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2015 (9) TMI 14 - ITAT JAIPUR

2015 (9) TMI 14 - ITAT JAIPUR - TMI - Trading addition - net profit rate of 12% applied by the AO for determining the income from property business - Held that:- The assessee had shown gross profit rate before interest and depreciation @ 20.61% which has not been objected by ld. D/R and claimed by the assessee that it is better compared to preceding year. The AO pointed out the various defects in the books of account viz. non-maintenance of closing stock, purchases in cash and also not produced .....

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sessee had used funds available with him somewhere else as the burden is lying on the Revenue to prove otherwise which has not been discharged by the revenue. No prudent businessman would create loss by availing OD facility and paying interest on it. There was a business necessity of the assessee for availing the OD facility. It is undisputed fact that funds had not been utilized during the year but liability on account of interest had been occurred. Therefore, we allow the interest claimed by t .....

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invoke provisions of section 145(3) of the Act. The ld. A/R of the assessee had not brought on record to whom the interest payment was made in the books of M/s. Guman Furniture & Fixtures. The OD facility as claimed by the assessee was for construction business which has already been discussed in preceding paras. Besides this, there is no evidence which substantiated the assessee’s claim that he had made heavy payment of interest amount. Further NP rate disclosed by the assessee is below the rat .....

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r The Revenue : Shri Dilip Sharma (JCIT) ORDER PER SHRI T.R. MEENA, A.M. These are two cross appeals filed by the Assessee and Revenue emanating from the order of ld. CIT (A), Central, Jaipur dated 31.1.2013 for the A.Y. 2009-10. The grounds raised in the assessee s appeal are as under :- 1. On the facts and in the circumstances of the case the ld. CIT (Appeals) has factually and legally erred in confirming the trading addition to the extent of ₹ 91,83,000/- out of the total addition of &# .....

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the Act without appreciating the facts of the case in right perspective. Thus, the addition so confirmed deserves to be deleted. The grounds raised in the Revenue s appeal are as under :- 1. On the facts and in the circumstances of the case, despite confirming the rejection of books of account under section 145(3) of the I.T. Act and ld. CIT (A) has erred in not confirming the net profit rate of 12% applied by the AO for determining the income from property business by relying on the decision o .....

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to - (i) Produce the bills and voucher for verification of genuineness of the expenses. (ii) Co-relate the expenses to particular construction. (iii) Justify the basis of valuation of each property in the books of account. 3. On the facts and in the circumstances of the case the ld. CIT (A) has erred in dislodging the net profit rate of 12% upheld by the ld. ITAT in the case of the assessee during last year stating that the books of account were audited during the year, ignoring the fact that he .....

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s return of income on 15.10.2010 declaring NIL income. The AO observed that during the year under consideration assessee had declared income from two businesses, remuneration, rent and other sources. The assessee has done property business in the personal name and business of furniture and fixtures under the name M/s. Guman Furniture and Fixtures. The case was scrutinized under section 143(3) of the IT Act. The AO further observed that the assessee has shown sales of constructed/non constructed .....

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3,80,995/-. The assessee had not been able to provide bills and vouchers for construction expenses which are mostly incurred in cash in small amounts. The assessee could not be able to link up the expenses with specific properties, the said expenditure was incurred. There was no evidences of purchase of specific building material and labour expenses for specific site and construction. The assessee also not explained as to how the valuation of stock was done in absence of proper linkage of constr .....

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ers etc. in the year under consideration to that of A.Y. 2007-08 subject to order of ITAT. Accordingly, the AO followed the order of ITAT for A.Y. 2007-08 and applying the provisions of section 145(3) of the IT Act and rejecting accounts of the assessee, net profit of assessee s construction business was estimated @ 12% which resulted into net profit of ₹ 25,84,080/- as against claim of loss of ₹ 99,83,708/-. It was further observed by the AO that the loss in Profit & Loss accoun .....

