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TMI Blog2015 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... nue to prove otherwise which has not been discharged by the revenue. No prudent businessman would create loss by availing OD facility and paying interest on it. There was a business necessity of the assessee for availing the OD facility. It is undisputed fact that funds had not been utilized during the year but liability on account of interest had been occurred. Therefore, we allow the interest claimed by the assessee being just and in the interest of business. Accordingly NP rate on construction receipts @ 10% is confirmed subject to depreciation and interest paid. The AO is directed to calculate the income as per above observations made by this Bench. - Decided partly in favour of assessee. Addition by rejection of book result under section 145(3) in respect of business of furniture and fixtures - Held that:- The defects pointed out in the books of account by the AO are sufficient to invoke provisions of section 145(3) of the Act. The ld. A/R of the assessee had not brought on record to whom the interest payment was made in the books of M/s. Guman Furniture & Fixtures. The OD facility as claimed by the assessee was for construction business which has already been discussed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, despite confirming the rejection of books of account under section 145(3) of the I.T. Act, 1961 the ld. CIT (A) has erred in estimating the profit only on the basis of disallowance of interest ignoring the fact that the assessee, besides not being able to show utilization of entire borrowed fund for the purpose of business, has also failed to - (i) Produce the bills and voucher for verification of genuineness of the expenses. (ii) Co-relate the expenses to particular construction. (iii) Justify the basis of valuation of each property in the books of account. 3. On the facts and in the circumstances of the case the ld. CIT (A) has erred in dislodging the net profit rate of 12% upheld by the ld. ITAT in the case of the assessee during last year stating that the books of account were audited during the year, ignoring the fact that he himself has upheld the rejection of books of account maintained during the year under section 145(3) of the I.T. Act, 1961. 2. The Assessee s first ground of appeal is against confirming trading addition to the extent of ₹ 91,83,000/- and all the grounds of Revenue are against not confirming the net profit rate of 12% on property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, net profit of assessee s construction business was estimated @ 12% which resulted into net profit of ₹ 25,84,080/- as against claim of loss of ₹ 99,83,708/-. It was further observed by the AO that the loss in Profit Loss account was mainly due to claim of interest on OD loan of Adarsh Co-operative Bank. The assessee had not been able to link up the OD loan with the business of property dealing. In WIP expenses, the assessee was in consistent practice of capitalizing the interest component on loan and including it in the valuation of closing stock but this interest had been claimed separately in Profit Loss account. As per details furnished by the assessee, the loan was not fully utilized for business purposes. Neither it was used for repayment of earlier loan nor was used for acquiring new assets or stocks but it was either utilized for advancing to other sister concerns or its major part remained as cash in hand at the year end. As such the entire claim of interest cannot be claimed to be for the purpose of business. The ld. A/R of the assessee explained the reasons for keeping substantial cash in hand by relying on the decision of Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08 in which NP rate of 12% was confirmed were totally different in as much as in A.Y. 2007-08 it was a case of no books of accounts whereas the A.Y. under consideration books of accounts are maintained which are also of auditable nature. Therefore as against applying a particular NP or GP rate it is considered more logical to make specific disallowance in as much as the issue involved is only of claim of interest on the part of that loan from Adarsh cooperative Bank which was stated to be remained idle in cash and not utilized during the A.Y. under consideration. During appellate proceedings, on examination of this issue it emerged that out of total loan of ₹ 6.50 cr., amount to the extent of ₹ 4.70 cr. Remained idle/unutilized in form of cash. Admittedly the appellant has incurred interest payment of ₹ 12694537/- which include interest on such unutilized amount of ₹ 4.70 cr. Though the appellant has claimed that keeping of such cash ready/idle was his business need but such contention is not proved through documentary evidence or through corroborative evidences. There is nothing on record which may indicate that the appellant has to execute any property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the assessee has maintained regular books of account which were audited. The AO had not pointed out any mistake, discrepancy or defect of glaring nature in the regular books of accounts except routine deficiency for non maintenance of stock register and valuation of closing stock etc. Therefore, facts and circumstances of the present assessment year was not comparable with the facts and circumstances of the assessment year of the search period. During the year huge interest payment to the tune of ₹ 1.4 crores were made to bank which disturbed the entire GP scenario and making the facts of the case entirely un-comparable. The ld. AO ignoring these facts had estimated the income from property business @12% which comes to ₹ 2,15,34,000/- and made addition of ₹ 1,25,67,788/- which is more than 50% of turnover on the plea that huge interest payment to the tune of ₹ 1.40 crores was hypothetical. But book result declared by the assessee is showing GP rate at 20.61% subject to depreciation and interest payments and were far better as compared to GP prevailed in the line of business. He further argued that in civil construction work GP rate of 8% is applied subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot disputed the genuineness and correctness of the interest payment of ₹ 1,25,67,781/-. The negotiation for the property transaction worth ₹ 8 crores were underway during the year and were materialized immediately after this year. Thus the fact of business exigency could not be ruled out. It is further argued that it is not necessary that investment made out of borrowed funds should yield any profit in the year. For this he relied on the decision in case of Calico Dyeing Printing Works vs. CIT (1958) 34 ITR 265 (Bom.). The ld. AO also had not brought on record any interest bearing fund which has been given interest free advances to any concern of the assessee. There is no nexus established by the AO in this regard. The ld. A/R argued that whatever defects pointed out by the AO are not sufficient to reject the book result under section 145(3) of the IT Act. Even if book result are rejected under section 145(3), it is not necessary to make addition on income returned by the assessee, for which he relied on the judgment of Hon ble Rajasthan High Court in the case of Gottan Lime Khaniz Udyog, 256 ITR 243 and other cases also. The ld. A/R relied on numbers of decisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble with him somewhere else as the burden is lying on the Revenue to prove otherwise which has not been discharged by the revenue. No prudent businessman would create loss by availing OD facility and paying interest on it. There was a business necessity of the assessee for availing the OD facility. It is undisputed fact that funds had not been utilized during the year but liability on account of interest had been occurred. Therefore, we allow the interest claimed by the assessee being just and in the interest of business. Accordingly NP rate on construction receipts @ 10% is confirmed subject to depreciation and interest paid. The AO is directed to calculate the income as per above observations made by this Bench. 6.1. In the result, ground no. 1 of the assessee is allowed partly and all the grounds of the revenue are dismissed. 7. The second ground of the assessee is against confirming the addition of ₹ 1,57,558/- by rejection of book result under section 145(3), in respect of business of furniture and fixtures. The AO observed that during the year under consideration the assessee has started furniture and fixture business which is the first year of the assessee and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks. It is stated that the AO has given very general finding that exact use of these funds for business purposes was not verifiable and that when the interest payments are verifiable from books of accounts the finding of the AO was without any basis. On careful consideration of all relevant facts it is noted that there is no dispute that stock register and quantitative details of trading items are not maintained. It may also be stated that keeping of stock register is definitely of great importance for verification of the accounts maintained by the assessee as held by the Hon ble Supreme Court in the case of S. N. Nanasivaym Chettiar vs. CIT, 38 ITR 579. The assessee is in the business of furniture items and the items were dealt with are not in that higher number that maintenance of stock was in practicable or not possible. It is also noted that it is not a case that only stock register is not maintained in as much as the AO has pointed out other defects as to how expenditure shown on consumable items was not subject to verification. In my view the non maintenance of stock register and quantitative details of items of trading coupled with other defects in respect of un-verifiabili ..... 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