2008 (5) TMI 651 - AT - Income Tax

Tribunal Partly Allows Appeal: Condoned Delay, Adjusted Expenses, Upheld Assessment Validity and Interest Charge.

The Tribunal partly allowed the appeal. It condoned a 43-month delay in filing the appeal, deleted the trading addition, and reversed the disallowance of ... Disallowance of net interest paid and brokerage expenses - trading additions - Disallowance on interest and brokerage - disallowance on account of telephone expenses, vehicle expenses and depreciation on account of personal use - Interest under s. 234B. Application for condonation of delay under s. 5 of Limitation Act - delay for about 43 months - sufficient cause for delay present or not - HELD THAT:- No presumption can be made that the delay has been occasioned deliberately or on account of culpable negligence or on account of mala fides. The litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. Therefore, Following the decisions of Hon'ble Supreme Court of India in the case of Collector, Land Acquisition vs. Katiji & Ors. [1987 (2) TMI 61 - SUPREME COURT] and in the case of N. Balakrishnan vs. M. Krishnamurthy [1998 (9) TMI 602 - SUPREME COURT], we are satisfied that sufficient cause exists for delay in the present case and therefore delay in filing the appeal before us is condoned. Estimation of income - GP rate of 34 per cent on the estimated turnover - Trading addition - income from sale of milk, curd, sweets, namkeens etc. - HELD THAT:- Assessee has declared better results as compared to the preceding years in assessee's own case and there is no comparable case on record which could suggest the disturbance in the GP declared by the assessee. Therefore, In view of the decision in CIT vs. Gotan Lime Khanij Udhyog [2001 (7) TMI 19 - RAJASTHAN HIGH COURT], we are of the view that no trading addition is required to be made by the AO. Therefore the addition confirmed by the learned CIT(A) is directed to be deleted. Disallowance on interest and brokerage - business purposes - investment in personal immovable properties consisting of agricultural land, residential plot, etc - HELD THAT:- There is no nexus of the loans raised and the investment in properties. Assessee has purchased the properties in the preceding years out of the interest-free funds and there is nothing on record that the loans raised in M/s Chawala Sweets have been utilized for the purpose of purchasing the properties in the personal name of the assessee - Since, properties have been purchased in the preceding years since 1990-91 to 1998-99 and no disallowance of interest u/s 36(1)(iii) of the Act has ever been made in those years and also thereafter till date. Our views find support from the decisions of Hon'ble Madras High Court in the case of CIT vs. Hotel Savera[1997 (11) TMI 37 - MADRAS HIGH COURT], Hon'ble Supreme Court of India in the case of Munjal Sales Corporation vs. CIT & Anr. [2008 (2) TMI 19 - SUPREME COURT] - Therefore, AO is not justified in disallowing the interest claimed by the assessee - disallowance confirmed by the learned CIT(A) is directed to be reversed and addition made is directed to be deleted. Disallowance @ 20 per cent on account of telephone expenses, vehicle expenses and depreciation on account of personal use - rejected books of account - HELD THAT:- Since the books of account of the assessee have been rejected and no explanation with regard to the said expenses to the satisfaction of the authorities below or even before us have been placed on record that all the expenses have been incurred wholly and exclusively for the purpose of business. The non-business purpose in such expenditures cannot be ruled out has rightly been observed by the authorities below but the disallowance appears to be on the higher side looking into the turnover, business and facts of the assessee. The AO is directed to restrict the disallowance to 10 per cent of the expenditure on account of telephone, vehicle and the depreciation as claimed by the assessee. The assessee gets the part relief accordingly. Interest under s. 234B - HELD THAT:- The charging of interest under s. 234B is mandatory and is consequential in nature - the issue is general in nature and therefore does not require any adjudication. In the result, the appeal of the assessee is partly allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Validity of the assessment order under Section 143(3).3. Application of Section 145(3) and subsequent trading addition.4. Disallowance of interest and brokerage expenses.5. Disallowance of telephone, vehicle expenses, and depreciation.6. Charging of interest under Section 234B.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal was delayed by approximately 43 months. The assessee argued that the delay was due to the counsel's advice, who believed the tax amount involved was not substantial, and further litigation costs would outweigh the tax amount. The delay was also attributed to the lack of awareness about the prosecution initiated under Section 276C(1) until 26th April 2007. The Tribunal found sufficient cause for the delay, citing the Supreme Court's liberal approach in condoning delays to ensure justice, as seen in the cases of *Collector, Land Acquisition vs. Mst. Katiji & Ors.* and *N. Balakrishnan vs. M. Krishnamurthy*. The delay was thus condoned.2. Validity of the Assessment Order under Section 143(3):The assessee did not argue this ground. The Tribunal found no jurisdictional error in the assessment order under Section 143(3) and dismissed this ground.3. Application of Section 145(3) and Subsequent Trading Addition:The assessee's books were rejected under Section 145(3) due to unposted invoices and discrepancies in stock and cash. The AO estimated a higher turnover and applied a GP rate of 34%, resulting in a trading addition of Rs. 1,35,826. The Tribunal noted that the assessee had declared better GP rates in the current year compared to previous years and found no comparable case to disturb the declared GP. Citing the jurisdictional High Court's decision in *CIT vs. Gotan Lime Khanij Udhyog*, the Tribunal concluded that no trading addition was necessary even if the books were rejected. The addition was deleted.4. Disallowance of Interest and Brokerage Expenses:The AO disallowed interest of Rs. 2,55,682, claiming it was not for business purposes. The assessee argued that the properties were purchased with interest-free funds, and the loans were used for business purposes. The Tribunal accepted this explanation, noting no disallowance in previous years and no evidence of loans being used for personal properties. The disallowance was reversed, citing decisions in *CIT vs. Hotel Savera* and *Munjal Sales Corporation vs. CIT & Anr.*, and emphasizing that income tax is on real, not notional, income.5. Disallowance of Telephone, Vehicle Expenses, and Depreciation:The AO disallowed 20% of these expenses for personal use, which the CIT(A) confirmed. The Tribunal agreed that personal use could not be ruled out but found the disallowance excessive. It directed the AO to restrict the disallowance to 10%, granting partial relief to the assessee.6. Charging of Interest under Section 234B:The Tribunal noted that charging interest under Section 234B is mandatory and consequential, thus upholding this charge.Conclusion:The appeal was partly allowed, with the Tribunal condoning the delay, deleting the trading addition and disallowance of interest, and reducing the disallowance on telephone, vehicle expenses, and depreciation. The assessment order's validity and the interest charge under Section 234B were upheld.