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either it was used for repayment of earlier loan nor was used for acquiring new assets or stocks but it was either utilized for advancing to other sister concerns or its major part remained as cash in hand at the year end. As such the entire claim of interest cannot be claimed to be for the purpose of business. The ld. A/R of the assessee explained the reasons for keeping substantial cash in hand by relying on the decision of Hon ble Supreme Court in the case of S. A. Builders vs. CIT, 288 ITR 1 .....

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ly by observing that It is noted that the appellant has taken overdraft loan of ₹ 6.50 cr. On which interest of ₹ 1,26,94,537/- was paid. As discussed earlier during the assessment proceedings, the AO noted that part of such loan on which substantial interest has been paid virtually remained idle in the form of cash and in the month of March, 2009 the peak amount of cash in hand was at ₹ 46992173/-. Therefore, the necessary inference was that part of the overdraft loan on which .....

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t of funds on which interest has been paid. It also came to notice that the land deals against availability of such unused cash were stated to be executed in next A.Y. Therefore, prima facie when the unutilized loan is not used for the business purposes of the relevant A.Y. then such claim may not be allowable in that A.Y. Therefore, the books of accounts of the appellant in respect of claim of such interest on that portion of loan which was not used and simply kept as cash availability cannot s .....

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consideration books of accounts are maintained which are also of auditable nature. Therefore as against applying a particular NP or GP rate it is considered more logical to make specific disallowance in as much as the issue involved is only of claim of interest on the part of that loan from Adarsh cooperative Bank which was stated to be remained idle in cash and not utilized during the A.Y. under consideration. During appellate proceedings, on examination of this issue it emerged that out of tot .....

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the appellant has to execute any property deal in consequence to be availing of such overdraft loan from Adarsh Cooperative Bank. It is also noted that no such huge cash was ever kept in the past to support this contention. Therefore, it can reasonable believed that the interest bearing funds stated to be lying in the form of cash were utilized for extra business consideration and therefore interest to the extent of that part of loan may not be allowed. Alternatively even if it is presumed that .....

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₹ 6.50 cr. the appellant has claimed interest liability of ₹ 1.27 cr. The interest payment attributable to ₹ 4.70 cr. Is arrived at ₹ 91.83 lacs (127/650x470=91.83) and therefore interest payment of ₹ 91.83 lacs is to be disallowed. Accordingly out of total addition of ₹ 12567788/-, addition to the extent of ₹ 9183000/- is confirmed. The appellant accordingly gets relief of ₹ 3384788/- (12567788-9183000). 4. Now both the parties are in appeal befo .....

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is regular year and there is no bearing of search operations on the book results for the year under consideration. The AO solely assessed the assessee s income by following the ITAT s order wherein GP rate @ 12% applied on property business. For search assessment period, no books of account was maintained by the assessee and GP was estimated by the ITAT Jaipur Bench on the basis of search result only. During the year under consideration the assessee has maintained regular books of account which .....

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entire GP scenario and making the facts of the case entirely un-comparable. The ld. AO ignoring these facts had estimated the income from property business @12% which comes to ₹ 2,15,34,000/- and made addition of ₹ 1,25,67,788/- which is more than 50% of turnover on the plea that huge interest payment to the tune of ₹ 1.40 crores was hypothetical. But book result declared by the assessee is showing GP rate at 20.61% subject to depreciation and interest payments and were far be .....

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acts and circumstances of the case as there were no books of accounts maintained for the search period by the assessee. However, for the year under consideration the assessee has maintained regular books of accounts which is audited as per law. But ld. CIT (A) had not accepted the OD loan of ₹ 6.50 crores for business purposes. He partially accepted the use of OD for business purposes. ₹ 4.70 crores were lying idle in the bank. He further argued that ld. CIT (A) s finding was contrar .....

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unt and kept ready to be used in property business immediately. No transaction could be materialized as there was no land transaction during the year under consideration for business purposes. He again relied upon the Hon ble Supreme Court decision in case of S. A. Builders (supra) and argued that wisdom of assessee will prevail on how to run the business of construction. The Revenue Authorities cannot dictate the terms and conditions how to run the business of the assessee and utilize the fund. .....

