TaxTMI 
TaxTMI 
2015 (10) TMI 2422
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....account of "Interest paid to bank" without consideration the submission of the assessee and material evidences submitted during the assessment proceedings." 3. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed. 4. The ground No. 2 of the appeal is against confirming the addition of Rs. 6,69,062/- on account of interest paid to bank. The assessee derived income from share of profit from firm, capital gain and other sources. He filed his return for A.Y. 2008-09 on 30/01/2009 declaring total income of Rs. 34,24,610/-. There was a search and seizure operation conducted in this case on 27/08/2008 U/s 132 of the Income Tax Act, 1961 (hereinafter referred as the Act). Therefore, assessment in this case as passed U/s 153A/143(3) of the Act. The ld Assessing Officer observed that the assessee had debited a sum of Rs. 6,69,062/-in the income and expenditure account under the head interest paid to bank. It is found by the Assessing Officer that the assessee has utilized overdraft facility from bank to invest in IPO of Indian companies and paid interest to the bank. It was submitted before the Assessing Officer vide letter dated 02/12/2010 that no bo....
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....rom whom the interest has been declared, though nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and invested in the IPOs cannot be claimed that the assessee was having surplus fund. The assessee is also not entitled to netting of the interest earned on FDR with interest paid on the OD as there is no nexus between the earning of the interest and expenditure incurred on earning of this interest, therefore claim of the assessee is not allowable. She relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). She further observed that the assessee had not explained the investment in IPOs month wise and also not explained relationship betwee....
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....applied, the ld Assessing Officer had to prove the nexus that interest bearing fund was utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the addition. At the outset, the ld DR has vehemently supported the order of the ld CIT(A). 7. We have heard the rival contentions of both the parties and perused the material available on the record. It 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 Rs. 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 bearin....
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....case of Kanha Ram Agarwal showed the opening balance of Rs. 6,40,439/- as on 01/4/2002. To verify the observation of the Assessing Officer in the assessment order, the assessment record was called for, further verifications were made by her. She found that Sh. Kanha Ram Agarwal in the books of account had been submitted during the course of assessment proceedings, a different copy of account, which submitted before her. As per ledger account, the opening balance as on 01/4/2002 was Rs. 4,76,296/- and not Rs. 6,40,439/-. Therefore, it is a case of misrepresentation of fact before her and the submissions being made in the various proceedings of the department are to be fabricated to suit the convenience of the appellant. Therefore, both the copies of ledger accounts filed before the Assessing Officer and before the ld CIT(A) were held to be unreliable evidence and the addition of Rs. 6,40,439/- was confirmed. 12. Now the assessee is in appeal before us. The ld AR of the assessee has argued that it is mistake made by the AR, the assessee should not be penalized for wrong furnishing of confirmation. He has further drawn our attention on page No. 22 of the paper book that opening balan....
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....ons of Section 145(3) of the IT Act, 1961 without consideration the submission of the assessee and material evidences produced during the assessment proceedings." 16. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed. 17. The ground No. 2 of the appeal is against confirming the addition of Rs. 1,12,021/- on account of interest paid to bank. The assessee derived income from capital gain on transactions in shares and other sources in the form of interest. He filed his return for A.Y. 2008-09 on 28/10/2009 declaring total income of Rs. 9,64,590/-. There was a search and seizure operation conducted in this case on 27/08/2008 in the case of Agarwal (Carpet) Group. Therefore, assessment in this case as passed U/s 153A/143(3) of the Act. The ld Assessing Officer observed that the assessee had debited a sum of Rs. 1,12,021/- in the income and expenditure account under the head interest paid to bank. It is found by the Assessing Officer that the assessee has utilized overdraft facility from bank to invest in IPO of Indian companies and paid interest to the bank. It was submitted before the Assessing Officer vide letter dated 02/12/2010 that no bor....
