9911796707
TMI Blog2013 (12) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee vide assessee's submission dated 23/07/2012. 4. Wrongly appreciating facts in para 3.4 of his order as the AO had compared result of Unit-I with last year and addition is also made by applying G.P. @ 35.54% of Unit-I last year. 5. Wrongly appreciating facts in para No. 3.4.1 of his order in regard to amount of Rs. 248/- per kg. for EOU and Rs. 221/- for Non-EOU, being cost of material. The appellant craves leave to add, amend or alter any or all the ground of appeal on or before the date the appeal is finally heard for disposal." 2. From the above grounds, it would be clear that only grievance of the department relates to the deletion of trading addition made by the Assessing Officer. 3. The facts related to this issue in brief are that the assessee filed return of income on 28/09/2009 declaring NIL income. The assessee was engaged in manufacturing of FRP/GRP section, Cable Trays, Fiber production etc. by running two units and the unit-II was an Export Oriented Units (EOU). The assessee was also engaged in wind power generation. During the assessment proceedings, the Assessing Officer noted that the assessee had shown less GP rate as compared to last year for its Non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of raw-material consumed and its manufacturing specifications. The assessee had furnished comparative chart of sales, purchases and expenses incurred for both the units, which revealed that the sale value of unit-II (EOU) was only Rs. 2,70,95,286/- as against sales value of unit-I (Non- EOU) at Rs. 6,55,64,739/-. Thus, there was a wide difference between the two sales which was due to large variation in the capacity utilization of the two units, therefore, results of the two units were not comparable. It was further stated that due to higher margins in the export sales, the realization per KG of the raw-material consumed in unit-II (EOU) had been more than the realization per KG of raw-material consumed for unit-I, which was apparent from the information furnished. It was clarified that the raw-material consumed in unit-I was only Rs. 248/- per KG whereas in the case of EOU unit-II, it was Rs. 221/-, which resulted into higher GP rate of unit-II (EOU). It was also stated that the purchase price per KG of raw-material was lower in case of EOU unit due to exemption from Excise Duty, VAT, Customs Duty etc. It was also stated that the purchase price per KG of raw-material consumed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious govt. taxes. Further, I find that the Assessing Officer has not given any instance of debiting the expenses / purchases more of one unit to other unit. 3.4.2. Further, I find that the Assessing Officer has applied the G.P. rate in unit - I of last preceding year. I find that the G.P. rate was 35.54% in comparison to 29.94% declared in the year under consideration. In this regard, I find that that the Assessing Officer has not pointed out any specific defects nor rejected the books of account of the unit-l. The Assessing Officer has not given any similar instance where the G.P. rate was declared more than that of declared by the appellant's unit-I. It is settled proposition of law that for rejecting the books of accounts, the Assessing Officer must refer to the inherent defect in the system and record a clear finding that the system of accounting followed by the assessee is such that correct profits cannot be deduced from the books of account maintained by the assessee, as has been held in the case of CIT Vs. Margadarsi Chit Fund (P) Ltd. (155 ITR 442 AP.). In the instant case there is no finding that the books are such that from which correct profit cannot be deduced or asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer had not invoked the provisions of Section 145(3) of the Act and this fact has been admitted even in G. No.1 wherein it is stated that "Assessing Officer had rejected the book result under section 145(3) though it has not been mentioned in the assessment order. Therefore, the addition on estimate basis without rejecting the books of accounts was not justified. 9. For the aforesaid view, we are also fortified by the judgment of the Hon'ble Delhi High Court relied by the learned counsel for the assessee in the case of CIT Vs. Smt. Poonam Rani reported in (2010) 326 ITR 223, wherein it has been held as under:- "The AO has not pointed out any particular defect or discrepancy in the account books maintained by the assessee. The CIT(A) was satisfied that the assessee had furnished complete details, including quantitative details in respect of purchase of raw material, manufacture of copper wire and sale of the finished products. In these circumstances, it cannot be appreciated as to how the accounts, maintained by the assessee, could have been said to be incomplete or inaccurate. In fact, the AO had no material before him to treat the accounts of the assessee as defective or