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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-Karnal [“Ld. CIT(A)”, for short], dated 09/08/2017 for Assessment Year 2012-13. Grounds taken in this appeal are as under:
"1. Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals), Karnal was right in law in deleting the addition made on account of non-maintenance of stock register by increasing the GP rate by 1% by invoking the provisions of section 145(3) of the I. T. Act especially when earlier the assessee was maintaining stock register for Excise Duty purpose ?
Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals), Karnal was right in law in deleting
the addition made on account of interest free advance for non business purposes especially when no direct withdrawals were made from loan accounts i.e. OD/CC/PC/PCFC accounts and the amounts were firstly transferred from loan accounts to current accounts and then it was advanced to the other parties ?
3. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
None appeared for the assessee even after sending repeated notices to the registered address, the notice has also been served to the Assessee by the Department and the Department of Revenue vide letter dated 02/06/2023, provided the proof of service of the notice. Considering the above facts, we are constrained to decide the present Appeal after hearing the Ld. Departmental Representative and verifying the materials available on record.
Brief facts of the case are that, Assessee filed the return declaring NIL income after setting off of brought forward loss and the same was processed u/s 143(1) of the Act, and an Assessment Order came to be passed u/s 143(3) of the Act by assessing the income of the assessee as under:-
Business Income declared by the assessee (Before set off B/f losses, as per computation filed) Rs.82,55,496/- Add, addition for provision of bad debt Rs. 2,02,70,047/- Add, addition in G.P. Rs. 77,52,952/- Add, Addition u/s 40(a)(ia) Rs. 18,361/- Add, Disallowance of interest Rs.8,32,210/- Add, Disallowance of interest Rs. 6,00,000/-. Add, Disallowance u/s 43B Rs. 9,885/- Income under the head business & profession for the year under consideration before set off of B/F losses Rs.4,57,38,951/- B/F Losses set off to the extent of Income Rs.4,57,38,951/- Total Income NIL
Aggrieved by the assessment order, the assessee preferred an Appeal before the CIT(A), the Ld. CIT(A) vide order dated 09/08/2017 deleted the additions made on account of non maintenance of stock register by increasing the GP rate by 1% by invoking the provision of Section 145(3) of the Act and deleted the addition made on account of interest free advance for non business purpose. Aggrieved by the same, the Department of Revenue preferred the present Appeal.
Ground No. 1 is regarding deletion of the addition made on account of non maintenance of stock register by increasing the GP rate by 1% by invoking the provision of Section 145(3) of the Act. It is the case of the Revenue that when earlier, the assessee was maintaining the stock register for excise duty purpose, the CIT(A) has committed an error in deleting the addition.
We have heard the Ld. DR and perused the material available on record.
The Ld. CIT(A) while deleting the addition held as under:-
“I have seen the facts of the case and notice that no specific defect has been pointed out in the body given the nature of the business, it was not possible to maintain quantitative records of patterns of various designs, size and type as well as differing qualities of fabric. Such records are not required mandatorily as per the Textile Ministry guidelines. Moreover, the rate of G.P as declared is 18.19% which is comparable to similar businesses. I, therefore, deleted the said addition. This ground of appeal is allowed. “
8. It is found that the Ld. CIT(A) while deciding the issue observed that ‘given the nature of the business it is not possible to maintain quantitative records of patterns of various designs, size and type as well as differing qualities of fabric’. However, since the books of accounts of the Assessee are audited it is not been elaborated by the CIT(A) as to how the stocks have been valued by the Assessee/Auditor in the absence of quantitative details. Further, the CIT(A) has observed that ‘the rate of GP as declared is 18.19% which is comparable to similar business’ without bringing any material on record/details of so called ‘similar business’ compared by the CIT(A). Thus, in our opinion, the order of the CIT(A) is cryptic and non speaking, therefore, we remand the issue to the file of the CIT(A) to pass speaking order after examining the details of similar Companies’ GP rates and decide the issue afresh. Accordingly, the Ground No. 1 of the Revenue is partly allowed for statistical purpose.
9. Ground No. 2 is regarding deletion of the addition made on account of interest free advance for non business purpose. The Ld. DR submitted that the CIT(A) has committed error in deleting the addition made on account of interest free advance for non business purpose specifically when no direct withdrawals were made from the loan accounts i.e. OD/CC/PC/PCFC accounts and the amounts were firstly transferred from loan accounts to current accounts and then it was additions to the other parties.
We have heard the Ld. DR and perused the material available on record.
The CIT(A) while deciding the issue has held as under:-
“5.3 . It is clear from the facts on record that the assessee had enough capital of its own amounting to above Rs. 100 Crores. The claim of interest expenditure is miniscule considering the volume of capital in hand. Moreover, the A.O. has not made any finding or given a correlation between the borrowed funds out of which interest free advances were given. Therefore, this addition is not sustainable and I delete the same. This ground is allowed.”
It is found from the order of the CIT(A) that the CIT(A) has not called for the details of the source of funds from the Assessee which were given on interest free advances. The CIT(A) should have called for the details of own funds/borrowed funds vis-à-vis interest free advance given from the assessee and should have decided the matter on merit. The findings of the CIT(A) is cryptic and not speaking one, therefore, we remand the issue to the file of the CIT(A) for de-novo adjudication of the issue with a direction to pass speaking order after examining the source of the funds and also details of the funds.
Accordingly, we partly allow the Ground No. 2 of the Revenue for statistical purpose.
In the result, the Appeal of the Revenue is partly allowed for statistical purpose.