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2020 (2) TMI 316 - AT - Income TaxRejection of books of accounts u/s 145 - trading addition - HELD THAT:- CIT(A) has referred to non-maintenance of qualitative stock details, no separate rates for gold and diamond, non- reflection of work-in-progress and valuation of diamond in one of the export invoice. We find that each of these matters have been satisfactorily explained by the ld AR in his written submissions we have taken note above and hence, we are of the view that there is no justifiable basis for rejection of books of accounts in the instant case. In the result, the trading addition so made on rejection of books results is deleted and both the grounds are allowed. Disallowance of interest paid on secured loan taken from the HDFC Bank and disallowance of processing charges relating to bank loan - HELD THAT:- We find force in the arguments of the ld AR that where the assessee firm has charged interest from the family members and has not paid interest which it was supposed to pay on the opening credit balance in partners’ capital account which stay invested in the assessee’s firm throughout the year, the interest paid to the bank shall be offset from the said recovery of interest and there should not be any disallowance to extent of such recovery. Therefore, for the limited purposes of determining the interest paid to the bank and interest recovered from family members/interest saved on partner’s capital account for the period their opening capital remain invested and not withdrawn, the matter is remanded to the file of the Assessing officer who shall verify and allow set off of interest recovered from family members/interest saved on partner’s capital account from interest on bank loan and balance, if any of interest expense shall only be brought to tax. In the result, the ground is disposed off in light of above directions. Disallowance of loan processing fee paid to HDFC loan - As submitted by the ld AR that no such disallowance was made by the AO and the ld CIT(A) without issuing any show-cause as required u/s 251(2) has enhanced the income by disallowing the said claim of the assessee firm. From perusal of order of ld CIT(A) and material on record, we find that no such show-cause was issued by the assessee firm and being a mandatory requirement u/s 251(2) before any enhancement being made by the ld CIT(A), the same cannot be dispensed with and in absence thereof, the addition so made by the ld CIT(A) is directed to be deleted. In the result, the ground of appeal is allowed. Disallowance of rent on showroom premises - HELD THAT:- The question is where there is no dispute that the rent payment has been made by the assessee firm for taking on rent premises for setting up a new showroom and thereby, expanding its existing business, can the same be allowed in the year the premises are ready to be used. Given that in the instant case, the assessee has also incurred expenditure on fit-outs/improvements on such leased premises, and has accumulated and shown the same under the head “work-in-progress”, drawing similar analogy, we are of the view that rent payment, pertaining to the period the premises are not ready to be used, can be accumulated and the same can be claimed and will be allowed in the year in which the premises were ready to be used i.e, next assessment year 2014-15. The ground of appeal is disposed off in light of aforesaid directions. Unexplained cash credit u/s 68 - HELD THAT:- There is no dispute on the proposition that where the cash so deposited represent the cash sales made by the assessee firm and such cash sales are duly recorded in the books of accounts, no addition can be made in the hands of the assessee firm. However, such a claim need to be substantiated by the assessee firm and to be verified by the Assessing officer. In this regard, we find that source of cash deposits of ₹ 13,77,000 on the specific dates were submitted along with cash book and sale bills for verification during the assessment proceedings as we have noted in para 36 above and however, there doesn’t seem to be any specific finding by the Assessing officer. We therefore deem it appropriate to set-aside the matter to the file of the AO for the limited purposes of verification of source of cash deposits of ₹ 13,77,000 as submitted by the assessee firm as we have noted and where the same is found to be in order, allow the necessary relief to the assessee firm Disallowance of interest - assessee had taken unsecured loans from the family members of the partners in the earlier years and paying interest @ 15% on the same - AO made the addition of entire amount of interest paid to family members holding that the borrowings have not been used for business purpose - HELD THAT:- Fresh borrowing during the year from HDFC bank has been utilized for advancing to the partners and the family members and there is thus a direct nexus which has been established between the said borrowing and advancing the funds to the family members and has no nexus with the past borrowings. Further, the assessee has contended that the borrowing from family members being unsecured as compared to bank borrowings which was claimed to be taken on collateral of personal property of the partners and family members and thus carries a differential rate of interest. We find that the internal comparable relied upon by the Revenue is not appropriate given the qualitative difference in the two loan transactions and it would have been appropriate to compare the related party transaction with an independent third party transaction carrying the same qualitative unsecured loan parameters. In absence of the same, the addition so sustained by the ld CIT(A) is hereby directed to be deleted.
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