2012 (7) TMI 789 - AT - Income Tax

Addition on account of estimation the cold storage rent alleged that assessee was suppressing the rental receipt by showing under utilization of the capacity of cold storage Held that - There is nothing on record to suggest that the receipts shown by the assessee on account of rent of cold storage are less than what the appellant actually received. The addition made by the AO is based on suppositions and conjectures and not on any credible evidence to support the case of the AO Addition deleted Whether AO was justified in invoking the provisions of section 145(3) of the I.T. Act Rejection of books of accounts on the basis of non-maintenance of records of loading/unloading expense, excessive consumption of power AO alleged that actual rent received by the assessee was Rs.40 per bag and rebate of Rs.5 per bag shown in the bill was not genuine Held that - It has not been established by the AO that it is not Rs.35 per bag but actually Rs.40 per bag has been received by the appellant - same cannot be a reason for rejection of books of account. Under utilization of capacity Held that - Unless and until it is proved that there was full capacity utilization, but the same has been suppressed before the department then only there would be a case with the AO for rejection of books of account. Excess consumption of power Held that - Fuel and power expenses are directly related to the running of cold storage, some cold storage might run for longer time than the others particularly in view of the fact that rent is relatable to whole year and is not charged on day to day basis - AO was not justified in invoking the provisions of sec. 145(3) of the Act Addition on account of interest income earned on the loans given to farmers alleged that other cold storage of Agra and nearby locality are also showing income on this account Held that - Assessee has given advance to farmers to keep their potato in cold storage of the assessee. The assessee did not charge interest on such advance given to farmers - such interest free advances to the farmers is in accordance with commercial expediency Addition deleted In favor of assessee Addition on account of payment made to National bank Handling Corporation alleged that payment for acquiring the membership was given once for all and is of capital nature Held that - It is mentioned in the certificate itself that the membership is valid for one year - such type of payment is revenue in nature and the CIT(A) has rightly deleted the addition In favor of revenue Addition on account of interest on the loans taken from concerns of Ganga Ram Group alleged that this group is famous for giving accommodation entries on commission basis and the assessee could not prove the genuineness of these loans Held that - When addition itself is deleted accepting the loan taken as genuine, therefore, the related interest disallowed is not justifiable Decided in favor of assessee

Summary

Issues:
1. Addition of cold storage rent
2. Invocation of section 145(3) of the I.T. Act
3. Addition of interest income earned on loans to farmers
4. Disallowance of payment made to National Bulk Handling Corporation
5. Disallowance of interest paid on loans from Ganga Ram Group
6. Overall correctness of the CIT(A)'s order

Analysis:

1. Addition of Cold Storage Rent:
The Revenue appealed against the deletion of an addition of Rs.11,62,210 made by the AO regarding the cold storage rent. The CIT(A) held that the AO was not justified in rejecting the books of account under section 145(3) of the Act. It was observed that there was no evidence to suggest that the receipts shown by the assessee were less than what was actually received. The I.T.A.T. had previously decided in favor of the assessee for a similar issue in a previous assessment year. The Tribunal confirmed the CIT(A)'s decision, maintaining consistency.

2. Invocation of Section 145(3) of the I.T. Act:
The Revenue disputed the CIT(A)'s decision to delete the addition based on the invocation of section 145(3) of the I.T. Act. The CIT(A) found that the reasons cited by the AO were not sufficient to reject the books of account. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to establish the actual rent received by the assessee, and hence, invoking section 145(3) was not justified.

3. Addition of Interest Income Earned on Loans to Farmers:
The AO added Rs.4,73,893 as interest income earned on loans given to farmers, which the CIT(A) deleted. The CIT(A) noted that there was no evidence to establish that the assessee received interest on the advances given to farmers. The Tribunal upheld the CIT(A)'s decision, stating that interest-free loans to farmers were in line with commercial expediency.

4. Disallowance of Payment Made to National Bulk Handling Corporation:
The AO disallowed a payment of Rs.1,50,000 made to National Bulk Handling Corporation, Mumbai, for acquiring membership. The CIT(A) deleted this addition, considering the nature of the payment and the validity of the membership. The Tribunal confirmed the CIT(A)'s decision, stating that the payment was revenue expenditure and allowable.

5. Disallowance of Interest Paid on Loans from Ganga Ram Group:
The AO disallowed Rs.15,600 as interest paid on loans from the Ganga Ram Group. The Tribunal found that since the related loan amount was accepted as genuine, disallowing the interest was not justified. The Tribunal upheld the CIT(A)'s decision to delete the addition.

6. Overall Correctness of CIT(A)'s Order:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order on all issues presented. The Tribunal found no infirmity in the CIT(A)'s reasoning and decisions, maintaining consistency with previous judgments.

This detailed analysis of the judgment covers all the issues involved, providing a comprehensive overview of the legal proceedings and decisions made by the authorities involved.