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TMI Blog2022 (8) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned addition. 1.3 The Ld. CIT(A) has grievously erred in law and on facts in confirming the rejection of the books of accounts of the appellant and upholding the consequential addition of Rs. 38,01,728/- being Net Profit estimated at 1.5% of the turnover. 1.4 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought not to have confirmed rejection of the books of accounts of the appellant and upholding the consequential addition of Rs. 38,01,728/- being NP estimated at 1.5% of the turnover. It is, therefore, prayed that the addition of Rs. 38,01,728/- upheld by the CIT(A) may kindly be deleted. 3. The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 38,01,728/- made by the AO after rejecting the books of account under section 145(3) of the Act. 4. The facts in briefs are that the assessee is a partnership firm and engaged in the business of purchase and processing of raw cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings called for purchase and sales registers, unit-wise yield of production, copies of electricity bills, copies of sales bills, details of closing stock, etc. from the appellant. However these were not furnished during the assessment proceedings. The AO therefore rejected the books of accounts u/s. 145(3) of the Act and estimated the net profit at 1.5% of the total turnover of Rs. 25,34,48,526/- which worked out to Rs. 38,01,728/- which was added to the total income of tin-appellant. During the appellate proceedings, the appellant has stated that the rejection of books of accounts was not justified since no defect was noted in the audited accounts of the appellant. This submission of the appellant, however, does not hold merit. 1 find that the AO had very specifically asked for various details like purchases and sales register, unit-wise yield of production, copies of electricity bills, copies of sales bills, details of closing stock, etc. which were not produced by the appellant. During the appellate proceedings as well, none of these documents/registers, etc. have been produced and no reason has been given for the same. If the books of accounts of the appellant ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of accounts along with the supporting corroborative materials to justify that the profit declared in the income tax return is correct within the provisions of law. Thus, we hold that the assessee failed to discharge his primary onus cast upon it under the provisions of law. 11.1. Accordingly, in the absence of necessary books of accounts and supporting materials, the income of the assessee cannot be deduced. Thus, the only option available to the AO is to determine the profit of the assessee in the scientific manner. For this purpose, we note that the AO has taken other assessee engaged in similar business for comparable and reached to the conclusion that the net profit of the assessee should have been declared at least 1.5% of the turnover. The industrial comparable rate selected by the AO while determining the profit has not been disputed by the assessee. 11.2. Even before us, the learned AR has not brought anything on record contrary to the finding of the authorities below. It was just contended by the learned AR that books of accounts were duly audited and therefore the same cannot be rejected without assigning any reason. However, we are not convinced with the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.1 Ostensibly, with effect from assessment year 1993-94, partnership firms complying with the statutory requirements and assessed as such are allowed deduction in respect of interest to partners subject to the limits and conditions specified in section 40(b) of the Act. In turn, these items will be taxed in the hands of the partners as business income under s. 28(v). Share of partners in the income of the firm is exempt from tax under section 10(2A). Thus, the share of income from firm is on a different footing than the interest income which is taxable under the business income. 11.2 Similarly, we note that interest and salary received by the partners are treated on a different footing by the Act and not in its ordinary sense of term. The Section 28(v) treats the passive income accrued by way of interest as also salary received by a partner of the firm as a 'business receipt' unlike different treatments given to similar receipts in the hands of entities other than partners. In this context, we also note that under proviso to section 28, the disallowance of such interest is only in reference to section 40(b) and not section 36 or S. 37. This also gives a clue that deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , firm and firm name as under: "Partnership" is the relation between persons, who have agreed to share the profits of a business, carried on by all or any of the partners acting for all. Persons who have entered into partnership with one another are ca led individually 'Partners' and collectively a 'firm' and the name under which their business is carried on is called the 'firm name." Thus, it is clear from the above that firm and partners of the firm are not separate person under Partnership Act although separate unit of assessment for tax purposes. There cannot therefore be a relationship inferred between partner and firm as that of lender of funds (capital) and borrowal of capital from the partners, hence section 36(1)(ii) is not applicable at all. Section 40(b) is the only section governing deduction towards interest to partners. In the light of what is already noted above that firm and partners not being two separate persons, the question of borrowing capital by the firm from its partners does not arise at all and, therefore, section 36(1)(ii) is not at all applicable for the purposes of computation of interest to partners under section 40(b) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctions and allowances including the depreciation allowance should be separately deducted from the gross profit. If it is considered that the net profit should be estimated, it should be estimated subject to the allowance for depreciation and the depreciation allowance should be deducted therefrom. (3) Even where best judgment is made, the above procedure should be adopted provided the required particulars have been furnished by the assessee. In cases where required particulars have not been furnished by the assessee and no claim for depreciation has been made in the return, the Income-tax Officer should estimate the income without allowing depreciation allowance. In such cases, the estimate of net profit would be naturally higher than otherwise and the fact that the estimate has been made without considering depreciation allowance may be clearly brought out in the assessment order. In such cases, the written down value of depreciable assets would continue to be the same as at the end of the preceding year as no depreciation would actually be allowed in the assessment year." 11.7. Following cases support the view that depreciation is a statutory allowance and same is allowable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case as well as in law, the Ld. CIT(A) ought not to have confirmed rejection of the books of accounts of the appellant and upholding the consequential addition of Rs. 24,99,156/- being NP estimated at 1.5% of the turnover. It is, therefore, prayed that the addition of Rs. 24,99,156/- upheld by the CIT(A) may kindly be deleted. 13. The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 24,99,156/- made by the AO after rejecting the books of account under section 145(3) of the Act. 14. At the outset, we note that the issues raised by the Assessee in its grounds of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ITA No. 1130/AHD/2018 for the assessment year 2013-14. Therefore, the findings given in ITA No. 1130/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the assessee for the assessment 2013-14 has been decided by us vide paragraph No. 11 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2013-14 shall also be applied for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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