2011 (4) TMI 1458 - AT - Income Tax

Summary

Issues involved: Appeal against order of ld. CIT(A) on grounds of addition of notional interest, difference in books of account, and low profitability.

Issue 1: Addition of notional interest

The appeal challenged the addition of notional interest on advances made to individuals, contending it violated Sec 36(iii) of the Income-tax Act. The Authorized Representative acknowledged a similar issue had been decided previously by the Tribunal for A.Y 2005-06. Referring to the Tribunal's earlier order, it was noted that the advances were made for acquiring new assets to further the business activity, not as loans. The Tribunal upheld the disallowance of the notional interest, citing the proviso under Sec 36(1)(iii) as applicable. Consequently, the appeal on this ground was dismissed.

Issue 2: Difference in books of account

Regarding the addition related to differences in balances between the assessee's books and those of National Fertiliser Ltd., the Authorized Representative admitted the discrepancies and expressed the assessee's intention to conceal them. The matter was remanded to the Assessing Officer for reconciliation of the differences, directing a fresh assessment in accordance with the law. Ground No. 2 was treated as allowed for statistical purposes.

Issue 3: Addition on account of low profitability

The impugned addition on grounds of low profitability was made by the AO after the assessee had agreed to it. The ld. CIT(A) upheld the addition, which was confirmed during the hearing. The Authorized Representative clarified that the addition was agreed upon by the assessee's counsel in the absence of the assessee before the AO. As the assessee failed to provide any material to counter the AO's findings, ground No. 3 was dismissed. The appeal was partly allowed, with the order pronounced in April 2011.