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....person other than the family from whom the interest has been declared, though nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and invested in the IPOs cannot be claimed that the assessee was having surplus fund. The assessee is also not entitled to netting of the interest earned on FDR with interest paid on the OD as there is no nexus between the earning of the interest and expenditure incurred on earning of this interest, therefore claim of the assessee is not allowable. She relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). She further observed that the assessee had not explained the investment in IPOs month wise and also not....
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....utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the addition. At the outset, the ld DR has vehemently supported the order of the ld CIT(A). 20. We have heard the rival contentions of both the parties and perused the material available on the record. It 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 Rs. 8,46,859/- 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....
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.... consistently failed to furnish the quantitative details of the stock and purchase and sale bills for necessary verification. Therefore she confirmed the rejection of books of account U/s 145(3) of the Act. She further held that regarding estimation of the GP rate the A.O. had relied on the sister concern's GP rate while the AR of the appellant has insisted that its case is different from the sister concerns because he was not exporting his product. In view of this submission and the consistent stand of the Hon'ble ITAT that past history of the appellant is the best guide for determining the GP rate of the assessee, the GP rate chart was perused and it is seen that the appellant had shown a GP rate of 13.57% for A.Y. 2007-08 on total turnover of Rs. 39,89,388/- and during this A.Y. he has shown the GP of 12.57% on decreased turnover of Rs. 39,45,037/-. It is a generally accepted principle that in manufacturing industry the GP rate improves with decline in turnover. Therefore the GP is estimated at 15% and after giving a set off of GP declared by the appellant of Rs. 4,90,000/-, a trading addition of Rs. 1,01,755/- has been confirmed. Accordingly, part relief was allowed by the ld C....
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....e 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. 26. In the result, the assessee's appeal is partly allowed. 27. ITA No. 973/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2012 passed by the ld CIT(A), Central, Jaipur for A.Y. 2009-10. The sole ground of appeal is reproduced as under:- "Under the facts and circumstances of the case the ld CIT(A) has erred in sustaining the trading addition of Rs. 9,89,419/- by applying GP rate of 35% as against 26% declared by the assessee and invoking the provisions of Section 145(3) of the IT Act, 1961 without consideration the submission of the assessee and material evidences produced during the assessment proceedings." 28. The sole ground of the appeal is against sustaining the trading addition of Rs. 9,89,419/- by applying GP rate of 35% as against 26% declared by the assessee and invoking the provisions of Section 145(3) of ....
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....m Vs. ACIT (2006) 285 ITR 256 and CIT Vs. Lal Chand Bhabutmal Jain (1985) 151 ITR 360 (Bom). He further observed that that Shri Kanha Ram Agarwal, brother of the husband of the assessee in the statement recorded on oath during the search has categorically admitted to have undisclosed income on account of money lending, share business, gift received in the name of family members etc. excess stock found during search/survey and also surrendered Rs. 1.5 crores on this account. However, he retracted subsequently on the surrender made in the statement during search. The assessee failed to substantiate the excess stock found at his premises was genuinely recoded in the books of account during the post survey period. Since the opening stock was available with the assessee which may have been partly sold and some fresh stock may have been purchased before the date of survey. 50% of the stock found at the time of survey is treated as verifiable and 50% is treated as unverifiable in the light of discussion made above and the discrepancies noticed in the nature of stock inventorised by survey party and nature of stock recorded by the assessee in his books of account. Thus, he made addition of....
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....as taken as per the submissions of the assessee but was not supported by purchase bills though the assessee agreed to provide the purchase bills. (c) Valuation of the stock found was taken on the basis of sale value of the carpet less GP rate and the value of the stock was calculated as follows: "Valuation of stock is given as under:- A. Value of carpets finished @ Rs. 303/- (i.e. 7206 sq.ft X Rs. 303 Satevalue GP) Rs. 21,88,418 B. Value of unfinished carpets @ 273 sq.ft as 2932 sq.ft.X Rs. 273 Stated by the owner Rs. 8,00,436 C. Value of yarn threat etc. at an average rate 4818 KG X Rs. 145 of Rs. 145/- per kg Rs. 6,98,610/- D. Value of yarn given to the wears @ Rs. 1451 4942 kg. X Rs. 145 Rs. 7,16,590/- Total value of stock as found on 27/08/2008 Rs. 43,99,054/- Thus on the basis of the observations of the auditor and the survey report made by the ITO on 28/08/2008, it is held that the books of appellant are not reliable and provisions of Sec. 145(3) are invoked in her case. She further held that the Hon'ble ITAT has held that the past history of the case is the best guide in determining the GP rate. In this case, it is seen that the turnover duri....
