As in the present case, we do not agree with the finding of the lower authorities with respect to the rejection of books of account and in consequence thereof, we have no hesitation to hold that the GP rate of 16% is also erroneous and liable to be set aside. We may further mention that in the similar circumstances, the remand report was submitted by the Assessing Officer for the assessment year 2012-13 and the ld. CIT(A) had deleted the addition of ₹ 82.68 crores based on the remand report of the Assessing Officer. Books of Accounts maintained in regular course of business cannot be rejected unless there are strong and sufficient reasons to indicate that they are unreliable. - Decided in favour of assessee. Disallowance of prior period expenses - HELD THAT:- Income and expenditure are required to be taxed in the year in which it was accrued and if the income is considered to be accrued in the year under consideration, may be relating to the prior period, then any expenditure laid out or expanded wholly and exclusively for the purpose of business is also required to be allowed in this year. In the present case, if we look into the computation of income, then it is clear that the assessee has not taken into account the prior period expenses in computation of income. As the assessee has not taken into account the prior period expenses for the purpose of computation of income, then there was no reason for the Assessing Officer to make disallowance of ₹ 13,52,866/-. In view of the above, the ground raised by the assessee is allowed, as there is no occasion for the Assessing Officer to disallow the same being not arising and forming part of the profit & loss account of the assessee. Notional rental income - rent was payable by GIL on account of machines let out by the assessee and the said machines were given to GIL after taking consent from the Financial Institution to whom the machines were hypothecated - HELD THAT:- When we look into the record, it is clear that the assessee has let out the machines on lease to GIL and the GIL was under legal obligation to pay yearly rent of ₹ 29.11 lacs. In our considered opinion, there is an obligation of GIL to pay rent to the assessee in terms of lease agreement and further it was under obligation to return back the assets leased to it by the assessee. Further the GIL while entering into amicable settlement had paid an amount of ₹ 2.60 crores towards the value of machines as well as for pending rent which clearly shows that the rental income of the assessee was not a hypothetical or imaginary income, but had accrued on account of use of industrial plant by GIL . Therefore, there was no error in the orders of the authorities below. Disallowance of claim of deferred revenue expenses in respect of payment made to financial institution on restructuring of loans - AO considered the disallowance on the ground that deferred revenue expenses are only allowable in terms of provisions of section 35D and the payment made to financial institution is covered u/s 43B - HELD THAT:- It is an undisputed fact that the identical claim of assessee, in the similar facts and circumstances of the case, has been accepted by the Revenue authorities since 2002- 03 onwards. There is no rebuttal of the fact stated by the assessee that the impugned deferred revenue expenses are relatable to expenses actually incurred and apportioned over the period of loan. In view of the above and following the rule of consistency, we are of the opinion that the ld. authorities below were not justified in disallowing the claim of the assessee. Accordingly, the disallowance made on this count is liable to be deleted.
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