2015 (10) TMI 2422 - AT - Income Tax

Tribunal rulings on interest, trading additions, and evidence requirements

The Tribunal dismissed the ground regarding the initiation of proceedings under Section 153A without incriminating material as it was not pressed by the ... Addition on account of “Interest paid to bank” - disallowance u/s 14A - Held that:- is undisputed fact that the assessee has more interest income than interest paid on OD. Besides this he has also disclosed short term capital gain at ₹ 9,07,828/- in the income of the assessee, it is also taxable. The ld Assessing Officer had not established the nexus between the interest bearing borrowings with utilizing the fund in interest free investment. When the assessee has shown income from the short term capital gain, it is evident that he has been in the business of share trading. Further the ld Assessing Officer has not brought on record the amount deployed in shares for investment purposes. The case laws cited by the assessee CIT Vs. Hero Cycles [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] are squarely applicable, therefore, the addition confirmed by the ld CIT(A) is reversed and the assessee’s appeal is allowed on this ground Trading addition U/s 68 - credit appearing in the name of Shri Kanha Ram Agarwal - Held that:- It is revealed from the assessment order that Sh. Kanha Ram Agarwal, brother of the assessee has declared additional income U/s 132(4) of the Act on 27/08/2008. IN answer to question No. 22, he has disclosed ₹ 1.5 crores during the search under the various heads. It is also fact that the AR of the assessee submitted different confirmation before both the authorities. Now before us, he has filed different confirmations, therefore, the Assessing Officer is directed to verify the confirmation from the books of account of Shri Kanha Ram Agarwal. Accordingly, this issue is set aside to the Assessing Officer for limited purpose to verify and take decision as per law. - Decided on favour of assessee for statistical purposes only. Trading addition by applying GP rate of 15% as against 12.57% declared by the assessee and invoking the provisions of Section 145(3)- Held that:- The defects pointed out by the Assessing Officer are not specific in nature. He has not brought on record any discrepancy in the books of account produced by the assessee but the compared case with M/s Supreme Carpet and Carpet palace who are in the export business. The assessee was trading goods for local market. The case is audited U/s 44AB of the Act as claimed by the assessee. The case law referred the assessee are squarely applicable. Further during the course of search, no incriminating documents were found and seized, therefore, lump sum addition made by the Assessing Officer and partly confirmed by the ld CIT(A) is not justified. Accordingly we reverse the order of the ld CIT(A) and allow the assessee’s appeal on this ground. - Decided on favour of assessee Trading addition by applying GP rate of 35% as against 26% declared by the assessee and invoking the provisions of Section 145(3) - Held that:- It is admitted fact that the assessee has admitted the difference on the basis of stock found during the course of survey and stock prepared on the basis of books of account at ₹ 1,96,668/-. It is undisputed fact that the books were not complete at the time of survey. The assessee also had not prepared trading account at the time of survey to determine the exact stock as per books of account and any difference on physical verification when purchase and sale bills available with the assessee. The assessee’s argument was that the old stock was also included in the closing stock which has lesser value due to various reasons but in closing stock the ld Assessing Officer has valued the carpet at average rate which neutralize the higher rate of per sq.ft of carpet and lower rate of carpet, therefore, this argument is not acceptable. Further the assessee has not produced any evidence that old stock had been sold by the assessee at lower rate, therefore, keeping in view of the facts and circumstances of the case, we confirm the addition of ₹ 2 lacs in case of assessee. The assessee gets relief of ₹ 7,89,668/- - Decided partly in favour of assessee. Issues Involved:1. Initiation of proceedings under Section 153A without incriminating material.2. Addition on account of interest paid to the bank.3. Trading addition under Section 68 for unexplained credits.4. Application of GP rate and invocation of Section 145(3).Issue-wise Detailed Analysis:1. Initiation of Proceedings under Section 153A:- Not Pressed: The ground regarding the initiation of proceedings under Section 153A without incriminating material was not pressed by the assessee and hence was dismissed.2. Addition on Account of Interest Paid to Bank:- Case 1 (ITA No. 969/JP/2013): The assessee argued that the interest paid on overdraft (OD) was for earning taxable income (short-term capital gains) and should not be disallowed under Section 14A. The Tribunal observed that the assessee had more interest income than interest paid and had shown taxable short-term capital gains. The Assessing Officer (AO) did not establish a nexus between the borrowings and exempt income. The Tribunal allowed the assessee's appeal, reversing the addition.- Case 2 (ITA No. 972/JP/2013): Similar arguments were made by the assessee, and the Tribunal noted that the assessee had more interest income than interest paid and had shown short-term capital gains. The AO failed to establish a direct nexus. The Tribunal reversed the addition and allowed the appeal.- Case 3 (ITA No. 989/JP/2013): The Tribunal found that the net interest income was positive and the assessee had shown short-term capital gains. The AO did not establish a direct nexus between borrowings and exempt income. The addition was deleted, and the appeal was allowed.- Case 4 (ITA No. 990/JP/2013): The Tribunal observed that the net interest income was positive, and the assessee had shown short-term capital gains. The AO did not establish a direct nexus between borrowings and exempt income. The addition was deleted, and the appeal was allowed.3. Trading Addition under Section 68 for Unexplained Credits:- Case (ITA No. 971/JP/2013): The AO made an addition of Rs. 6,60,440 under Section 68 for unexplained credits in the name of Shri Kanha Ram Agarwal. The CIT(A) confirmed the addition, noting discrepancies in the confirmations submitted. The Tribunal set aside the issue to the AO for verification from the books of Shri Kanha Ram Agarwal and allowed the appeal for statistical purposes.4. Application of GP Rate and Invocation of Section 145(3):- Case 1 (ITA No. 972/JP/2013): The AO rejected the books of account under Section 145(3) and applied a higher GP rate, resulting in a trading addition. The CIT(A) confirmed the rejection but applied a GP rate of 15%. The Tribunal found the defects pointed out by the AO were not specific and reversed the CIT(A)'s order, allowing the appeal.- Case 2 (ITA No. 973/JP/2013): The AO made a trading addition by applying a higher GP rate of 35% compared to 26% declared by the assessee. The CIT(A) confirmed the addition based on past history and survey report observations. The Tribunal partially allowed the appeal, confirming an addition of Rs. 2 lakhs and granting relief for the remaining amount.- Case 3 (ITA No. 990/JP/2013): The AO made a trading addition by applying a higher GP rate. The CIT(A) confirmed the addition. The Tribunal observed that the net interest income was positive, and the AO did not establish a direct nexus between borrowings and exempt income. The addition was deleted, and the appeal was allowed.Conclusion:The Tribunal provided relief to the assessee on several grounds, particularly concerning the disallowance of interest under Section 14A and the application of GP rates. The Tribunal emphasized the need for the AO to establish a direct nexus between borrowings and exempt income and to provide specific evidence for rejecting books of account under Section 145(3).