incompl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -II. Thus, the total investment in tax free bonds came to Rs. 3,75,15,666/-. The Assessing Officer also observed that the assessee was paying huge interest, which was debited in profit & loss account, therefore, the provisions of section 14A of the Act were applicable. The assessee submitted to the Assessing Officer that the provisions of section 14A were not applicable because no part of interest was paid for investment made. It was further stated that interest paid on unsecured loans was given on the opening balance and the interest to the partners was paid as per the partnership deed, which was deducted from income of the firm and included in the income of the partners. The Assessing Officer, however, did not find merit in the submissions of the assessee and made the addition of Rs. 15,05,443/- by disallowing the interest. 15. Being aggrieved, the assessee carried the matter to the learned CIT(A) and submitted that the purpose of section 14A of the Act was not to enhance the tax liability, but to correct the tax liability and in this case, disallowance was made at Rs. 15,05,443/- as against dividend income of Rs. 4,84,180/-. It was stated that no money had been borrowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third parties was only Rs. 3,94,533/- and the borrowing on which such interest was paid was borrowed at the time of start of business, so, it could not be lead to inference that such interest expenses incurred for earning income which did not form part of the total income. It was further stated that the interest paid on the partner's capital account could not be presumed as expenditure incurred for earning income, which did not form part of the total income because as per the provisions of section 40(b) of the Act, the interest upto 12% p.a. was allowable as business expenditure and such allowable expenses ought to have been presumed as business expenditure unless proved to be contrary by the revenue. It was stated that neither the Assessing Officer nor learned CIT(A) recorded in any reason as to why and how the interest expenditure claimed by the assessee was not business expenditure and was incurred for the earning of dividend income on mutual fund investment. It was emphasized that the assessee was paying interest to the partners only on fixed capital and share of income from year to year was credited to current capital account which was Rs. 8,76,43,107/- as on 31/03/2009 and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which Rs. 40,30,540/- was related to the interest to the partner's fixed capital and remaining interest of Rs. 3,94,533/- was concerned with the interest to the parties. As regard to the interest paid to the partners, it is not in dispute that the said interest was paid under section 40(b) of the Act as per the terms of partnership deed and the partners capital was fixed. Nothing is brought on record that the fixed capital of the partners was utilized to make the investment in the units and bonds. On the contrary, the assessee stated that there was current capital account of the partners and the balance was at Rs. 8,76,43,107/- as on 31/03/2009 and Rs. 8,51,36,613/- as on 31/03/2008, which was utilized in making the investment in mutual fund for Rs. 3,57,36,861/- as on 31/03/2009 and Rs. 3,13,64,086/- as on 31/03/2008, therefore, the partners current capital account appears to be more than sufficient for making the investment in mutual funds. Moreover, the contention of the learned counsel for the assessee that the said partners current capital was non-interest bearing and used for investment in mutual fund, was not controverted at any stage. We therefore are of the view that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not deducted as it was not income earned on export. Accordingly, he did not allow the exemption under section 10B of the Act on the said amount and made the addition of Rs. 8,63,024/-. 25. Being aggrieved, the assessee carried the matter to the learned CIT(A) and submitted that the income earned on fixed deposit with the bank was the business income as the FDR had been made out of the business income surplus and some of the FDR had been made for the business purpose against the bank guarantee/excise bond for the purpose of export business. 26. Learned CIT(A) after considering the submissions of the assessee observed that the assessee failed to establish that FDR was out of its business income or was in relation to the income and that the interest income was from profit of export business. He therefore, confirmed the disallowance made by the Assessing Officer. Reliance was placed on the following case-laws:- 1. ACIT Vs. Sought India Produce Company reported in 262 ITR 20 (Ker) 2. Procon Systems Pvtg. Ltd. Vs. ITO reported in 296 ITR 636. 3. Pandian Chemicals Ltd. Vs. CIT reported in 262 ITR 278 (SC) Being aggrieved, assessee is in appeal. 27. Learned counsel for the asses r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
