TaxTMI 
TaxTMI 
2023 (5) TMI 1328
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....he assessee in principal accepted Percentage Completion Method (PCM) and returned profit of Rs. 3,11,94,560/-whereas the Assessing Officer estimated the profit at 9.31% under Profit Margin Method (PMM) as per earlier assessment Year 2015-16 and accordingly made an addition of Rs. 2,76,69,223/-. The assessing officer also made disallowance of interest u/s. 36(1)(iii) of the Act amounting to Rs. 1,06,64,058/-and thereby demanded tax thereon. 3. Aggrieved against the same, the assessee filed an appeal before Ld. Commissioner of Income Tax (Appeals) who deleted the additions as follows: 7.1 Assessment has been completed u/s. 143(3) of the Act and the appellant had furnished all information called for during the course of assessment proceedings. The assessee is a private limited company and it maintaining regular books of accounts which have been subject to statutory tax and company audit. The perusal ci the audit report also does not reveal any qualificatory remark passed by the auditor with regard the maintenance or reliability of accounts. The AO has not pointed out any defect or shortcoming in the books of accounts maintained. It is also an undisputed fact that the books....
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.... estimating income therein has to be a reasonable nexus between the material available and circumstances of the case. The AO has not pointed out any material or other evidence on the basis of which an inference can be drawn that the books of accounts maintained by the appellant company are unreliable and the profits disclose therein are not acceptable and therefore, are required to be estimated. The Ld. AR has also relied upon the case of CIT v Symphony Comforts Systems Ltd. (2013) 216 taxman 225 (Gujarat) wherein the AO has merely observed a fall in GP rate as compared to the earlier years and accordingly made additions to the gross profit. However, no defect in the maintenance of the books of accounts was pointed out. Accordingly, it was held that there was no justification in rejecting the books of accounts and enhancement the GP rate. In view of the above discussion, I do not find any merit in the action of the AO in determining the profits at Rs. 5,88,63,783/-the same is restricted to Rs. 3,11,94,560/-which is the returned profit offered by the appellant company, the addition made is deleted. AO is directed accordingly Ground NO 2 & 4 of the appeal are allowed. 3.1....
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.... free surplus of Rs. 52,51,80,178/-(162,47,07,738-109,95,27,560). This is far in excess of the interest free advances of Rs. 32,43,89,582/-on account of which interest has been disallowed. The above facts would clearly reveal that the appellant company had sufficient interest free funds to make these interest free advances. Appellant relied on various judgments and contended that it is a settled proposition of law that where the assessee has sufficient interest free funds in excess of the alleged interest free advances, no disallowance of interest u/s 36(1)(iii) can be made by attributing the same to interest free advances. Reliance is placed by the appellant on the following judicial pronouncements by the appellant. 8.3.1 Pr. CIT v Diamond Textile Mills (2018) 96 taxmann.com 234 (Guj.) wherein it has been held as under: "Section 36(1)(ii) of the Income-tax Act, 1961 Interest on borrowed capital (Used for purpose of business) Assessment year 2012-13-In course of Assessment, Assessing Officer disallowed interest paid by assessee on various loans and advances-Tribunal found that assessee was already having a huge interest free funds available with it, moreover, amou....
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.... the case of Gujarat State Fertilizers & Chemicals Ltd. (supra) to the facts of the case on hand and when it has been found that the assessee was having interest-free funds far an excess of investments and therefore, it can be said that the investments are made out of interest-free funds and therefore, the AO was not justified in making additions and/or making disallowance under section 36(1)(iii) of the IT Act Under the circumstances, no error and/or illegality has been committed by the learned ITAT in deleting the disallowance made by the AO under section 35(1)(ii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act." 8.4 The fact that appellant had surplus interest free funds of nearly Rs. 32 crore and the total advances on which deemed interest u/s. 36(1)(ii) is computed are only Rs. 32,43,89,582/-, these facts being uncontroverted the case is squarely covered by the ratio of the judgments of Hon'ble jurisdictional High Court in the case of CIT Vs Amod Stamping (supra) relied upon by the appellant. Respectfully following the same the disallow....
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....145 of the Act, but estimated the income based on Profit Margin Method. The Co-ordinate Bench of this Tribunal for earlier Assessment Year 2014-15 deleted the addition made by the AO observing as follows: "...6. Before us, the Ld.DR was unable to point any infirmity in the findings of the Ld.CIT(A) that as per the guidance note issued by the ICAI for accounting of construction contracts the cost of land was to be excluded for calculating the Construction and Development cost of the project, nor was he able to controvert the factual findings of the Ld. CIT(A) that after excluding this cost of land the CDC completed by the assessee during the year was below the prescribed 25% of the Estimated cost of the project. Since the basis of the AO for recognizing Revenue from construction contracts of the assessee during the impugned year was the CDC, as per his calculation exceeding the prescribed limit of 25% of the estimated cost of project, which the Ld.CIT(A) has found to be factually incorrect and the Revenue has been unable to controvert the factual finding of the Ld.CIT(A) before us, we see no reason to interfere in the order of the Ld.CIT(A) upholding the claim of t....