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TMI Blog2016 (7) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... here the product-wise detail for sale and manufacturing cost were not specified. However the AO has not pointed out any defect in the financial audit report furnished by assessee. The AO has made the addition merely on the ground of non-disclosure of the cost of the items manufactured and at the same time accepted the sale declared by the assessee. In our considered view, the addition made by AO is based on whimsical ground and therefore we find no reason to interfere in the order of Ld. CIT(A). - Decided against revenue Addition made on account of interest on the loan and advances given to the Directors of assessee-company - Held that:- The interest free loan given to Directors was assumed by the AO as this money was advanced to directors out of interest bearing borrowed fund. Accordingly, AO disallowed the proportionate interest claimed by assessee. However, the Ld. CIT(A) has granted relief to assessee on the ground that there was no nexus between the money borrowed by assessee and loan advanced to the directors. Ld. CIT(A) also relied on co-ordinate bench in assessee’s own case for AY 2001-02. We also find that the assessee’s own funds are sufficient enough to advance the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same (injectables) 941.12 liters @2554.83 per liters for ₹ 24,04,403.59 from outside on loan license basis. These injectable products purchased from outside were sold during the year for an amount of ₹28,52,854/- (941 lt. @ 3031.73 per ltr.) The AO during assessment proceedings observed from the cost audit report of the assessee that there was a closing balance of injectables of 258 liters in the assessment year 2007-08 which will naturally become the opening stock for the year under consideration. However the last year closing stock figures was not carried forward in the cost audit report and current year closing stock was also shown at nil. Accordingly, the AO opined that the closing stock of the earlier year must have been sold during the current year without showing in assessee s books of account. Accordingly, he treated the sale of earlier year stock as undisclosed sale for an amount of ₹7,82,186/- (258 ltr. x ₹3031.73) and added it to the total income of assessee. 3. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition by observing as under:- 4. Regarding ground no. 1 relates to addition of ₹ 7,82,186/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, ld. CIT(A) has deleted the addition by holding that AO has relied merely on the cost audit report without bringing any defect in the audited sales account of assessee. Now the question before us arise is as to whether the data of cost audit report can be relied for the purpose of making the addition and without having any flaw in the audited financial data of assessee. We find that AO has not brought anything on record in the financial audited accounts of assessee. The AO merely has relied on the cost audit report of assessee. In our considered view, AO before making the addition was to reconcile the data found from the cost audit report with the financial data of assessee and if he finds same difference then he should proceed for making the addition / disallowance. In the instant case, there is no defect in the financial year data of the assessee and therefore, the addition made by AO deserves to be deleted. Accordingly we are not inclined to interfere in the order of Ld. CIT(A). This ground of Revenue s appeal is dismissed. 6. Next ground raise by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO on account of ad hoc cost allocatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show allocated cost in respect of all the items manufactured by it in the cost audit report. Therefore the assessee has recorded the consolidated sales of other products along with consolidated cost incurred by assessee. He vehemently relied on the orders of Ld. CIT(A). 9. We have heard rival contentions and perused the materials available on record. From the aforesaid discussion, we find that AO has made the addition on the basis of cost audit report where the product-wise detail for sale and manufacturing cost were not specified. However the AO has not pointed out any defect in the financial audit report furnished by assessee. The AO has made the addition merely on the ground of non-disclosure of the cost of the items manufactured and at the same time accepted the sale declared by the assessee. In our considered view, the addition made by AO is based on whimsical ground and therefore we find no reason to interfere in the order of Ld. CIT(A). This ground of Revenue is dismissed. 10. Last ground in this appeal of Revenue is that Ld. CIT(A) erred deleting the addition made by AO on account of interest on the loan and advances given to the Directors of assessee-company. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r advancing interest-free loans to the Directors. However, that the amount borrowed from Bank has been diverted to the Directors interest free loans. Apart from this, perusal of paper book filed by the assessee also suggests that the assessee had sufficient own fund to enable it to advance interest-free loans to its Directors towards housing loan. We, therefore, keeping in view the above facts and circumstances of the case, are of the opinion that the ld. CIT(A) was justified in deleting the addition and, therefore, uphold the same and reject the ground raised by the Revenue in this regard. From the facts of the case, we find that the interest free loan given to Directors was assumed by the AO as this money was advanced to directors out of interest bearing borrowed fund. Accordingly, AO disallowed the proportionate interest claimed by assessee. However, the Ld. CIT(A) has granted relief to assessee on the ground that there was no nexus between the money borrowed by assessee and loan advanced to the directors. Ld. CIT(A) also relied on co-ordinate bench in assessee s own case for AY 2001-02 (supra). We also find that the assessee s own funds are sufficient enough to advance th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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