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M/s. Neo Enterprises Versus ACIT, Cir. 10 Ahmedabad.

2016 (4) TMI 1010 - ITAT AHMEDABAD

Interest income received on late realization of sale proceeds - assessed as business income OR income from other sources - Held that:- Hon’ble Gujarat High Court in the case of Nirma Industries Ltd. DCIT, [2006 (2) TMI 92 - GUJARAT High Court ] where it is held that interest income received by the assessee on late realization of its sale proceeds will be assessed as business income which will qualify for deduction under section 80IA, because, it is to be construed as income derived from industri .....

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ome be assessed as business income. - ITA.No.1318/Ahd/2012 - Dated:- 16-3-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Assessee : Shri M.K. Patel, AR For The Revenue : Shri Dinesh Singh, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: The assessee is in appeal before us against the order of the ld.CIT(A) dated 27.1.2012 passed for the Asstt.Year 2008-09. 2. The assessee has taken six grounds of appeal, but its grievances basically revolve around two .....

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b) of the Income Tax or not ? 3. Brief facts of the case are that the assessee has filed its return of income on 12.8.2008 declaring total income at ₹ 16,45,010/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income tax Act was issued and served upon the assessee. The assessee at the relevant time was engaged in business of trading in cotton yarn and machinery. It has shown GP at the rate of 1.74% of the turnover, whereas in the immed .....

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e total turnover in this year was of ₹ 17,56,75,361/-. In this year, the assessee firm had mostly sold polyester fibers of the well-known Reliance Industries, where the rate of commission is well-known to all the purchasers and the rates are fixed. The assessee operates at a profit margin rate of 0.25% to 0.50%. The ld. counsel for the assessee further contented that the GP in the Asstt.Year 2006-07 was 9.75%; in the Asstt.Year 2007-08 4.70% and in this year it is 1.74%. But, if the GP in .....

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he GP rate of last year and applied it to cotton segment only. The purchase and sales with regard to cotton during the year was 4,52,04,360/-. The ld.AO worked out the GP on these sales at the rate of 4.70% at ₹ 21,24,605/-. He debited this amount by a sum of ₹ 5,33,411/- which is the GP at the rate of 1.18% disclosed by the assessee qua the cotton sales. The balance amount of ₹ 15,91,194/- is added to the income of the assessee. 4. The appeal to the CIT(A) did not bring any re .....

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sh or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class of assessees 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), ha .....

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-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard required 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 .....

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ed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income. 7. In the light of the above, if we examine the facts of the present case, then it would reveal that the figures submitted by the assessee for reconciliation did not match with the figures in audit report. The ld. Counsel for the assessee took us through page no.61 of t .....

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e income of the assessee from the alleged account, though, the AO has not specifically recorded a finding about rejection of the books of accounts, but impliedly from his discussion, it reveals that book result was not accepted and the AO has estimated the GP after not satisfying himself that the income could not be deduced from these accounts. 8. The ld.counsel for the assessee in the alternate contended that the AO himself has restricted the application of GP on the cotton sales. Meaning there .....

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that the AO has verified other aspects, and only thereafter, applied this rate. 9. We have duly considered rival contentions and gone through the record carefully. The assessee has pleaded specifically before the AO about the change of its business module. This change has been accepted by the AO, because, he did not apply the rate of GP on polyester sales. He has applied the GP rate to cotton sales only. The assessee on page no.53 of the paper book submitted a computation. It alleged that this .....

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tton in Astt.Year 2007-08. He submitted that this issue be set aside to the file of the AO for verification. 10. On due considerations of the above facts, we are of the view that this aspect requires to be verified at the level of the AO. Therefore, we set aside this issue for limited purpose. The ld.AO shall first determine the rate of profit earned by the assessee in Asstt.Year 2007-08 in cotton segments i.e. the rate of profit for purchase and sales of cotton only. That very rate will be appl .....

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