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TMI Blog2017 (4) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... business. Therefore, the entire interest expenditure cannot be disallowed. The assessee himself has capitalized the expenditure of ₹ 6,96,075/- as per the working given by the assessee. The CIT(A) has not pointed out any defect in the working given before CIT(A) therefore, we direct the AO to capitalize interest expenditure of ₹ 6,96,075/- in the result ground of assessee’s appeal is allowed. Disallowance of ‘Administration and Selling expenses’ - Held that:- The total administrative expenses for the year ended 31/03/2010 was ₹ 1,60,40,916/-. This year the expenditure has increased. The total expenditure had increased by 10% as against this sales have increased by 72.93%. All the major expenses have been shown under the heading ‘Administration and selling expenses’. Such expenses are advertisement and sales promotion freight on sales, freight and other commission on sales. Thus we are of the view that there is no scope of estimating the expenditure, therefore, we deleted the same. - Decided in favour of assessee - I.T.A. No. 2935/Mum/2015 - - - Dated:- 29-3-2017 - SHRI D.T. GARASIA, JM AND SHRI RAJESH KUMAR, AM For The Appellant : Shri Satish Mory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income of the assessee. 3. The matter carried to CIT(A) and CIT(A) has partly allowed the appeal by observing as under: Therefore, such facts and circumstances demands reasonable and convincing approach. Recently Hon'ble Gujarat High Court in the case of CIT vs. Bholanath PolyFab Pvt. Ltd. (2013) 355 ITR 290 and thereafter in the case of CIT vs. Simit P. Sheth ( 2013) 219 Taxman 85 (Gui) has held that in such facts and circumstances, not entire purchase price but only profit element embedded in such purchases can be added. The finding of the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Seth is as under :- We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. Further, it is important to note that recently Hon ble Hon'ble Bombay High Court has also, in the case of CIT-8 vs. Hariram Bambhani, I.T.A.No.313 /2013 order dated 4.2.2015 has approved the net profit @4% on unaccounted sales, confirmed by the CIT(A). Thus, it is very obvious that in respect of such unestablished purchases or sales, a profit element embedded to such transactions can be ascertained. Of course, while doing so the decision has to be case specific. In this case, it is very evident that assessee is a manufacturer, hence profit margin is definitely higher than simple trader of such goods, hence considering the nature of business of the assessee, the profit element embedded in such business and related to such purchases as observed by the Hon ble Gujarat High. While approving the adoption of 12.5% of profit, the same profit ratio is taken in this case and accordingly, the addition of ₹ 2,32,328/- is confirmed and balance amount of ₹ 16,26,294/- is deleted. 4. The Ld. A.R. submitted that the entire purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his much goods which he has purchased from the above parties therefore, it is rightly concluded that the purchases shown by the assessee is not in doubt, but the assessee might have not purchased from these parties who he might have purchased it from the grey market. Therefore, we are of the view that entire purchases cannot be added to the total income of the assessee and CIT(A) has rightly relied upon the decision of the Hon ble Gujarat High Court in the case of CIT(A) vs. Simit Seth (supra) and our interference is not allowed. In the result, ground No. 1 of appeal of the assessee is dismissed. 7. Second ground is against the Assessing Officer noticed that the interest bearing fund was utilised for capital work in progress. The opening capital work in progress as on 01/04/2010 was of ₹ 0.16 crore whereas closing capital work in progress as on 31/03/2011 was ₹ 3.48 crores. Similarly, secured loan was increased from ₹ 50 lakh to 4.49 crores. Similarly, unsecured loan have been increased from 1.50 crores to 3.44 crores . Therefore, the assessee was asked to explain why the corresponding interest expenditure to capital work in progress should not be capitalize ..... X X X X Extracts X X X X X X X X Extracts X X X X
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