Case Law Details
Lotus Ornaments Pvt. Ltd. Vs ACIT (ITAT Mumbai)
Upon perusal of assessee’s financial statements, it could be gathered that assessee’s own funds in the shape of share capital and free reserves far exceeds the investment made by the assessee and therefore, a presumption would run in assessee’s favor that the investments were funded out of own funds. Secondly, the assessee has not earned any exempt income during the year. Therefore, the additional interest disallowance is not sustainable in law as per the cited judicial pronouncements. Therefore, by deleting the disallowance of Rs.4.60 Lacs, we allow this ground of appeal.
Adhoc disallowance not sustainable in law if Books of Accounts have not been rejected
The Ld. AR assailed the disallowance by submitting that the Books of Accounts have not been rejected and the adhoc disallowance thus made would not be sustainable in law as per the decision of Hon’ble Delhi High Court in PCIT V/s R.G. Buildwell Engineers Ltd. (99 Taxmann.com 283; SLP dismissed which is reported at 259 Taxman 370).
ITAT observed that There is no dispute about genuineness and admissibility of claim of expenses. Regarding the observation of Ld. AO that there was drastic increase in such expenses during the year, the same stood explained by assessee’s reply dated 19/01/2016 wherein it was submitted that the expenditure increased due to change in manufacturing pattern of the assessee which was necessitated due to customers requirements since the assessee diversified into small pieces for which higher labour charges were paid by the assessee. The net profit reflected by the assessee is 2.43% which is quite similar to net profit of 2.48% reflected in the earlier year. Thus, in terms of the cited decision of Hon’ble Delhi High Court and considering the facts of the case, we are inclined to delete the adhoc disallowance as made by Ld. AO. This ground stand allowed.
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