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TMI Blog2013 (6) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... b) - Held that:- Bank rate cannot be applied in the case of loan taken from related parties because of the reason that in case of bank loan, the assessee has to furnish guarantee as well as security whereas in the case of loan taken from related parties, the guarantee and physical security are not required. Accordingly, there is a difference in the rate of interest when the loan is taken without guarantee or security. Thus the interest on the loan taken from relatives which is without guarantee and security as against bank loan is always higher and therefore, the reasonable rate of interest in such a case is justified @ 18%. Accordingly direct the AO to apply the fair market rate of interest at 18% while applying the provision of Section 40A(2)(b). Disallowance of depreciation on subsidy account - CIT(A) has confirmed the addition made by the AO - Held that:- The subsidy was granted by the State Govt. to the assessee towards the eligible fix capital investment of the proposed unit of the assessee. Even otherwise, the calculation of the subsidy is based on the cost of the plant and machinery which clearly suggests that object and scheme of subsidy was to promote capital investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly the assessee took necessary steps for filing the present appeals. 3.2 Having considered the rival submissions and the facts and circumstances of the case, we are satisfied that the assessee has explained the sufficient cause for not filing the appeals within the period of limitation. The reasons explained by the assessee are not found as malafide or a devise to cover the ulterior motive. Therefore, in the interest of justice, we condone the delay of 32 days in filing these appeals by the assessee. 4.1 Since the common grounds are raised in these appeals, therefore, the grounds raised in ITA No. 1023/JP/2011 for the assessment year 2007-08 in the case of Shri Mukesh Kumar Jain are reproduced as under:- ''1. The impugned additions and disallowances made in the order u/s 143(3) of the Act dated 14-12-2009 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2.1 The ld. CIT(A) erred in law as well as on the facts of the case in confirming the application of Section 145(3). The provision so invoked by the AO and confirmed by the ld. CIT(A) being contrary to the provisions of law and facts, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/- Rs. 7,680/- Rs. 7,680/- 5.3 Depreciation on vehicle exp. Rs. 75,508/- Rs. 7,551/- Rs. 7,551/- Total expenses disallowed Rs. 24,106/- Rs. 24,106/- The disallowance so made by the ld AO and confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 6. The ld. AO erred in law as well as on the facts of the case in charging interest u/s 123A(3), 234B, 234D. The appellant totally denies its liability of charging of any such interest. The interest so charged and the withdrawal of interest being contrary to the provisions of law and facts, kindly be deleted in full. 5.1 During the course of hearing, the ld. AR of the assessee has stated that the assessee does not press the Ground No. 1. Therefore, the same is dismissed being not pressed. 6.1 The Ground No. 2 of the assessee is regarding gross profit addition by applying the provisions of Section 145(3) of the Act. 6.2 The brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of edible oils and oil cakes and oil seeds. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee as the assessee is not maintaining stock register and production register separately for different qualities of seeds. Further, the assessee is also not maintaining monthwise consumption of fuel and power for running the plant and machinery/ factory. Therefore, the AO expressed that verification of consumption of power and fuel in production activity was not possible. We find that non-maintenance of proper stock register and production register as well as the records showing monthwise consumption of fuel and power is certainly the defects in the books of account maintained by the assessee and therefore, in our view the AO was justified in rejecting the books of account by invoking the provision of Section 145(3) of the Act which has been confirmed by the ld. CIT(A). 6.7 As regards the addition made on account of lower yield in comparison to earlier years and applying gross profit rate which is higher than the rate declared by the assessee in the year under consideration, it is pertinent to note that the yield from a particular production / manufacturing activity cannot be expected at same rate as in earlier years or in subsequent years. There is always a possibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd carefully gone through the relevant material on record, we are of the view that the bank rate cannot be applied in the case of loan taken from related parties because of the reason that in case of bank loan, the assessee has to furnish guarantee as well as security whereas in the case of loan taken from related parties, the guarantee and physical security are not required. Accordingly, there is a difference in the rate of interest when the loan is taken without guarantee or security. In our view, the interest on the loan taken from relatives which is without guarantee and security as against bank loan is always higher and therefore, the reasonable rate of interest in such a case is justified @ 18%. Accordingly, we direct the AO to apply the fair market rate of interest at 18% while applying the provision of Section 40A(2)(b) of the Act. 8.1 Ground No. 4 of the assessee is regarding disallowance of depreciation on subsidy account. 8.2 The AO noted that the assessee has shown subsidy of Rs. 1,90,640/- which was received on purchase of plant and machinery. After considering the details and submissions filed by the assessee, the AO disallowed depreciation @ 15% on subsidy of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses on account of factory expenses, telephone expenses and depreciation on vehicle because the assessee failed to maintain proper records and made cash payment supported by self prepared vouchers. Therefore, the authorities below found that the element of personal use of such facilities was not ruled out. The findings of the ld. CIT(A) in para 5.3 are as under:- ''5.3 I have gone through the basis of the AO for making the adhoc additions in respect of the above expenditures and also rebuttal made by the ld. AR on these accounts. Main reasons for the opting for such partial disallowance are to cover up the findings of non-availability of proper records, cash payments towards self prepared vouchers and involvement of personal usage of such facilities on the part of the AO. Regarding the partial disallowance of factory expense is concerned, the issue of self prepared vouchers and cash payments thereof has made certainly an impossible task for the AO to verify the correctness and genuineness to full extent of such aspect Thus the partial disallowance of 10% on this account is found fair ad reasonable. Similarly, it is felt that the personal element always remains present in the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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