CREATIVE TECHNOTEX PRIVATE LIMITED,KOLKATA vs. DCIT, CIRCLE 11(1), KOLKATA

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ITA 991/KOL/2026Status: HeardITAT Kolkata01 September 2026AY 2014-20156 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance was made on a hypothetical basis without rejecting the assessee's books of account. The AO did not conduct independent inquiries, and the CIT(A) erred in sustaining the addition.

What were the facts?

The assessee claimed processing charges for stitching fabric into aprons. The Assessing Officer (AO) disallowed a portion of these charges, considering them bogus due to a significant increase compared to sales. The CIT(A) upheld the AO's disallowance.

What were the issues?

Whether the disallowance of processing charges was justified without rejecting the books of account and without conducting independent inquiries.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 145(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA

Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR

For Appellant: Shri Siddharth Agarwal, Advocate
For Respondent: Shri Dipu Koley, Sr. DR
Hearing: 22.06.2026Pronounced: 01.09.2026

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER I.T.A. No.991/KOL/2026 Assessment Year: (2014-15) Creative Technotex Private Limited, DCIT, C/o Subhash Agarwal & Associates, Vs. Circle – 11(1), Advocates, Kolkata Siddha Gibson, 1, Gibson Lane, Suite 213, 2nd Floor, Kolkata – 700069, West Bengal [PAN: AADCC9167C] (Appellant) .. (Respondent) Appellant by : Shri Siddharth Agarwal, Advocate Respondent by: Shri Dipu Koley, Sr. DR Date of Hearing 22.06.2026 Date of Pronouncement 01.09.2026 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: This appeal is preferred by the assessee against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as the “ld. CIT(A)”], dated 19.02.2026 for Assessment Year (AY) 2014-15.

2.

The only issue raised by the assessee is against the order of ld. CIT(A) confirming the disallowance of Rs.1,08,74,033/- as made by the Assessing Officer (In short, ‘the AO’) on account of processing charges by treating the same to be bogus and non-genuine.

ITA No.991/Kol/2026/A.Y.2014-15 Creative Technotex Pvt. Ltd. vs. DCIT 3. The facts of the case in brief are that assessee filed the return of income on 26.11.2014, declaring total income of Rs.1,54,21,850/-. The case was selected for scrutiny through CASS. Various statutory notices u/s 143(2) and 142(1) of the Income-tax Act, 1961 (In short, ‘the Act’) were issued and served upon the assessee. During the assessment proceedings, the AO noted that assessee claimed a sum of Rs.4,07,24,028/- under the head processing charges, which represented the stitching of fabric/cloth into aprons. It was submitted that the processing charges were incurred towards stitching of the fabrics for making aprons paid to various tailors mainly in cash. It was also submitted that during the preceding assessment year, the claim was of Rs.2,10,67,411/-, which was allowed. Before the AO, the assessee filed detailed break-up along with details of recipients. According to the AO, since the claim had risen by 93.30% whereas sales were increased marginally to Rs.28.18 crore vis-a-vis Rs.26.86 crore in the preceding assessment year. It was also submitted that these payments were made against the bills and vouchers submitted by the tailors and that too after deduction of TDS. The AO extracted the details at pages 2, 3 and 4 of the assessment order. The AO observed that mere filing of evidences and deducting tax would not prove the genuineness of the claim. Accordingly, he treated the same as an act of syphoning money from the business and consequently, disallowance of Rs.1,08,74,033/- was made.

4.

In the appellate proceedings, the ld. CIT(A) confirmed the addition after taking into account the submission and contention of the assessee by upholding the order of AO by observing that the expenses were booked on the basis of self-made vouchers and bills which paid in cash and therefore, expenses could

ITA No.991/Kol/2026/A.Y.2014-15 Creative Technotex Pvt. Ltd. vs. DCIT not be verified. Thereafter, the ld. CIT(A) referred to extranomical increase in expenses and minor increase in turnover. 5. Aggrieved by the order of ld. CIT(A), the assessee preferred appeal before the Tribunal. The learned Authorized Representative (ld. AR) submitted that the appellant is a private limited company engaged in the business of manufacturing and trading of readymade garments, primarily aprons. For the A.Y. 2014-15, it filed its return of income declaring a total income of Rs.1,54,21,850/-. The case was selected for scrutiny and an assessment u/s 143(3) of the Act was completed, wherein, inter alia, the AO disallowed a sum of Rs.1,08,74,033/- on an ad hoc basis out of a total sum of Rs.4,07,24,028/- claimed during the year under the head “Processing charges” by treating the same as bogus expenditure. The AO noted that the processing charges were incurred by the assessee for stitching fabric into aprons and was paid to tailors and that in the preceding year, the claim was to the tune of Rs.2,10,67,411/-. The ad hoc disallowance made by the AO was mainly based on the fact that these was an increase in the quantum of processing charges incurred during the relevant year compared to the preceding financial year along with observations made by the AO that consolidated bills were raised during the year end with other surrounding circumstances. It was submitted during the course of the hearing by the ld. AR that elaborate and detailed reply, dated 27.12.2016, was made explaining each of the observations made by the AO in his show-cause notice along with supporting documents. The ld. AR submitted that despite detailed submissions being made before the ld. CIT(A), the case of the assessee was dismissed and the disallowance made by the AO on account of processing charges to the tune of Rs.1,08,74,033/-, without rejecting the audited books of

ITA No.991/Kol/2026/A.Y.2014-15 Creative Technotex Pvt. Ltd. vs. DCIT accounts of the assessee, was sustained by the ld. CIT(A) in the appellate order dated 19.02.2026 passed u/s 250 of the Act.

