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2024 (1) TMI 1179 - AT - Income TaxAddition of income based on Disclosure made by assessee during survey - whether any incriminating material found during survey? - HELD THAT - CIT(A) rightly held that having accepted the disclosure of the assessee as representing profits of the year in the preceding year, AO could not have taken a different stand in the impugned year for treating the disclosure as an independent disclosure of income and not relating to the profits of the assessee for the year. In the absence of any incriminating material found during survey to form the basis for the surrender made by the assessee and the assessee duly explaining the basis of its surrender and the reason for not disclosing the same in the return filed, duly backed with evidence, we do not find any infirmity in the order of the CIT(A) deleting the addition made on account of the disclosure made by the assessee during survey of Rs. 7 crores. The contention of the DR that the assessee had retracted its disclosure which was possible only if the retraction was supported with evidence and explanation, we find that, in the present case, there was in fact no retraction made by the assessee. As noted above, what the assessee had disclosed was the profits that it estimated to earn during the year and what it had returned was its actual profits and the reasons for the fall in profits had been duly explained by the assessee, in which explanation there was no infirmity pointed out by the AO. Therefore, it is not a case of retraction of disclosure or surrender made by the assessee and even if found so the assessee has given basis for retracting the surrender. It is relevant to note that the disclosure was not based on any incriminating material found during survey which the AO had admitted. It is only when the disclosure is based on some incriminating material found with the assessee that it is required to substantiate its retraction with evidences. It is only when the Revenue has found the assessee to have not disclosed particular income supported with evidence and which the assessee surrenders, the retraction of such surrender then has to be duly supported with evidence and cannot be based on a blanket retraction without any evidence. The case law relied upon by the ld. DR has not pointed out how the decision relied upon by it, is applicable to the facts of the present case. Ground of appeal Nos. i to iv raised by the Revenue, therefore, are dismissed. Estimation of net profits - addition on account of enhancement of net profit as the assessee has shown drastically low net profit as compared to preceding previous years without furnishing any cogent reason - CIT(A) deleted addition - HELD THAT - AO has made some general comments without bringing on record any specific instance of what books of accounts are incorrect and incomplete. He noted that these are audited books of accounts and merely on account of claiming certain expenditures in cash, the same cannot be rejected. As observed that AO has brought no material to justify the rejection of books of accounts. With respect to the fall in net profits which the AO had noted from the preceding year, CIT(A) noted that the assessee had justified the fall with a reasonable expenditure evidenced by its audited books of accounts of the assessee. He noted that the gross profit of the assessee in fact had increased in the impugned year as compared to the preceding year but there was a fall in net profit on account of unprecedented circumstances resulting in huge interest expenditure and foreign exchange loss incurred by the assessee. DR was unable to controvert the above findings of the ld. CIT(A). A perusal of the assessment order also reveals that the ld. CIT(A) has rightly noted the AO to have rejected the books of accounts of the assessee in a very casual manner, without pointing out any specific major discrepancy in its books to lead to such a conclusion. We have noted of the assessment order that he has made a general statement of various expenses viz. communication, travelling and conveyance, printing and stationery, postage and courier, office expenses, vehicle running and hiring expenses, legal and professional, freight and forwarding, and so on and so forth, having not been properly vouched and not fully verifiable, and expenses having been incurred in cash. He has also noted the fall in net profit of the assessee from 6.24% in the AY 2010-11, 4.87% in AY 2011-12, 0.51% in the impugned year. We concur with the ld. CIT(A) that for rejecting the books of accounts, there has to be a specific finding by the Assessing Officer that the books are not reliable for arriving at a true and correct profits earned by the assessee. Merely making a general statement that some vouchers were unsupported or there were expenses incurred in cash by the assessee, cannot justify such adverse action of the