2017 (1) TMI 932 - AT - Income Tax

Unaccounted purchases - Held that - Upon examination of the records the learned CIT(Appeals) has given a finding that the stock of red chillies lying with Best Cold Storage was out of the opening stock of the assessee and cannot be said to be an unaccounted purchase. Hence find that the above order of Learned CIT(Appeals) is cogent one and does not need any interference. - Decided in favour of the assessee Interest free advances to Hanuman Tractors - Held that - There is no infirmity in the finding of learned CIT(Appeals). Learned CIT(Appeals) has given a finding that the advances were for business expediency as the parties were in the farm vehicle and supply business related to the assessee. The short term advance to them is compensated by business provided by them - Decided in favour of the assessee

Summary

Issues:
1. Deletion of addition of ?30,87,940 under section 69 of the IT Act, 1961.
2. Deletion of addition of ?3,02,400 under section 36(1)(iii) of the IT Act, 1961.

Analysis:

Issue 1: Deletion of addition of ?30,87,940 under section 69 of the IT Act, 1961.
The Assessing Officer (AO) added ?30,87,940 to the total income of the assessee as unexplained investment in chillies stored at Best Cold Storage. The AO concluded that the stock was unaccounted for as the assessee failed to provide evidence of ownership. However, the CIT(Appeals) found that the stock of red chillies was part of the opening stock and not an unaccounted purchase. The CIT(Appeals) noted that all relevant submissions were before the AO, who failed to verify the facts. The CIT(Appeals) examined the quantitative details of stock movement and audited accounts, concluding that the stock was properly accounted for. The ITAT upheld the CIT(Appeals) decision, stating that the findings were well-substantiated and did not require interference.

Issue 2: Deletion of addition of ?3,02,400 under section 36(1)(iii) of the IT Act, 1961.
The AO disallowed interest of ?3,91,572 debited in the P&L account, as the assessee had given interest-free loans to certain parties. The AO disallowed interest @ 12% on borrowed funds in proportion to the interest-free loans. The CIT(Appeals) accepted the assessee's explanation that the advances were made out of business expediency. The CIT(Appeals) found that the loans were given for business purposes and relied on judicial decisions to support the claim. The ITAT upheld the CIT(Appeals) decision, stating that the advances were made for business expediency and were compensated by the related business activities.

In conclusion, both issues were decided in favor of the assessee, with the ITAT upholding the decisions of the CIT(Appeals) in both instances. The judgments were based on detailed analysis of the facts and legal principles, ensuring that the additions made by the AO were deleted based on proper justifications provided by the assessee.