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2016 (7) TMI 943 - ITAT BANGALOREInvocation of section 144 - estimation of income - Held that:- It is not disputed that assessee failed to produce books of account. It could not furnish various details called for by the AO. Assessee had filed its balance sheet and profit & loss account along with the return of income. Once the assessee, despite notices, failed to produce books of account for verification, AO is left with no choice but to proceed with a best judgment assessment. We cannot find any fault with the AO in this regard - Decided against assessee Interest expenditure disallowed for the reason that it was expenditure pertaining to work-in-progress and had to be capitalized - Held that:- It is clear from clause 12 of the Accounting Standards 2 that normal interest and borrowing costs cannot form part of cost of inventory. When an assessee is following method of valuation of inventory which is in accordance with the Accounting Standards prescribed by ICAI, in our opinion, Revenue cannot step into the shoes of assessee and foist on it a different method, unless there is a clear statutory edict allowing a departure from such accepted standards. We cannot say that assessee had understated its work-in-progress or inventory by not charging interest relating to working capital loan to its valuation. Assessee was well justified in considering interest as a period cost and debiting in its profit & loss account. We do not find any merit in the additions made by the AO - Decided in favour of assessee Rejection of books of account and estimation of business income at 8% - Held that:- Scrutiny assessments were done for AYs 2006-07 & 2007-08 and the net profit rate accepted were much lower than 8%. Submission is that such rates came to 1.7% for AY 2007-08 and 2.21% for AY 2006-07. We, therefore, set aside the orders of authorities below in so far as it relates to the estimation of profit and direct the AO to take the average of net profit of the above two years and apply it to the gross receipts of the assessee and determine its income from business for the impugned assessment year Addition u/s 41(1) - Held that:- AO in his remand report has stated that assessee was unable to give ledger extracts from the books of creditors for proving the credit. But this by itself would not show that liabilities had ceased to exist; when the liabilities were appearing in the books of account. AO had not issued any summons on the creditors or obtained any statements from them which would show that liabilities were not existing and had ceased. In any case, we find that assessment was completed u/s. 144 of the Act. When an assessment is completed u/s. 144 of the Act by applying the net profit rate on the turnover, addition u/s. 41(1) of the Act, in our opinion, cannot be made. When books of account as such are rejected, the question whether creditors appear in such books were there or had ceased to exist, would become irrelevant. We are of the opinion that ld. CIT(Appeals) was justified in deleting such addition.- Decided in favour of assessee
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