TMI Blog2012 (12) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing true profits being essentially a matter of fact - even the feasibility of maintenance of the stock record/s is again a question of fact, and which we have found as so in the instant case.- We, therefore, uphold the invocation of the provision of sec. 145(3) of the Act by the Revenue in the instant case, and concomitantly proceeding to estimate the assessee’s trading results. - Decided against the assessee. Disallowance u/s. 36(1)(iii) of the Act - disallowance is on account of a loan given by the assessee to M/s. M.P. Food Products on interest-free basis – Held that:- M/s. M.P. Food Products, is not the assessee’s sister concern; the same being a proprietary concern of Shri Devendra Agarwal, the assessee's grand-son, and in a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first issue is qua trading addition pressed vide Ground No. 1. The assessee, an individual, is a whole-sale dealer in cloth. The book results disclosed a gross profit (G.P.) rate of 4.47% on a turnover of Rs. 472.05 lacs, as against a G.P. rate of 4.46% for the immediately preceding year, even as the turnover had witnessed an increase by Rs. 27.29 lacs. The assessee was found to be not maintaining any stock register. Further, no inventory of closing stock, i.e., as obtaining as at the year-end, was furnished. The Assessing Officer (AO) found the book results as not verifiable from the books of account as maintained by the assessee. To further examine the veracity of the declared G.P. rate, he picked up five bills, which revealed a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock register fulfills. The stock record is a vital component of the assessee's books of account; in the absence of which it is not possible to deduce the correct profits there-from. How would assessee then place reliance on its books of account for determining its profits? There is no law that the books of account cannot be rejected in the absence of a stock register. True, there is equally no law that the book results are to be necessarily rejected in its absence; the finding of whether the books as maintained could be relied upon for deducing true profits being essentially a matter of fact [refer: CIT vs. Uttam Chuma Pattar Udyog, 116 Taxman 524 (Raj.)]. In fact, even the feasibility of maintenance of the stock record/s is again a q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me bills is false; we having already clarified that the actual g.p. rate based on these bills, which we, in the absence of any charge, presume to be at random, to be at 6.61% and, in fact, higher - in the range of 7% to 8%, if the actual, weighted results were to be adopted. As regards the details being now submitted by the assessee, the same firstly are not a part of the record, for us to consider the same. The written submissions are for presenting the arguments and not the facts, which, unless disputed, are to be on the basis of the material on record. Even so, the zero or no profit no loss result would understandably arise only in exceptional transactions, and cannot be considered as a normal circumstance. The same, even its ratio hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the party before us, and perused the material on record. The matter is again purely factual, i.e., whether the assessee's borrowed funds have been used, i.e., in part, for purposes other than business purposes. The assessee relies on the commercial expediency of its loan to M/s. M.P. Food Products, relying on the decision of honb'le apex court in the case of S.A. Builders Ltd. v. CIT (Appeals) Anr. (2007) 288 ITR 1 (SC). Our first observation in the matter is that there is no question of application of the ratio or the principle of the said decision in the instant case. The concern, M/s. M.P. Food Products, is not the assessee s sister concern; the same being a proprietary concern of Shri Devendra Agarwal, the assessee's grand-son, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest? Business in family concerns in India is no doubt managed by one or more of the members of the family, so that there is nothing unusual about what the asseessee says, and which may well be true. However, what is unusual and not acceptable as a proposition is the argument to treat the said diversion of funds as for business purposes, so that where sourced from borrowed capital, as in the instant case, no proportionate disallowance of interest paid would ensue. The ld. CIT(A) has, in our considered view, taken a very reasonable and considerate view of the matter, so that his order requires no interference. Under the circumstances, we uphold the disallowance as confirmed by him. We decide accordingly. 7.1 The third ground of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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