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TMI Blog2012 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained by the CIT(A) at Rs. 2 lakhs is on lower side - addition of Rs. 3 lakhs on this count will meet the ends of justice. The Assessing Officer is directed to recompute the income of the assessee accordingly Disallowance of proportionate interest paid to the bank relevant to so called interest free advances made by the appellant – Held that:- These have been made out of CC A/c which carries interest rate of 15% - disallowance reduced - IT APPEAL NOS. 1119 & 1145 (CHD.) OF 2011 - - - Dated:- 17-5-2012 - H.L. KARWA, T.R. SOOD, JJ. Sudhir Sehgal and Ashok Goyal for the Appellant. Akhilesh Gupta for the Respondent. ORDER H.L. Karwa, Vice-President These cross-appeals by the assessee and Revenue are directed against the order of CIT(A)-II, Ludhiana dated 20.9.2011 relating to assessment year 2008-09. 2. Ground Nos. 1 2 of the assessee's appeal reads as under:- 1. That the Ld. CIT(A)-II, Ludhiana has erred in confirming the action of the Assessing Officer (Assessing Officer) in rejecting the books of account u/s 145(3) of the Income-tax Act, 1961. 2. That the Ld. CIT(A)-II, Ludhiana has erred in sustaining addition of Rs. 2 lacs out of add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Plant Breeding Genetics, Punjab Agriculture University, Ludhiana under his office letter No. 47434 dated 20.12.2010 has informed as under:- "Cotton - The Binola Chiki is no scientific item (if seems to be trade term). As far oil content of American Cotton and Desi cotton is concerned, it varies in the range of 16-21% and 15-20% respectively. Rest of the product is cotton seed cake (Khal). The oil content varies with variety hybrid, environment factors at ball stage and fresh or old stocks. Oilseeds - in Sarson, it is being informed that the content of various seed components varies with the lot since these components are directly influenced by date of sowing and time of harvesting. The recovery of oil also tends to vary with the quality/type of extraction mill, traditional Gahni's yield lower old recovery than solvent extraction. As such it is very difficult to comment on the components without actual assessment of the produce. Imported sarson is generally Brassica napus type and normally possess more oil content than traditional Indian sarson. The shortage might result from the moisture content that also varied from 6-8 per cent. " 7. After the receipt of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts has not been satisfactorily explained by the assessee. The Assessing Officer has observed that although the quantity of cotton seed, mustard and groundnut crushed during the previous year were shown separately but the yield of oil and oil cakes have been given in consolidated form at 13.02% and 83.91% respectively. Further, the sales of oil and oil cakes have been shown in the manufacturing account in consolidated form although there was a wide variation in the market price of these products. It is also true that there is always a wide variation in the percentage of yield of oil and sale rates of oil and oil cakes in the market. However, the assessee has preferred to put up a consolidated account of different types of oil seeds for the reasons best known to him. The assessee was asked by the Assessing Officer to rework the yield of oil and oil cakes separately from different types of oil, oil seeds crushed by him. The assessee was also asked to explain the reasons for mixing up the cotton, mustard and groundnut oil seeds in the same category when there was vast variation in market price of these types of oil seeds and other products. When Assessing Officer asked the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraction of oil from cotton seeds and allowed almost 50% of oil to go waste will the oil cakes. Test reports filed by the assessee are also rejected on' this account as well because material for testing was supplied by the assessee from his own stocks at unknown stage of processing." 13. In our view, there were sufficient reasons to hold that the books of account maintained by the assessee are unreliable, incorrect and incomplete. Therefore, the books of account of the assessee have correctly been rejected u/s 145(3) of the Act. We also observe that the CIT(A) has correctly upheld the action of the Assessing Officer in rejecting the books of account. 14. As regards, the low yield of oil from cotton seeds, the Assessing Officer has adopted the yield at 11% and made the addition of Rs. 8,68,800/-on account of suppression of sales proceeds of cotton seed oil. On appeal, the CIT(A) reduced the addition to Rs. 2 lakhs. 15. In view of the comments given by Punjab Agriculture University Authority, it is crystal clear that yield of oil from cotton seeds depends upon many factors and cannot be fixed, such as date of sowing and time of harvesting, quality of seeds, quality / t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee were in cash at verifying rates, was not open to verification. The Assessing Officer also took the view that there was no reason for declaring low gross profit rate of 2.5% or 3% in each year. Thus, the Assessing Officer was not satisfied about the genuineness and correctness of the cattle feed manufacturing account, which was rejected. The Assessing Officer applied a GP rate of 15% on estimated sales of Rs. 86,23,533/- and made an addition of Rs. 10,71,467/-. On appeal, the CIT(A) reduced the addition to Rs. 2 lakhs. 19. We have heard the rival submissions. We find force in this contention of Shri Akhilesh Gupta, Ld. DR that the GP rate of 2.57% or even 3.34% declared year after year in a manufacturing unit is undoubtedly manipulated and no such unit can survive for long in any trade. Furthermore, the assessee has shown to have sold almost the self manufactured feed in cash on varying rate between Rs. 619/- to Rs. 738/- or even more per quintal. The Assessing Officer has correctly observed that the entire sales of cattle feed in cash at varying rates cannot be verified. It is also observed that the assessee could not give any reason for declaring too low GP r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,60,000/-, Rs. 10,00,000/- to RR Foods on 18.4.2007 and 30.5.2007 respectively out of which the assessee received by back Rs. 13,75,000/- in parts from 24.09.2007 to 24.3.2008 and the balance of Rs. 12,25,000/- was still receivable as on 31.3.2008. R.R. Food is a business concern owned by assessee's son, Shri Ashutosh Goyal. Since the assessee had made these interest free advances from his CC account, which carried interest, I see no reason for him to. have made such interest free advances, interest @ 15% is disallowed on these advances which works out at Rs. 2,89,220/-. " 23. After hearing the Ld. representatives of both the parties, we do not find any infirmity in the findings of the Ld. CIT(A) on this issue. The plea taken by the assessee before the CIT(A) was that they were paying interest at the rate of 12% on the unsecured loans and the CIT(A) directed the Assessing Officer to verify the interest paid on the unsecured loans and apply the same rate for the purpose of disallowing of interest. We do not see any valid ground in interfering with the order of CIT(A) on this issue. Accordingly, we uphold the same and dismiss ground No. 5 of the assessee's appeal and ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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