2015 (11) TMI 297 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Book Results and Interest Income Dispute

The Tribunal allowed the assessee's appeals for the assessment years 2007-08 and 2010-11, rejecting the Assessing Officer's rejection of book results and ... Rejection of book results under section 145 - estimating the income at 5 percent of gross receipts - Held that:- Stock register may be important for manufacturing industries but when it comes to the case of contractor, it may not be important as the entire material purchased, might have been consumed and charged to profit and loss accountant and the closing stock working progress has been shown by the assessee. In the circumstances, in our opinion, the non-maintenance of stock register alone cannot enable the Assessing Officer to reject the books of account. The Hon'ble Gujarat High Court in the case of CIT Vs. Vikram Plastic [1998 (8) TMI 43 - GUJARAT High Court] held that no specific discrepancies or defects in the books of account of the assessee has been pointed out, nor any material was brought to establish that the purchases and expenses had been inflated or the sales had been suppressed and in the absence of any such material or finding given, there was no justification in invoking the provisions of Section 145(2) of the Act. Thus in the present case Assessing Officer was not justified in rejecting the book results without pointing any specific defects in the books of account. - Decided in favour of assessee. Taxing of interest received due to late payment of amount due to it - business income or income from other sources - Held that:- The interest received by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as an income from business. Accordingly, this ground of appeal filed by the assessee is allowed in its favour. See CIT Vs. Govinda Choudhury & Sons [1992 (4) TMI 8 - SUPREME Court] - Decided in favour of assessee. Issues Involved:1. Rejection of book results by the Assessing Officer.2. Taxability of interest received due to delayed payments.Issue-wise Detailed Analysis:1. Rejection of Book Results by the Assessing Officer:Facts and Arguments:The assessee-company filed appeals against the orders of the CIT(A) for the assessment years 2007-08 and 2010-11. The main contention was the rejection of book results by the Assessing Officer, who estimated the income at 5% of gross receipts, leading to a substantial increase in assessed income. The assessee argued that the Assessing Officer did not provide a proper opportunity to rebut comparative cases and failed to point out specific defects in the books of account, which were duly audited. The CIT(A) upheld the Assessing Officer's decision, citing the low net profit rate and the failure to produce the books of account.Tribunal's Findings:The Tribunal noted that the Assessing Officer rejected the book results primarily due to low profit margins and the absence of a stock register. However, the Tribunal emphasized that mere low profits and non-maintenance of a stock register are not sufficient grounds for rejecting book results. The Tribunal relied on precedents, including the Hon'ble Andhra Pradesh High Court's decision in CIT Vs. Margadarsi Chit Funds (P.) Ltd., which stated that the Assessing Officer must identify inherent defects in the accounting system to reject the books of account. The Tribunal also referred to other cases, such as R.B. Bansilal Abirchand Spg. Wvg. Mills Vs. CIT and Aluminium Industries(P.) Ltd. Vs. CIT, to support its position that low profits alone do not justify the rejection of book results. Consequently, the Tribunal allowed the assessee's appeal on this ground.2. Taxability of Interest Received Due to Delayed Payments:Facts and Arguments:The second issue was whether the interest received by the assessee due to delayed payments should be treated as business income or income from other sources. The assessee argued that the interest was incidental to its business and should be treated as business income. The CIT(A) upheld the Assessing Officer's decision to tax the interest as income from other sources.Tribunal's Findings:The Tribunal referred to the Hon'ble Supreme Court's decision in CIT Vs. Govinda Choudhury & Sons, which held that interest received due to delayed payments is attributable to the business and should be treated as business income. The Tribunal also cited the Supreme Court's subsequent decision in CIT Vs. B.N. Agarwala & Co., which reaffirmed that such interest should be taxed as business income. Based on these precedents, the Tribunal concluded that the interest received by the assessee due to delayed payments should be treated as business income. Therefore, the Tribunal allowed the assessee's appeal on this ground as well.Conclusion:The Tribunal allowed the appeals filed by the assessee for the assessment years 2007-08 and 2010-11, rejecting the Assessing Officer's decision to reject the book results and treating the interest received due to delayed payments as business income. Conversely, the appeals filed by the Revenue for the assessment years 2008-09 and 2009-10 were dismissed, as the Tribunal found the CIT(A)'s reasoning to be consistent with its findings in the assessee's appeals. The decision was pronounced in the open court on 16.10.2015.