2016 (3) TMI 186 - AT - Income Tax

Addition on account of unaccounted sales - Assessee s main source of turnover is commission and compensation as well as services, fabrication and erection work - Held that - Looking to the total financial exposures of the company in lieu of gross turnover, profit for the year, share capital reserve and surplus etc. and above all when all the books of accounts are audited then raising doubt on a transaction which has been carried out in the normal course of business then it was not correct on the part of the Assessing Officer to doubt about the transaction of a meagre amount without bringing on record any evidence in respect of transactions of suppressed sales. Assessing Officer should have appreciated that business is carried on by its management which has to look after its day to day activities and certainly whimsical doubt should not be raised about a transaction that goods costing of ₹ 8,05,578/- would be sold at a suppressed value of ₹ 4,42, 831/-. When the goods are three years old and are of no regular use by the company and also the fact that there is no other sale of products of the company then certainly this transaction would have occurred in a normal course of business. We do not find any reason in disbelieving the assessee. We, therefore, delete the addition - Decided in favour of assessee Proportionate disallowance of interest relating to investments meant for earning exempt income - Held that - Assessee is having a capital reserve and surplus basis of ₹ 9.25 crores and the brought forward investment as on 31.3.2002 is ₹ 3.66 crores and it can be easily inferred from the figures that assessee was having sufficient source of capital and reserve and surplus which might have been utilized for the investments. In lack of any other evidence brought on record by the Revenue as well as respectfully following the decision of Jurisdictional High Court and decision of co-ordinate bench for various years in assessee s own case, we are of the that no disallowance should have been made for interest in the case of assessee and we delete the same - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of interest attributable to investment in shares.
2. Addition on account of unaccounted sales.
3. Imposition of penalty under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Attributable to Investment in Shares:
The assessee contested the disallowance of Rs. 3,58,015/- on the grounds that the investments in shares were made using capital and free reserves, not interest-bearing funds. The Tribunal noted that no major investments were made during the year, and the existing investments had been made in previous years. The Tribunal referred to previous judgments in the assessee's own case, where similar disallowances were deleted. Additionally, the Tribunal cited the decision of the Hon. Jurisdictional High Court in the case of Torrent Power Ltd., which upheld that if the assessee had sufficient funds for investments and did not use borrowed funds, disallowance of interest should not be made. Consequently, the Tribunal deleted the disallowance of Rs. 3,58,015/-.

2. Addition on Account of Unaccounted Sales:
The assessee argued against the addition of Rs. 3,50,000/- for unaccounted sales, asserting that the sales were of old stock, which had depreciated in value due to wear and tear. The Tribunal observed that the assessee is a limited company with audited accounts and a significant turnover. The Tribunal found no evidence to support the Assessing Officer's claim of suppressed sales and noted that the transaction was carried out in the normal course of business. Given the circumstances, including the age and condition of the stock, the Tribunal found no reason to disbelieve the assessee and deleted the addition of Rs. 3,50,000/-.

3. Imposition of Penalty under Section 271(1)(c):
The penalty of Rs. 1,25,000/- was imposed based on the addition of Rs. 3,50,000/- for unaccounted sales. Since the Tribunal deleted the quantum addition, the basis for the penalty no longer existed. Consequently, the Tribunal deleted the penalty imposed under section 271(1)(c).

Conclusion:
The Tribunal allowed both appeals filed by the assessee, deleting the disallowance of interest attributable to investments in shares and the addition for unaccounted sales. Additionally, the penalty imposed under section 271(1)(c) was also deleted. The order was pronounced in the open Court on 29th February 2016.