George George K. ORDER
Abraham P. Geoerge, Member (A)
1. These are cross appeals filed by the Revenue and the assessee respectively directed against the order dated 26.2.2014 of the CIT(Appeals)-I, Bangalore.
2. Assessee in its appeal has altogether raised 10 grounds, of which grounds No. 1, 3, 9 & 10 are general in nature not needing any specific adjudication.
3. Ground No. 2 assails invocation of section 144 of the Income-tax Act, 1961 [in short "the Act"] and passing of a best judgment assessment on the assessee, which was confirmed by the CIT(Appeals).
4. Facts apropos are that assessee engaged in the business of construction of roads and contracts had filed return of income for the A.Y. 2007-08 at Rs. 1,45,72,139. In the course of assessment proceedings, the assessee was required to give break-up of the inventory of Rs. 36.04 crores shown by it in its accounts, details of contract receipts, operating expenditure and current liabilities. Assessing Officer also required the assessee to produce books of accounts. In reply, assessee furnished copies of inventory and break-up of unsecured loans along with statement of sundry creditors as on 31.3.2007 and 31.3.2008. Nevertheless, it seems books of account and other records were not produced. AO put the assessee on notice as to why section 144 should not be invoked. It seems assessee could not justify its inability to produce the books of accounts. Since assessee did not produce books of account nor furnish the specific information called by the AO, he proceeded to make an assessment u/s. 144 of the Act. The action of the AO in invoking section 144 of the Act was confirmed by the CIT(Appeals) considering the non-compliance with the requirement of production of books of account and evidence in respect of its claim of expenditure.
5. Now before us, the ld. AR strongly submitted that invocation of section 144 of the Act was not warranted under the facts and circumstances of the case. Per contra, the ld. DR supported the orders of authorities below.
6. We have perused the records and heard the rival contentions. It is not disputed that assessee failed to produce books of account. It could not furnish various details called for by the AO. Assessee had filed its balance sheet and profit & loss account along with the return of income. Once the assessee, despite notices, failed to produce books of account for verification, AO is left with no choice but to proceed with a best judgment assessment. We cannot find any fault with the AO in this regard. Ground No. 2 of the assessee stands dismissed.
7. Vide ground No. 4, grievance raised by the assessee is on the disallowance of Rs. 55,95,000. AO during the course of assessment proceedings found that assessee had in its profit & loss account debited a sum of Rs. 4,49,07,419 as finance charges. Out of this, sum of Rs. 62,97,421 was bank charges and commission, whereas the balance represented interest paid to various banks on loans taken by the assessee. AO noted that majority of the loans taken were for the working capital needs of the assessee. However, according to the AO, assessee had advanced a sum of Rs. 4.45 crores as on 31.3.2007 and Rs. 3 crores as on 31.3.2008 to various parties without charging interest. As per AO, the average advances sans interest came to Rs. 3.73 crores. He applied a rate of 15% on such amount and held that Rs. 55,95,000 out of the total claim of interest expenditure was not allowable. Addition was accordingly made.
8. In its appeal before the CIT(Appeals), argument of the assessee was that advances given by it was out of interest free funds available. However, ld. CIT(A) was of the opinion that assessee could not substantiate this argument. According to him, assessee had........