TMI Blog2014 (11) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... act to support the disallowance of interest and the addition has been made without establishing the nexus of borrowed funds with the funds advanced as interest free loan - the AO has picked up interest free loan an advance given to Ms. Salini Saxena and to Pythen Mines P. and has made disallowance of entire amount of interest claimed by the assessee in P& L A/c but we are unable to see any nexus of borrowed funds with the funds advanced to the debtors as interest free loan – the order of the CIT(A) is upheld – Decided against revenue. - I.T.A. No. 2134/Del/2011 - - - Dated:- 31-10-2014 - Shri B. C. Meena And Shri C. M. Garg,JJ. For the Petitioner : Sh. Manoj Kumar Chopra, Sr. DR For the Respondent : Sh. Vivek, Sh. Suresh Arora, Sh. Harish Mangla, Advs. ORDER Per C. M. Garg, JM. This appeal of the Revenue has been preferred against the order of CIT (Appeals), Faridabad, vide dated 28.01.2011 in Appeal No. 271/2009-10 for the Assessment Year 1997-98. 2. The Revenue Department has raised following grounds in this appeal: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in restricting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited to P L account, such as salary, legal expenses, stationary, nursery, repairing, depreciation and staff welfare have not been called for non verified. c) Verification of introduction of capital during the year under consideration by Sh. Reghunath Sharma, Sh. Surinder Malik and Sh. Bharat Singh amounting to ₹ 4,00,000/-, ₹ 75,000/- and ₹ 72,000/- respectively have not properly be made. Even the withdrawals made by each partner at ₹ 72,000/- have not been verified properly. d) Additions made to fixed assets have not been verified. e) Lists of loans and advance amounting to ₹ 23,82,592/- have not been verified. Even details have not been obtained and placed on record. (iii) The assessee filed an appeal against the order u/s 263 passed by the Commissioner of Income Tax, Faridabad on 27.03.2002. The case was time barring on 31.03.2003 and the decision of the Hon ble ITAT was pending as on 31.03.2003. The then AO had completed assessment u/s 143(3) on 31.03.2003 due to limitation matter at an income of ₹ 2,46,14,871/-. The Hon ble ITAT vide ITA No.2366/Del/2002 dated 14.07.2006 set aside the order passed by the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to assessment year 1996-97 and taking the GP rate of 11.22%. 8. The ld. Counsel for the assessee further contended that the G.P. rate of 11.22% was accepted by the Revenue for the immediately preceding assessment year that was 1996-97 in assessee s case which was rightly accepted by the ld. CIT(A) has a good comparable for estimation of income of the assessee for the assessment year under consideration. The ld. AR of the assessee placed his reliance on the decision of Hon ble Supreme Court in the case of Brij Bhushan Lal Praduman Kumar vs. CIT 115 ITR 524 (SC) and in the case of K.Y. Pilliah and Sons 63 ITR 411 (SC) and submitted that once the books of account of the assessee were rejected and firm furnished no explanation at all as to why profit at the normal rate was not earned, then was opened to the Income Tax Officer to estimate the gross profit at the rate and which profit was earned in the similar business by the other merchants. In the present case the ld. CIT(A) accepted the results of the assessee for the immediately preceding year as a good comparable which were already accepted by the AO in that year. 9. On careful consideration of above submissions, we observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at after rejecting the books of accounts, the AO was required to estimate the income to the best of his judgement and not by disallowing the expenses purely on guess work and estimate basis. The decisions relied upon by the learned counsel support the case of appellant on this contention. In the preceding A. Y .1996-97, the appellant has declared net profit of ₹ 24,85,527/- on the turnover of ₹ 2,21,51,608/- resulting into GP rate of 11.22%. The AO as well as the appellant have not cited any comparable case for estimation of income. Hence, the past history of the appellant can be considered to be the best judge. In the year under appeal, the appellant has shown gross profit of ₹ 59,98,881/- on the total sales of ₹ 6,33,79,579/- leading to GP rate of 9.47%. Hence, there is decline in GP by 1.75% during the year under appeal. Keeping in view the factual and legal position discussed above, it would be fair and reasonable to estimate the income by applying GP rate of 11.20%. Hence, the total GP works out to ₹ 70,98,512/- as against the GP of ₹ 59,98,881/- declared by the appellant. Therefore, the addition to the extent of difference in GP amounting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en charged on these advances whereas the assessee paid interest of ₹ 36,376/- has shown in the P L a/c therefore, the same was rightly disallowed by the AO. 12. The ld. DR vehemently contended that the ld. CIT(A) has erred on facts and in law in deleting the impugned addition. The ld. DR finally prayed that the impugned order may be set aside by restoring that by the AO. 13. Replying to the above the ld. Counsel for the assessee submitted that the AO made addition without establishing the nexus of borrowed funds with the funds advanced as interest free loan, therefore, the disallowance of interest is not legally sustainable and the same was rightly disallowed by the ld. CIT(A). 14. From the careful perusal in the impugned order we observe that the ld. CIT(A) has deleted the impugned addition taking to interest with following findings: 6.7. In the assessment order dated 31.03.2003 passed pursuant to the order under section 263 of the Act, the AO has not made any addition on account of disallowance of depreciation and disallowance of interest. However, in the order under appeal, the AO has disallowed depreciation of ₹ 6,67,005/- and interest of ₹ 36,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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