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2015 (9) TMI 183 - ITAT AHMEDABAD

2015 (9) TMI 183 - ITAT AHMEDABAD - TMI - Disallowance of interest Exp. @ 50% of late payment interest paid - CIT(A) deleted addition - Held that:- The assessee has alleged that it made purchases of yarn of ₹ 2,95,92,854/-. On certain occasion it could not make payment in time. Therefore, it has to make the payment of yarn along with interest on the amount due. The AO did not find fault with the purchases made by the assessee nor doubted the existence of the parties who have supplied the y .....

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n - Held that:- AO has not pointed out any defect in the books which unable him to deduce the true income. His approach was that assessee ought to have earned more income than the one shown by it. G.P. disclosed during this year is better than that of immediately preceding two yeaRs. The ld. counsel for the assessee pointed out that in earlier two years assessments were under section 143(3). The reference of Rs,62,704 made by the AO is in respect of income where the GP of the assessee is ₹ .....

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Judicial Member. Revenue is in appeal before us against the order of CIT(A) dated 9/1/2012 passed for Asst. Year 2008-09. In the first ground of appeal, Revenue has pleaded that ld. CIT(A) has erred in deleting the addition of ₹ 9,09,983/-. 2. Brief facts of the case are that assessee is a firm engaged in the business of manufacturing grey cloth. It has filed its return of income on 30.9.2008 declaring total income of ₹ 62,704/-. The case of the assessee was selected for scrutiny as .....

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st expenditure on late payment of the purchase price which has been worked out to ₹ 16,37,101/-. According to the assessee it was in the line of business norms. The AO was not satisfied with the explanation of the assessee. He observed that there should not be any requirement to keep cash balance of ₹ 18,19,967/- and incur interest expenditure of ₹ 31,13,303/-. On an ad hoc basis he made an addition of ₹ 9,09,983/-. The finding recorded by the AO reads as under :- I have .....

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, I herewith disallow interest Exp. Of ₹ 9,09,983 @ 50% of late payment interest paid. 3. On appeal, ld. CIT(A) has deleted the addition. 4. With the assistance of ld. representatives, we have gone through the record carefully. The assessee has alleged that it made purchases of yarn of ₹ 2,95,92,854/-. On certain occasion it could not make payment in time. Therefore, it has to make the payment of yarn along with interest on the amount due. The AO did not find fault with the purchases .....

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he next ground of appeal the Revenue has pleaded that ld. CIT(A) has erred in deleting the addition of ₹ 26,52,783/- which was added by the AO by estimating G.P. 6. Brief facts of the case are that assessee had shown GP @ 14.72%. The AO was of the view that assessee has achieved high turnover, it owned machinery, had support of sister concern and made investment of more than 2.16 crores. Therefore, it should not earn nominal profit of ₹ 62,704/-. The AO has estimated the GP at 19% an .....

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hich is highly abnormal. b. Sundry creditor of assessee for goods is ₹ 89,97,117/- while purchase is ₹ 2,95,92,854/- which is also near to 3.50 month s outstanding which is abnormally high. c. Total job work expenses is ₹ 126,95,096/- while outstanding creditor for expenses is ₹ 83,71,842/- which is more than 8 months outstanding and not believable. Further assessee had not submitted list of outstanding creditors for expenses in his audit report which also create doubt. d .....

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During the course of assessment proceedings, it was submitted that the gross profit of the appellant for the year was 14.72% which compared favourably with gross profit of 14.4% in AY 2007-08 and 13.45% in AY 2006-07. It was also submitted that gross profit had increased in absolute terms also (Rs. 78 lacs to ₹ 88 lacs). It was also pointed out that book results were accepted in scrutiny assessment for AY 2007-08. It was further mentioned that the appellant regularly maintains books of ac .....

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oks of accounts, regularly maintained and audited, without finding any specific defects in the books and without appreciating that the results for the year were better than preceding years for which book results had been accepted. It was further argued that the reason given for rejecting books -larger working capital cycle than the average working capital cycle- and estimating higher gross profit was incorrect as higher than average working capital cycle would result in lower profits. It was als .....

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n 296 ITR 45, Alluminium Industries Pvt. Ltd. 80 Taxman 180 (Gau.). 5. I have gone through the facts of the case. The appellant maintains regular books of accounts which are audited. The book results have been accepted in earlier assessments under scrutiny. The gross profit shown during the year is higher than the book results accepted in earlier assessment in scrutiny. The details of creditors were made available to the AO during the course of assessment proceedings. Larger than normal working .....

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the appellant was lower than the gross profit obtained by other persons involved in similar trade does not establish that the books of the appellant was defective. Since no specific defects have been pointed out in the books, the book results could not have been disturbed. The addition made to the book result is therefore deleted. This ground is allowed. 8. With the assistance of the learned representative, we have gone through the record carefully. Section 145 has a direct bearing on the contr .....

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s or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." 9. From the bare reading of this section, it would reveal that it provides the .....

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ed to be followed by any class of assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an assessee, i.e., cash or mercantile. Such method has to be followed keeping in view the accounting standard notified by the Central Government from time to time. Sub-clause (3) provides a situation, i.e., if the Assessing Officer is unable to deduce the true income on the basis of method of accountancy followed .....

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