SHERMAN SALES & SERVICES PVT. LTD.,NEW DELHI vs. ITO, WARD- 23(2), NEW DELHI

(A) This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-8, New Delhi, [“Ld. CIT(A)”, for short], dated 23.07.2018 for Assessment Year 2015-16. Grounds taken in this appeal of Assessee are as under:

a. Rs. 1,67,791/- on account of Ad-hoc Addition. Page 1 of 14

ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. b. Rs. 2,296/- for Freight and Courier Expenses (B) The first issue in dispute in this appeal is regarding disallowance of Rs.1,67,791/- on account of ad-hoc Addition, being disallowance out of expenses. The relevant part of the Assessing Officer reproduced as under :-

“3. During the course of assessment proceedings, it was noticed that according to audit report net profit/ turnover considerably gone down from minus 2.78% to minus 11.69% against the gross profit/ turnover

11.43% in the previous and 30.51% in the current year. In this connection justification was called from the assessee company vide show cause Notice dated 04-12-2017. However, the assessee could not justify the same and its reply dated 20-12-2017 is not tenable & justifiable.

However, the turnover gone down during the year compare to last year but other expenses & operating expenses considerably increased during the year. Hence, 1% net profit is taken which comes to Rs.1,67.791/- and added back to the income of the assessee company.”

(C) The assessee filed appeal before the Ld. CIT(A), who vide aforesaid impugned appellate order dated 23.07.2018 confirmed the addition. The relevant portion of the order reproduced as under :-

ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd.

(D) Aggrieved, the assessee has filed this appeal before the Income Tax Appellate Tribunal in the course of appellate proceedings in Income Tax Appellate Tribunal, a paper book was filed from the assessee’s side containing the following particulars :-

ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd.

Sl. No. Brief of Description of Documents 1 Respondent Written Submission 2 Annexure ICIT(A)’s order 3 Annexure II Financials Statement 4 Annexure III Tax Audit Report 5 Annexure IV Clarification Letter 5 Annexure V Bill and Voucher 6 Annexure VI Vikas Books Ltd Vs. Income Tax Officer 7 Annexure VII Vasudeva Jewellers Pvt. Ltd. 8 Annexure VIII ACIT Vs. Shree Motors Pvt. Ltd. 9 Annexure IX CIT Vs. Swaminarayan Vijay Carry Trade (P) Ltd. 10 Annexure X From 36 Along with the Annexure 12 Annexure XI Assessment Order (E) Moreover, written submissions were also filed from the assessee’s side. The relevant part of the written submissions is reproduced as under :-

ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd.

(F) At the time of hearing before us the Ld. Authorised Representatives of the assessee relied on the aforesaid written submissions and took us through the paper book. The Learned Senior Departmental Representative (“Ld. Sr. DR”, for short) for Revenue relied on the orders of the Assessing Officer and the order of the Learned CIT(A).

(G) We have heard both the sides and perused the relevant material available on record. We find that the Assessing Officer has made the aforesaid disallowances out of expenses, amounting to Rs.1,67,719/- on ad-hoc basis. The Assessing Officer has not specified any particular item of expenditure which is either not genuine or not a business expenditure. The Assessing Officer has also not rejected the books of accounts. The justification provided by the Assessing Officer for this addition is based on variation in profit ratio as compared to previous year. The explanation provided by the assessee vide letter dated 20.02.2017 has been rejected by the Assessing Officer as ‘not tenable and justifiable’ without assigning any reasons for his view that the explanation was ‘not tenable and justifiable’. Moreover, perusal of paper book filed from assessee’s side shows that the statutory auditor has admitted to clerical error in Audit Report in computation of profit ratios. The Learned CIT(A) dismissed assessee’s appeal on this issue stating that the appellant was unable to produce evidence that the mistake made by the auditor was clerical in nature which can be clarified from the audited inassive statements of the company. However, we find from page 40 of the ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. paper book (Sl. No.5 of paper book) that the statutory auditor has explained the clerical error in tax audit report. We find that the clarification/ explanation submitted by the statutory auditor has not been satisfactorily contradicted from Revenue side, at any stage. Hence, we hold that clarification/explanation of the satisfactory auditor was rejected by lower authorities without sufficient reasons. Thus, considering the clarification / explanation of the statutory auditor, the basis on which the addition was made by the Assessing Officer and was confirmed by the Ld. CIT(A), no longer exists.

In view of the foregoing, and in the particular facts and circumstances of this specific case; we hold that the aforesaid addition of Rs.1,67,791/- is unsustainable. Therefore, we direct the Assessing Officer to delete this addition.

(I) The second issue in dispute in this appeal is regarding disallowance of Rs.2296/- out of Freight and Courier expenses. At the time of hearing before us the Learned AR of the assessee submitted that this issue in the assessee’s appeal was not being pressed. Therefore, the ground of appeal pertaining to aforesaid disallowance amounting to Rs.2296/- is dismissed, being not pressed.

(J) In the result, the appeal is partly allowed.

ITA No.-6347/Del/2018 Sherman Sales & Services Pvt. Ltd. This order was already pronounced orally on 22nd November, 2021 in Open Court, in the presence of representatives of both sides, after conclusion of the hearing. Now this order in writing is signed today on 25.11.2021.