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terest is very high. The ld. AO has not disputed the genuineness and correctness of the interest payment of ₹ 1,25,67,781/-. The negotiation for the property transaction worth ₹ 8 crores were underway during the year and were materialized immediately after this year. Thus the fact of business exigency could not be ruled out. It is further argued that it is not necessary that investment made out of borrowed funds should yield any profit in the year. For this he relied on the decision .....

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o make addition on income returned by the assessee, for which he relied on the judgment of Hon ble Rajasthan High Court in the case of Gottan Lime Khaniz Udyog, 256 ITR 243 and other cases also. The ld. A/R relied on numbers of decisions in his submissions and requested that addition confirmed by ld. CIT (A) at ₹ 91.83 lacs may please be deleted. 5. At the outset, the ld. D/R vehemently supported the order of the AO and reiterated the reasoning given by the AO in the assessment order and r .....

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O applied the net profit rate of 12% on construction receipts on the basis of coordinate Bench decision for A.Y. 2007-08, but as held by ld. CIT (A) the facts and circumstances for the year under consideration are totally different as for the search period no books of account were maintained by the assessee and for the year under consideration the assessee has maintained regular books of account which has been audited under the Income-tax law. Therefore, net profit rate of 12% cannot be applied .....

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cts in the books of account viz. non-maintenance of closing stock, purchases in cash and also not produced the sales/purchase vouchers of material used in construction business. Therefore, book results of the assessee cannot be held complete and correct. Thus provisions of section 145(3) are squarely applicable. Therefore, we confirm NP rate @ 10% in place of 12% applied by the AO subject to depreciation and interest payment. We are of the considered view that no notional addition can be made on .....

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year but liability on account of interest had been occurred. Therefore, we allow the interest claimed by the assessee being just and in the interest of business. Accordingly NP rate on construction receipts @ 10% is confirmed subject to depreciation and interest paid. The AO is directed to calculate the income as per above observations made by this Bench. 6.1. In the result, ground no. 1 of the assessee is allowed partly and all the grounds of the revenue are dismissed. 7. The second ground of .....

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0.01% which is quite low in the line of business. The assessee has not maintained stock register nor quantitative details of any nature and claimed consumable stores of ₹ 28,65,795/- and labour charges which were not verifiable in absence of proper and complete vouchers. Major expenditure is against on account of interest paid/payable on various secured loans which is again not subject to verification for exact use of loan for business purposes. Therefore, AO found various defects in the b .....

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o the finding of the AO. It may be noted that the AO has applied provisions of sec. 145(3) on account of the reason that the NP rate shown at 0.01% was quite low and that no stock register is maintained nor any quantitative details are maintained. The claim of consumable stock amounting to ₹ 2865795/- and labour charges was also found to be not verifiable. The interest payment on secured loan was also not subject to proper verification for want of exact use of loans for business purposes. .....

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thout any basis. As regards raising of secured loans the appellant contended that it was the first year for carrying out business operations and the appellant had to raise loans and pay interest on the borrowed capital from banks. It is stated that the AO has given very general finding that exact use of these funds for business purposes was not verifiable and that when the interest payments are verifiable from books of accounts the finding of the AO was without any basis. On careful consideratio .....

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that maintenance of stock was in practicable or not possible. It is also noted that it is not a case that only stock register is not maintained in as much as the AO has pointed out other defects as to how expenditure shown on consumable items was not subject to verification. In my view the non maintenance of stock register and quantitative details of items of trading coupled with other defects in respect of un-verifiability of expenses definitely attracted provisions of sec. 145(3) of IT Act. Fo .....

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ness the AO was not having any record of past years of the appellant. The appellant during assessment for appellate proceedings, did not justify and pointed out any specific reason for such low NP rate. In such given circumstances the application of NP rate of 1% appears to be fair and reasonable and no interference is required in respect of finding of the AO. Therefore, addition made by the AO is confirmed. The ground of appeal is dismissed. 9. Now the assessee is before us. The ld. A/R of the .....

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