2015 (9) TMI 183 - AT - Income Tax

Disallowance of interest Exp. @ 50% of late payment interest paid - CIT(A) deleted addition - Held that - The assessee has alleged that it made purchases of yarn of ₹ 2,95,92,854/-. On certain occasion it could not make payment in time. Therefore, it has to make the payment of yarn along with interest on the amount due. The AO did not find fault with the purchases made by the assessee nor doubted the existence of the parties who have supplied the yarn. Any way, the AO has interfered in the wisdom of assessee of doing the business. The ld. AO felt that assessee should do the business in a particular way and should not keep some cash balance in hand. It should discharge its liability towards purchase of yarn. But, i.e. not the correct way visited with the AO. Therefore, in our opinion, ld. first appellate authority has rightly deleted the addition. - Decided in favour of assessee. Addition estimating G.P. - CIT(A) deleted addition - Held that - AO has not pointed out any defect in the books which unable him to deduce the true income. His approach was that assessee ought to have earned more income than the one shown by it. G.P. disclosed during this year is better than that of immediately preceding two yeaRs. The ld. counsel for the assessee pointed out that in earlier two years assessments were under section 143(3). The reference of Rs,62,704 made by the AO is in respect of income where the GP of the assessee is ₹ 88 lacs. If this approach of the AO is considered then no assessee shall have any loss. The ld. CIT(A) has appreciated this aspect in his findings. After going through the finding of CIT(A) we do not find any error in his order. This ground of appeal is rejected. - Decided in favour of assessee.

Summary

Issues:
1. Addition of interest expenditure
2. Addition of estimated Gross Profit (GP)

Issue 1: Addition of interest expenditure
The Revenue appealed against the CIT(A)'s order deleting the addition of Rs. 9,09,983 as interest expenditure. The AO observed the assessee paid high interest expenses while maintaining a significant cash balance, leading to the addition. However, the CIT(A) disagreed, stating the AO interfered in the business operations of the assessee. The Tribunal concurred, noting the AO's interference was unwarranted as the assessee's explanation for the interest expenditure was reasonable and within business norms. Therefore, the CIT(A) rightly deleted the addition.

Issue 2: Addition of estimated Gross Profit (GP)
The Revenue contested the CIT(A)'s deletion of the addition of Rs. 26,52,783 based on an estimated GP of 19%. The AO justified the addition due to irregularities in the assessee's accounts, rejecting the books under section 145(3) of the Income Tax Act. However, the CIT(A) found the GP declared by the assessee reasonable, with no specific defects in the books. The Tribunal agreed, emphasizing that the AO's comparison with other concerns lacked merit as the assessee's books were audited and maintained regularly. The Tribunal upheld the CIT(A)'s decision, highlighting that rejecting books without specific defects was unjustified. The appeal of the Revenue was dismissed, affirming the CIT(A)'s deletion of the GP addition.

In conclusion, the Tribunal upheld the CIT(A)'s decision in both issues, emphasizing the importance of following accounting standards and the need for specific defects to reject book results under section 145(3) of the Income Tax Act.