Assessing Officer in rejecting the otherwise audited books of accounts of the assessee. Also we find that the assessee had explained reasons for fall in net profit, pointing out that while its gross profits had increased during the year, the net profit had fallen on account of increase in financial cost and huge foreign exchange losses incurred by it which were pointed out even by the auditors of the assessee-company. No anomaly in these accounts or claims of the assessee has been found by the Assessing Officer. Therefore, we completely agree with the ld. CIT(A) that the rejection of books of accounts of the assessee was totally unjustified. The addition, therefore, made by estimation of the net profits, we hold, has been rightly deleted by the ld. CIT(A). Disallowance of expenses incurred for the purpose of earning exempt income u/s 14A - CIHELD THAT - DR was unable to controvert the factual findings of the ld. CIT(A) with respect to the sufficiency of own funds available with the assessee for the purposes of making investment for earning exempt income, nor was he able to distinguish the decision of the Hon ble Apex Court relied upon by the ld. CIT(A) in the case of South Indian Bank Limtied 2021 (9) TMI 566 - SUPREME COURT for applying the proposition that where sufficient own funds are available, no disallowance of interest was warranted. In view of the same, we do not find any merit in the ground raised by the Revenue in this behalf and the same is thus dismissed. Disallowance of interest expenditure u/s 36(1)(iii) - failure of the assessee to provide one to one nexus between the interest free fund vis-a-vis its interest free advances - HELD THAT - CIT(A) had deleted this disallowance noting that sufficient owned interest free funds are available with the assessee and the fact that similar disallowance made in AY 2014-15 was deleted by the ITAT in its order passed 2020 (6) TMI 831 - ITAT AHMEDABAD Since the issue is covered by the decision of the ITAT in the case of the assessee for A.Y 2014-15, with no distinguishing facts being pointed out by the DR, we see no reason to interfere in the order of the CIT(A) deleting the disallowance made of interest expenses u/s 36(1)(iii) - Decided against revenue.
Issues Involved:
1. Addition of Rs. 7 crores based on disclosure during survey. 2. Addition of Rs. 3,04,33,448/- based on estimated net profit. 3. Disallowance of Rs. 1,21,905/- under Section 14A. 4. Disallowance of Rs. 6,26,176/- under Section 36(1)(iii). Summary: 1. Addition of Rs. 7 crores based on disclosure during survey: The Revenue challenged the deletion of the Rs. 7 crores addition made by the Assessing Officer (AO) based on the disclosure during the survey. The CIT(A) deleted the addition, noting that no adverse material was found during the survey, and the AO could not provide any evidence to support the addition. The disclosure was based on an estimation of profits, which could not be realized due to adverse circumstances like foreign exchange losses and increased financial costs. The Tribunal upheld the CIT(A)'s decision, stating that the disclosure was not based on any incriminating material and the assessee provided a reasonable explanation for the reduced profits. 2. Addition of Rs. 3,04,33,448/- based on estimated net profit: The AO rejected the assessee's books of accounts and estimated net profits based on the average of the last three years. The CIT(A) found that the AO's rejection was without basis, as the books were audited and no specific discrepancies were noted. The decline in net profit was justified by the assessee due to increased financial costs and foreign exchange losses. The Tribunal agreed with the CIT(A), stating that the AO's rejection of the books was unjustified and the addition was rightly deleted. 3. Disallowance of Rs. 1,21,905/- under Section 14A: The AO made a disallowance under Section 14A for expenses incurred to earn exempt income. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds for the investments. The Tribunal upheld this decision, citing the Supreme Court's ruling in South Indian Bank Limited vs. CIT and other relevant case laws, which state that if sufficient interest-free funds are available, no disallowance is warranted. 4. Disallowance of Rs. 6,26,176/- under Section 36(1)(iii): The AO disallowed interest expenses on the grounds that interest-free loans were given to a sister concern. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds and the loan was given for business purposes. The Tribunal upheld the CIT(A)'s decision, referencing its own earlier rulings in similar cases for the assessee, which supported the deletion of such disallowances. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, emphasizing the lack of incriminating evidence and the proper justification provided by the assessee for the financial discrepancies noted by the AO.
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