AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 14
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....ctually and legally erred in making and confirming trading addition of Rs. 1,57,558/- in the concern M/s. Guman Furniture & Fixtures, Jaipur after rejecting book results u/s 145(3) of the Act without appreciating the facts of the case in right perspective. Thus, the addition so confirmed deserves to be deleted. The grounds raised in the Revenue's appeal are as under :- "1. On the facts and in the circumstances of the case, despite confirming the rejection of books of account under section 145(3) of the I.T. Act and ld. CIT (A) has erred in not confirming the net profit rate of 12% applied by the AO for determining the income from property business by relying on the decision of ld. ITAT in earlier year and instead just sustaining interest disallowances for estimation of profit. 2. On the facts and in the circumstances of the case, despite confirming the rejection of books of account under section 145(3) of the I.T. Act, 1961 the ld. CIT (A) has erred in estimating the profit only on the basis of disallowance of interest ignoring the fact that the assessee, besides not being able to show utilization of entire borrowed fund for the purpose of business, has also failed to - (i) Pro....
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....aluation of stock was done in absence of proper linkage of construction and implication on properties. In earlier years related to search action under section 132 of the IT Act, 50% of construction expenses were disallowed by the AO on account of not being properly verifiable. The addition was partly reduced by the ld. CIT (A) but finally the ITAT had in A.Y. 2007-08 held that net profit rate of 12% will be reasonable in construction business of the assessee. Admittedly, there is no difference in the nature of business, maintenance of accounts bills and vouchers etc. in the year under consideration to that of A.Y. 2007-08 subject to order of ITAT. Accordingly, the AO followed the order of ITAT for A.Y. 2007-08 and applying the provisions of section 145(3) of the IT Act and rejecting accounts of the assessee, net profit of assessee's construction business was estimated @ 12% which resulted into net profit of Rs. 25,84,080/- as against claim of loss of Rs. 99,83,708/-. It was further observed by the AO that the loss in Profit & Loss account was mainly due to claim of interest on OD loan of Adarsh Co-operative Bank. The assessee had not been able to link up the OD loan with the busine....
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....notice that the land deals against availability of such unused cash were stated to be executed in next A.Y. Therefore, prima facie when the unutilized loan is not used for the business purposes of the relevant A.Y. then such claim may not be allowable in that A.Y. Therefore, the books of accounts of the appellant in respect of claim of such interest on that portion of loan which was not used and simply kept as cash availability cannot said to be true and complete in as much as such claim was not proper. Therefore, to such an extent the books of accounts of the appellant can be said to be attracting provisions of sec. 145(3) of IT Act. However, as regards of estimation of profit I find force in the contention of the appellant that the facts and circumstances of the A.Y. 2007-08 in which NP rate of 12% was confirmed were totally different in as much as in A.Y. 2007-08 it was a case of no books of accounts whereas the A.Y. under consideration books of accounts are maintained which are also of auditable nature. Therefore as against applying a particular NP or GP rate it is considered more logical to make specific disallowance in as much as the issue involved is only of claim of interes....
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....n the past, besides having income from remuneration, rent and other sources etc. The appellant had also started a new venture of Furniture and Fixture under the name and style of M/s. Guman Furniture and Fixtures, Jaipur, during the year for the first time. The year under consideration is regular year and there is no bearing of search operations on the book results for the year under consideration. The AO solely assessed the assessee's income by following the ITAT's order wherein GP rate @ 12% applied on property business. For search assessment period, no books of account was maintained by the assessee and GP was estimated by the ITAT Jaipur Bench on the basis of search result only. During the year under consideration the assessee has maintained regular books of account which were audited. The AO had not pointed out any mistake, discrepancy or defect of glaring nature in the regular books of accounts except routine deficiency for non maintenance of stock register and valuation of closing stock etc. Therefore, facts and circumstances of the present assessment year was not comparable with the facts and circumstances of the assessment year of the search period. During the year huge in....
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....to run the business of construction. The Revenue Authorities cannot dictate the terms and conditions how to run the business of the assessee and utilize the fund. It is fact that no businessman would pay interest on borrowed funds and book the loss on account of interest payment. The liability is on the assessee and it also affect the financial position of the assessee. One of the reasons of withdrawing cash from the OD was that OD limit could be reduced by the bank. He further relied on the decision in case of CIT vs. Tarai Development Corporation Ltd. (1994) 205 ITR 421 (All.) and argued that AO cannot object on genuine borrowing even if the rate of interest is very high. The ld. AO has not disputed the genuineness and correctness of the interest payment of Rs. 1,25,67,781/-. The negotiation for the property transaction worth Rs. 8 crores were underway during the year and were materialized immediately after this year. Thus the fact of business exigency could not be ruled out. It is further argued that it is not necessary that investment made out of borrowed funds should yield any profit in the year. For this he relied on the decision in case of Calico Dyeing & Printing Works vs. ....
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....ear. The AO pointed out the various defects in the books of account viz. non-maintenance of closing stock, purchases in cash and also not produced the sales/purchase vouchers of material used in construction business. Therefore, book results of the assessee cannot be held complete and correct. Thus provisions of section 145(3) are squarely applicable. Therefore, we confirm NP rate @ 10% in place of 12% applied by the AO subject to depreciation and interest payment. We are of the considered view that no notional addition can be made on account of disallowance of interest on OD account. Further, no evidence has been brought on record that assessee had used funds available with him somewhere else as the burden is lying on the Revenue to prove otherwise which has not been discharged by the revenue. No prudent businessman would create loss by availing OD facility and paying interest on it. There was a business necessity of the assessee for availing the OD facility. It is undisputed fact that funds had not been utilized during the year but liability on account of interest had been occurred. Therefore, we allow the interest claimed by the assessee being just and in the interest of busines....
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....f NP rate. The appellant has disputed the application of provisions of Sec. 145(3) as also application of NP rate of 1%. It is stated that the AO has failed to point out any specific and significant discrepancy or omission and in absence of any specific mistake rejection of books of accounts was not legally maintainable. As regards application of 1% NP rate it is contended that the application of rate is without any basis. As regards raising of secured loans the appellant contended that it was the first year for carrying out business operations and the appellant had to raise loans and pay interest on the borrowed capital from banks. It is stated that the AO has given very general finding that exact use of these funds for business purposes was not verifiable and that when the interest payments are verifiable from books of accounts the finding of the AO was without any basis. On careful consideration of all relevant facts it is noted that there is no dispute that stock register and quantitative details of trading items are not maintained. It may also be stated that keeping of stock register is definitely of great importance for verification of the accounts maintained by the assessee ....