9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (4) TMI 861 - AT - Income TaxGP addition - estimation of rate - Held that - The assessee has assailed the G.P. estimated by Commissioner of Income Tax (Appeal) being very much on the higher side. As against the addition of 0.07% made by the Tribunal in assessment year 2009-10, the Commissioner of Income Tax (Appeal) has enhanced G.P. rate by 0.30% (approximately). The assessee in the assessment year under appeal has disclosed G.P. @ 0.61%. We are of considered view that increase in G.P. rate by 0.09% would meet the ends of justice. Thus, G.P. is enhanced from 0.61% to 0.70% of the total sale of ₹ 1961,54,11,702/- as per audit accounts. Disallowance u/s.40A(2)(a) in respect of purchase of gold bullion and gold ornaments - the same is rejected for the reasons given by the Tribunal in assessment year 2009-10. Thus, in view of our above findings, the ground No. 3 raised in appeal by assessee is partly allowed and ground No. 1 raised in appeal by Department is dismissed. Deemed dividend addition u/s. 2(22)(e) - why group companies paid advances much higher than the transactions, i.e. on account of purchases and sales? - Held that - Similar view has been taken by Ahmedabad Bench of the Tribunal in the case of M.B. Stock Holding (P) Ltd. Vs. Assistant Commissioner of Income Tax (2001 (12) TMI 190 - ITAT AHMEDABAD-B ). The Tribunal held that business profits of the company accrue only at the end of the year and therefore, the current year‟s business profits are not to be included in the accumulated profits for computation of deemed dividend - This issue needs revisit to the file of Assessing Officer. The Assessing Officer shall decide the issue de novo in the light of our above observations after affording opportunity of hearing to the assessee, in accordance with law. Accordingly, ground No. 4 raised by assessee in appeal is partly allowed for statistical purposes. Disallowance of interest u/s.36(1)(iii) - Held that - Assessee has neither furnished any document nor any meaningful submissions to controvert the findings of Commissioner of Income Tax (Appeal). Thus, we do not find any reason to interfere with the findings of Commissioner of Income Tax (Appeal) in confirming addition Addition u/s 14A - Held that - In view of the undisputed fact that the assessee has not received any tax free income during the assessment year under appeal, we hold that no disallowance u/s. 14A r.w.Rule 8D is called for during the assessment year under appeal. Disallowance of advertisement expenses - addition on the ground that advertisement hoardings were put up in Surat and Thane where the assessee was not having any of its business outlets - Held that - The reason given by Assessing Officer to disallow advertisement expenditure is without any merit. In so far as objection raised by the Assessing Officer that the advertisement expenditure should have been debited in the P & L account of M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. is concerned, the assessee has explained that proportionate advertisement expenditure on turnover basis is shared by all the group concerns. This fact has not been disputed by the Assessing Officer. Thus, we find no error in the order of Commissioner of Income Tax (Appeal) in deleting the disallowance made by the Assessing Officer Disallowance of excess remuneration paid to partners - addition u/s section 40(b) - Held that - CIT-A correctly held that The remuneration to partner is based on current year s Book profits and therefore it is to be deducted first before allowing the setoff of brought forward losses. The computation of Book Profit is as per section 40(b) while the setoff of brought forward losses is to be granted in terms of section 72. Therefore, while arriving at the business income, the deduction of section 40(b) is to be given first and then if at all there remains positive income, the brought forward losses are to be set off. The appellant had rightly claimed the deduction in the computation of income and therefore, the addition made on this score is deleted. Interest paid on gold deposit scheme to the partners - Held that - As decided in assessee s own case for AY 2009- 10 there is no bar for the partner to obtain the gold under the gold deposit scheme which was simultaneously done by the assessee firm also. As long as the interest paid to the partner on such gold under the gold deposit scheme is within the permissible limit, there should not be any disallowance. Since in the instant case the firm has paid interest @9% on the gold deposited by the partner obtained from the customers under the gold deposit scheme account, therefore, it is immaterial as to at what rate of interest the partner has paid to the customers. In this view of the matter, we set-aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the addition.