6.

Further, the ld. AR submitted that the ld. CIT(A), after considering the submissions of the appellant, passed the impugned appellate order dated 19.02.2026. While the ld. CIT(A) accepted the appellant’s contentions in respect of the disallowance made u/s 40(a)(ia) of the Act amounting to Rs.46,10,801/- and deleted the said addition, the disallowance of Rs.1,08,74,033/- towards processing charges was confirmed. The ld. CIT(A), while confirming the addition, observed, inter alia, that the appellant failed to produce independent evidence to establish the genuineness of the expenditure. The ld. AR has submitted that the AO and ld. CIT(A) were wrong in considering the total sales in computing that expenditure had risen by 93.30% whereas sales had marginally increased from Rs.26.68 Crore to Rs.28.18 Crore because the total sales included the trading sales as well and the trading turnover had no nexus with processing charges. He stated that after considering the manufacturing sales only after adjustment of opening and closing stock, there is a rise of only 2.18% of the processing charges on turnover. The ld. AR also clarified that the assessee issued Material Issued Memo (MIM) at the time of issuing the materials to the contractors of tailors for stitching purposes and thus memo was issued in the internal process of the assessee, which did not require any signature of the contractor. The ld. AR explained that the fabrics purchased for the preparation of aprons came in big rolls that had to be cut to size in-house with the help of labour contractor and that such expenses were debited under the head “Processing Charges”. The out pieces were then sent to the tailor contractors for stitching purpose by generating Memos. The ld. AR also pointed that while

ITA No.991/Kol/2026/A.Y.2014-15 Creative Technotex Pvt. Ltd. vs. DCIT making ad hoc disallowance of Rs.1,08,74,033/- on account of 15 tailor contractors for payment of “Processing charges”, the AO erroneously mentioned the name “Sekh Rohit Ali” twice at Serial No.3 and 13 and took the amount of Rs.6,45,000/- paid to the said tailor contractor twice whilst making the said disallowance. The ld. AR placed reliance on the Judgment of Co-ordinate Bench of ITAT, Kolkata in Seikh Nizamuddin vs. ACIT, ITA No.1887/Kol/2017, 2019 (9) TMI 1228-ITAT Kolkata, wherein, it was held that without rejection of the books of assessee, no ad hoc disallowance of expenditure is warranted.

7.

We have rival submissions and perused the materials available on record. We note that the assessee is engaged in business of supplying aprons after getting the same stitched from the tailors by supplying cloths. We note that payments were made to the tailors after deduction at source, payments were made through cheques as well as in cash, which were below Rs.20,000/-. We also note that some payments were outstanding at the year-end also. We note that the AO has doubted the genuineness of the expenses and because the expenses have increased substantially by more than 93% whereas the turnover has not increased correspondingly. We also note that no specific defects or deficiencies were pointed out even the AO has not conducted any enquiry u/s 133(6) of the Act/issued summons u/s 131 of the Act. We note that books of account were rejected by the AO u/s 145(3) of the Act. In our opinion, the disallowances made by the AO as sustained by ld. CIT(A) is purely on hypothetical basis without rejecting the books of account u/s 145(3) of the Act. In our opinion, the addition made by the AO is incorrect, which has wrongly been sustained by the ld. CIT(A). Consequently, the order passed by the ld. CIT(A) is set-aside and AO directed to delete the addition.

ITA No.991/Kol/2026/A.Y.2014-15 Creative Technotex Pvt. Ltd. vs. DCIT 8. In the result, appeal of the assessee is allowed.

The order is pronounced in the open Court on 01/09/2026.

Sd/- Sd/- (George Mathan) (Rajesh Kumar) JUDICIAL MEMBER ACCOUTANT MEMBER Kolkata, Dated: 01/09/2026 SAMANTA आदेश�ȧĤǓ�ͧ �ͪ �\ Ē ȯͪ��/Copy of the Order forwarded to: 1. \ �Ȣ�ȡ�ȸ/ The Appellant 2. Ĥ×��ȸ/ The Respondent. 3. Ȳ�Ȳͬ��आयकर] �ǕÈ�/ Concerned CIT आयकर] �ǕÈ�(अपील) / The CIT(A) 4. 5. ��ȡ�Ȣ�ĤǓ�Ǔ�ͬ �, आयकर\ �Ȣ�ȣ�\ͬ ����,/ DR, ITAT, Kolkata 6. �ȡ�[फाईल/ Guard file.

BY ORDER,

// TRUE COPY // Deputy Registrar, ITAT, Kolkata

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