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TMI Blog2017 (6) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... adopt Gross Profit at 4.20%. The ld. Assessing Officer is directed to adopt which the Gross Profit at 4.20% and re-compute the trading addition accordingly. Thus ground No. 1 of Revenue’s appeal is partly allowed Addition involving the provisions of section 40A(2)(b) - CIT-A deleted the addition as A.O.has not established that the payment to relatives is excessive compared to prevailing market rate - Held that:- We find that admittedly, there is increase in turnover of the asssessee company. Moreover, the Assessing Officer has not demonstrated as to how the salary paid is excessive to the Fair Market Value of the services rendered by the Director of the Company under this, which condition precedent for making such disallowance. Therefore, we do not see any infirmity in the order of the Ld. CIT(A), same is hereby upheld. - Decided against revenue Addition u/s 36(1)(iii) - CIT-A allowed claim - Held that:- The Assessee has sufficient other interest free funds available for investment carried for long term business. Assessing Officer was not able to prove anything to the contrary by bifurcating the interest bearing and free funds and their respective use. This finding of fact i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess of the monetary limit. Hence the Assessing Officer made total addition of ₹ 4,68,17,23/- and assessed total income of the assessee at ₹ 6,01,59,367/- against the income declaring at ₹ 5,54,77,644/-. 3. Aggrieved by the order of the A.O., the assessee preferred an appeal before ld. CIT(A), who after considering the submissions, partly allowed the appeal. The ld. CIT(A) had reduced the trading addition from ₹ 32,86,979/- to 5,00,000/- and also deleted the addition to extent of ₹ 2,00,000/- in respect of disallowance made u/s 40A(2)(b). Ld. CIT(A) had also deleted the addition of ₹ 5,54,161/- made on account of short changing of interest from associate concern. However, he sustained addition of ₹ 48,000/-. 4. Now the revenue is in appeal before the Tribunal. Apropos ground no. 1 of the appeal, which is against deletion of trading addition of ₹ 27,86,979/-. The ld. DR supported the order of the Assessing Officer and submitted that the ld. CIT (A) has passed a reasoned order. The ld. CIT(A), however, sustained the rejection of books of account against which the assessee has not been field any appeal. He submitted that where boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Hon ble Rajasthan High Court is the case of CIT vs. Amrapali Jewels (P) Ltd. (2012) 65 DTR 196 (Raj). 6. We have heard the rival contentions of both the parties, perused the material available on record and also gone through the orders of the authorities below. Admittedly, the rejection of books of accounts is not challenged by the assessee. The ld. CIT(A) has sustained the action of the Assessing Officer in respect of rejection of books of account. We find that the ld. CIT(A) has observed that the Assessing Officer had noticed certain shortcomings in the accounts and pointed them out to the assessee. It was further observed that the assessee was not able to detail variety bared pricing or justify clearly other deficiencies in maintaining properly vouched expenses related details tax packing materials, fuels etc. However, in respect of trading addition, the ld. CIT(A) did not agree with the Assessing Officer and observed as under: In the present case from the details of the facts brought on record, it is observed that the while the assessee s G.P. rate is lower as compared to 2 earlier preceding years, still it is higher than the immediately preceding year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. 8. We have heard rival contentions, perused the material available on record. We find ld. CIT(A) has decided the issue by observing as under: I have gone through assessee s submission and AO s findings. For disallowance u/s 40A (2)(b), the A.O. should have established that the payment to relatives is excessive compared to prevailing market rate. In this case it has not been done. The business results show vast upward movement, and considering the nature of the trade, the use of experience of the concerned relative cannot be denied. On a totality of facts, increase in the Salary of the concerned Director to the extent of ₹ 2,00,000/- is considered justifiable. The balance addition of ₹ 1,00,000/- is directed to be deleted. 9. We find that admittedly, there is increase in turnover of the asssessee company. Moreover, the Assessing Officer has not demonstrated as to how the salary paid is excessive to the Fair Market Value of the services rendered by the Director of the Company under this, which condition precedent for making such disallowance. Therefore, we do not see any infirmity in the order of the Ld. CIT(A), same is hereby upheld. 10. Ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure, if it was incurred on grounds of commercial expendiency . Further, following this judgment, the High Court of Delhi, in the case of Punjab Stainless Steel Inds. Vs. CIT 324 ITR 396, has further elaborated The commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assesseefirm. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee-firm and working solely in the interest of the assesseefirm/ company, would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advances when the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evance only to Sections 32,32A, 33 and 41 which deal with concepts like depreciation. 3. The provisions under section 36(1)(iii) make no distinction between money borrowed to acquire a capital asset and a revenue asset. Under the circumstances of the case and the legal interpretations available, it can be held that not only did the assessee use the borrowed funds for business purposes but did also have sufficient other interest free funds available for investments carried out for long term business prospects. The AO has not been able to prove anything to the contrary by bifurcating the interest bearing considerations involved or prudence and make notional disallowance. The case law of Abhishek Industries Vs. CIT, Ludhiana (2006) which used to be relied in such issues by various assessing officers has been overruled in Munjal Sales Corporation vs. CIT, Ludhiana 168 Taxman 42 (SC) As a result the addition of ₹ 5,54,161/- made on account of short charging of interest from associate concern cannot be sustained. The same is directed to be deleted. 13. The Assessee has sufficient other interest free funds available for investment carried for long term business. As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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