2013 (1) TMI 650 - HC - Income Tax

Addition on estimate basis by arbitrarily rejecting the books being duly audited - assessee is using old machinery and oil cakes have has to contain appreciable amount of oil for sale in market towards animal feed - Held that - The sales of oil and oil cakes have been shown in the manufacturing account in consolidated form although there is wide variation in the market price in these products best known to him. Also there was wide variation in the percentage of yield of oil, sale rates of oil and oil cakes in the market, but keeping in view the yield disclosed by the appellant in the consolidated form not only the books of account were rejected but also the yield was assessed in a particular manner. The order passed by the Tribunal is based upon pure findings of fact. No substantial question of law arise for consideration. Addition on account of interest on business loan - Held that - Since the assessee has advanced loan from his cash credit account on which the interest was paid by the appellant, therefore, such interest has been rightly disallowed as expenditure. The plea of the assessee the amount being advance interest free loan has rightly been not accepted - appeal against assessee.

Summary

Issues:
1. Justification of addition on estimate basis by Tribunal
2. Confirmation of addition on account of interest on business loan by Tribunal

Issue 1: Justification of addition on estimate basis by Tribunal
The appellant appealed against an order by the Income Tax Appellate Tribunal regarding the assessment year 2008-09. The appellant raised questions regarding the addition of Rs. 3,00,000 on an estimate basis and Rs. 2,89,220 on account of interest on a business loan. The appellant argued that the Tribunal arbitrarily rejected audited books, ignored the National Analytical Laboratory report, and failed to consider the use of old machinery and the oil content in the cakes. The Assessing Officer initially added Rs. 8,68,800 to the income, which was later reduced by the Commissioner of Income Tax(A) to Rs. 2 lacs. However, the Tribunal increased the yield and added Rs. 3 lacs. The Tribunal observed discrepancies in the appellant's reporting of oil and oil cakes yield and sales in consolidated form, leading to the rejection of books and assessment of yield in a specific manner. The Tribunal's decision was based on factual findings, and the first substantial question of law was deemed not to arise.

Issue 2: Confirmation of addition on account of interest on business loan by Tribunal
Regarding the second substantial question of law, the appellant had given interest-free loans to his son's firm from his cash credit account, on which he paid interest. The Assessing Officer disallowed the interest amount paid by the appellant, considering it as an expenditure. The appellant's argument that the amount was an advance interest-free loan was not accepted, and the disallowance of interest was upheld. Based on the findings, the Court found no merit in the appellant's appeal and dismissed it.

In conclusion, the High Court upheld the Tribunal's decision on both issues, stating that the Tribunal's findings were based on factual evidence and rejecting the appellant's arguments.