Issues Involved:
1. Gross Profit (GP) Addition. 2. Addition under Section 2(22)(e) - Deemed Dividend. 3. Disallowance of Interest under Section 36(1)(iii). 4. Disallowance under Section 40A(2)(a). 5. Disallowance under Section 14A. 6. Disallowance of Advertisement Expenses. 7. Disallowance of Remuneration to Partners. 8. Disallowance of Interest Paid to Partners. Detailed Analysis: 1. Gross Profit (GP) Addition: The assessee challenged the GP addition of ?5,65,54,895/- made by the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee argued that the GP addition was unjustified as the purchases from sister concerns were at prevailing rates inclusive of making charges. The Tribunal noted that in the previous assessment year 2009-10, the GP was estimated at 1.20% instead of 1.13%. For the assessment year 2010-11, the GP declared was 0.61%, and CIT(A) estimated it at 0.90%. The Tribunal found the addition of 0.29% too high and concluded that increasing the GP rate by 0.09% to 0.70% was reasonable. 2. Addition under Section 2(22)(e) - Deemed Dividend: The assessee contested the addition of ?10,16,06,967/- under Section 2(22)(e), arguing that the transactions with group companies were trading in nature and not loans/advances. The Tribunal observed that the assessee, being a partnership firm, cannot be a registered shareholder, but it can be a beneficial shareholder. The Tribunal referred to the Supreme Court’s decision in Gopal and Sons (HUF) vs. CIT, which held that Section 2(22)(e) applies to beneficial shareholders. The Tribunal remanded the issue back to the Assessing Officer (AO) to determine if the advances were trade advances or otherwise and to exclude current year’s business profits from accumulated profits for deemed dividend computation. 3. Disallowance of Interest under Section 36(1)(iii): The assessee sought deletion of ?3,08,889/- disallowed under Section 36(1)(iii). The CIT(A) confirmed the disallowance, noting that the assessee failed to provide evidence supporting its claim that the loans given to unrelated parties had become doubtful of recovery. The Tribunal upheld the CIT(A)’s findings due to the lack of evidence from the assessee. 4. Disallowance under Section 40A(2)(a): The Revenue challenged the deletion of ?33,31,94,731/- disallowed under Section 40A(2)(a). The Tribunal noted that similar disallowances were made in the previous year and were deleted by the Tribunal. The Tribunal found that the assessee’s transactions with sister concerns were at Jalgaon rates, and the AO’s comparison with Bombay Bullion Market rates was incorrect. The Tribunal upheld CIT(A)’s decision to estimate GP at 0.90% but modified it to 0.70%. 5. Disallowance under Section 14A: The Revenue contested the deletion of ?6,21,87,028/- disallowed under Section 14A. The Tribunal noted that the assessee had not received any exempt income from its investments in group companies during the year. Following the Special Bench decision in ACIT vs. Vireet Investments (P) Ltd., the Tribunal held that no disallowance under Section 14A is warranted when no exempt income is earned. 6. Disallowance of Advertisement Expenses: The Revenue challenged the deletion of ?37,70,543/- disallowed as advertisement expenses. The Tribunal observed that the assessee had incurred expenditure for promoting its business, including in cities where it did not have business outlets. The Tribunal found no merit in the AO’s reasoning and upheld CIT(A)’s decision to allow the expenditure. 7. Disallowance of Remuneration to Partners: The Revenue contested the deletion of disallowance of excess remuneration paid to partners. The Tribunal noted that remuneration to partners is based on current year’s book profits and should be deducted before setting off brought forward losses. The Tribunal upheld CIT(A)’s decision, aligning with the Ahmedabad Bench’s ruling in M/s. Shree Yogeshwar Developers vs. ITO. 8. Disallowance of Interest Paid to Partners: The Revenue challenged the deletion of disallowance of interest paid on gold deposit scheme to partners. The Tribunal referred to its decision in the previous year, where it held that interest paid to partners within permissible limits should not be disallowed. The Tribunal upheld CIT(A)’s decision to delete the disallowance. Conclusion: The Tribunal partly allowed the assessee’s appeal by modifying the GP addition and remanding the deemed dividend issue back to the AO. The Revenue’s appeal was dismissed in its entirety.
|
