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ITO Versus M/s. Jyotindra Brothers

2015 (5) TMI 903 - ITAT AHMEDABAD

Rejection of the books results u/s 145(3) - fall in Gross Profit / difference in sales - CIT(A) deleted the addition - Held that:- CIT(A), while deleting the addition, has given a finding that the amount of loss of ₹ 15,15,785/- represented loss of 43,555 Kgs of Ispaghula Seeds which have been duly accounted for in the audited accounts of the assessee and the assessee had also submitted the proper reconciliation and reasons for the fall in Gross Profit. Before us, the Revenue has not broug .....

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ative also pointed out to the cost of fund, the rate at which it has lent and from the statement submitted by the ld. AR, it is seen that the amount which has been lent to M/s. Swati Autolink Pvt Ltd is at a higher rate than the weighted average cost of funds. Before us, it is also the assessee’s submission that the amounts were advanced in earlier years also and no disallowance was made in the earlier years, for which reliance was placed on judgment of Sridev Enterprises (1991 (1) TMI 52 - KARN .....

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2015 - Shri Rajpal Yadav And Shri Anil Chaturvedi JJ. For the Appellant : Shri Dinesh Singh, Sr. DR. For the Respondent : Shri S. N. Soparkar, AR ORDER Per Shri Anil Chaturvedi, ACCOUNTANT MEMBER: This is an appeal filed by the Revenue and the Cross-Objection filed by the assessee, both against the order of the Commissioner of Income Tax (Appeals)-XX, Ahmedabad dated 12.09.2011 for Assessment Year 2008-09. 2. The brief facts of the case, as culled out from the records, are as under:- 3. The asse .....

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CIT(A) who vide order dated 12.09.2011 granted substantial relief to the assessee. Aggrieved by the aforesaid order of the Ld CIT(A), the Revenue is now in appeal before us and the assessee has also filed cross-objection. 4. The Grounds raised by the Revenue in its appeal read as under:- 1. The Ld. Commissioner of Income-Tax (Appeals)-XX, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 15,15,785/- made by the Assessing Officer, on account of rejecting the books result .....

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of Income- Tax (Appeals)-XX, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 5. On the other hand, the assessee has taken following grounds in its Cross-objections:- Ld. CIT (A) erred in confirming disallowance of ₹ 4,95,651/- out of interest expenses claimed by holding that advances given to Swati Autolink Pvt Ltd were from interest bearing funds ignoring the fact that complete details of the availability of interest free funds in earlier year when advances were .....

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the Assessing Officer noticed that the quantitative information with respect to inward and outward of Ispaghula shown by the assessee was not reconciled. He also noticed that the assessee s submission of loss due to infestation was not debited in the Profit and Loss account. He was, therefore, of the view that the assessee was not showing the true facts in the books of accounts. Further, the Assessing Officer noted that the assessee had not produced any evidence of infestation/loss or shortage. .....

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ompared to immediately preceding year, worked out the Gross Profit at ₹ 9,76,201/- for the year under consideration and the difference in sales in the quantitative figures as worked out by him was ₹ 15,15,785/-, was added to the income. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the CIT(A) who, after considering the submissions of the assessee, deleted the addition vide order dated 12.09.2011 by holding as under:- 4.2(i) The contentions of .....

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5/- represented loss of 43,555 Kgs of Ispaghula seeds, duly accounted for in the audited account of the appellant. The basis on which the reconciliation of the seeds submitted by the appellant and the reasons for the fall in GP explained by the appellant were rejected by the AO, is not found logical. Therefore, I hold that the impugned addition is not sustainable. It is deleted. These grounds of appeal are allowed. 9. Aggrieved by the aforesaid order of the ld. CIT(A), the Revenue is now in appe .....

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rused the material available on record. We find that the ld. CIT(A), while deleting the addition, has given a finding that the amount of loss of ₹ 15,15,785/- represented loss of 43,555 Kgs of Ispaghula Seeds which have been duly accounted for in the audited accounts of the assessee and the assessee had also submitted the proper reconciliation and reasons for the fall in Gross Profit. Before us, the Revenue has not brought any material on record to controvert the findings of the ld. CIT(A) .....

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enses of ₹ 24,88,291/-. He also noticed that the assessee has given ₹ 4,35,50,183/- to Swati Autolink Pvt Ltd on which it had charged interest at the rate of 6.75%; but on the other hand the assessee was paying interest at 9%. The submission of the assessee that its weighted average interest cost was 4.91% as against which it had charged at 6.75% interest on M/s. Swati Autolink Pvt Ltd was not found acceptable to the Assessing Officer as the assessee had not furnished any cash flow s .....

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(iv) Swati Psyllium Pvt Ltd and (v) Swati Agrotech Pvt Ltd. He was also of the view that the assessee has utilized interest bearing funds for advancing noninterest bearing loans. He accordingly calculated the interest expenses at 9% on the amount advanced and worked out the interest expenses of ₹ 9,08,966/- and thus made an aggregate disallowance of ₹ 18,88,846/-. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A). The ld. CIT(A), .....

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given to 5 other concerns totaling to ₹ 1,00,99,625/- and worked out the disallowance of ₹ 9,08,966/-. Put together he made disallowance of ₹ 18,88,846/-. 5.4 The contentions of the learned AR in this regard in brief are as follow: AO did not consider the detailed submission made by the appellant vide his letter dated 1-12-2010.; the advance given to Swati Autolink was reduced during the year; complete details of the availability of interest free funds in earlier year when adva .....

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est bearing funds. Thus out of advance given to Swati Autolink of ₹ 4,35,50,183/- was out of interest-free funds, the sum of ₹ 2,15,21,244/, leaving the balance of ₹ 2,20,28,939/- advanced out of funds borrowed on interest @ 9%. The advance was given on interest @ 6.75%. Therefore, I consider it reasonable to work out the disallowance of interest @ 2.25% (9% minus 6.75%) on ₹ 2,20,28,939/- which works out to ₹ 4,95,651/-. Thus disallowance of interest of ₹ 4,9 .....

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. The ld. Authorized Representative of the assessee, on the other hand, submitted that there was no question of disallowing any interest expenditure as the assessee has earned net interest income of ₹ 11,81,410. He further pointed to the statement which was placed at page no.46 of the paper-book and demonstrated that weighted average interest cost was 4.91% and it has charged interest from on M/s. Swati Autolink Pvt Ltd at 6.75% and thus, it has not advanced money to M/s. Swati Autolink Pv .....

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He further submitted that the amount had been advanced in earlier years also but no disallowance was made in the earlier years and therefore, no disallowance can be made in the year under consideration and for which he placed reliance on the decision of Hon ble Karnataka High Court in the case of CIT v. Sridev Enterprises, reported in (1991) 192 ITR 165 (Kar). He further submitted that no disallowance at all on account of interest was called for. 15. We have heard the rival submissions and peru .....

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