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....explained and had not provided any opportunity to the assessee as to why 50% of stock was to be treated as unexplained. Therefore, action of the Assessing Officer is against the principles of natural justice. He further argued that stock found at the time of survey at Rs. 43,99,054/- whereas as per stock computed on the basis of books of account was Rs. 42,02,386/-, the difference of Rs. 1,96,668/-was due to wrong measurement of carpet taken at the time of survey. During the course of survey, the value of per sq.ft was taken @ 303 per sq.ft. but the entire stock was not of same quality. Further the assessee had opening stock of Rs. 50,95,585/- which includes accumulated outdated old fashioned, discolored and dilapidated stock of last several years. He further calculated the old stock roughly at 1000 sq.ft, which cannot be valued more than 100 per sq.ft.. Therefore, if this rate is applied on old stock, the difference is also reconciled. There is no basis to consider the statement of Sh. Kanha Ram Agarwal, brother of husband of the assessee for assessing the income of the assessee. He further argued that statement recorded U/s 132(4) of the Act was not recorded in presence of witnes....
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....he assessee and material evidences submitted during the assessment proceedings." 35. The ld Assessing Officer observed that the assessee derived income from business i.e. proprietory concern M/s Carpet Palace, income from capital gain from shares and income from other sources. The assessee had debited a sum of Rs. 74,837/- in the P&L account under the head interest paid to bank. He found that the assessee had utilized overdraft facility from the bank to invest in IPO of Indian companies and paid interest to the bank. The assessee was given reasonable opportunity of being heard on this issue. After considering the assessee's reply by observing that the interest from the FDR is entirely different issue. The assessee owned several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such assets is concerned. The interest had been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividends) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on asse....
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.... term capital gain does not come U/s 14A of the Act. The investment made in the shares/IPO out of own capital, which was at Rs. 7,69,78,116/- as on 01/4/2007 whereas the investment in share is much lower. The dividend income of Rs. 24,861 is an incidental on addition of investment in shares. The assessee did not invest for earning dividend income, which is just incidental but invested in for the purpose of capital gain both long term and short term. He further relied on the following case laws: (i) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum). (ii) CCI Ltd. Vs. JCIT (2012) 71 DTR 141 (Kar) (iii) CIT Vs. Hero Cycles 323 ITR 518 P&H). (iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib). Therefore, he prayed to delete the addition. 38. At the outset, the ld DR has vehemently supported the order of the ld CIT(A). 39. We have heard the rival contentions of both the parties and perused the material available on the record. The net interest income is positive. The assessee has shown short term capital gain of Rs. 60,516/- and paid tax on it. The assessee had own capital more than at Rs. 7.69 crores. The intention in applying of the IPO of the assessee m....
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....i in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009. Thus, he made addition of Rs. 3,91,952/-. 43. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of Rs. 11,75,638/- on FDR made from surplus fund available with him. The interest paid on overdraft facility taken against this FDR was @ 10.75% totaling to Rs. 3,91,952/- during the year. The assessee had invested in IPO and shares at Rs. 61,57,105/- against the OD facility of Rs. 94 lacs during the year under consideration. Apart from overdraft facility taken to advance loan to other persons outside the family from whom the interest was charged. A continuous current account was maintained with the other members of the family and the firm M/s Carpet Palace from where amounts were withdrawn from time to time prevent the overdraft from going over the limit of Rs. 94 lacs. Though the nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account or not. Thus the appellant had taken O....