ACIT, CIRCLE- 8(1), NEW DELHI vs. EARTHLINE APPARELS PVT. LTD., NEW DELHI

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ITA 6474/DEL/2018Status: DisposedITAT Delhi15 November 2021AY 2013-145 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal remanded the issue of interest expenses back to the AO for proper adjudication. It upheld the CIT(A)'s deletion of the addition on estimated gross profit and the addition on delayed payment of employee contributions.

What were the facts?

The Revenue appealed the CIT(A)'s order deleting additions made by the AO on account of disallowance of interest expenses, estimated gross profit, and delayed payment of employee contributions. The assessee is engaged in manufacturing and sale of readymade garments.

What were the issues?

Whether the CIT(A) erred in deleting the additions made by the AO regarding interest expenses, estimated gross profit, and delayed employee contributions.

Which sections of the Income-tax Act were involved?

Section 43B

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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI

Before: SHRI O.P. KANT & MS. SUCHITRA KAMBLE

For Appellant: Shri R.K. Kapoor, CA
For Respondent: Shri Jagdish Singh, Sr. DR, Shri R.K. Kapoor, CA
Hearing: 10/11/2021

O R D E R PER SUCHITRA KAMBLE,JM This appeal is filed by the revenue against the order dated 19.07.2018 passed by the CIT(A) 3, Delhi for Assessment Year 2013-14.

2.

The grounds of appeal are as under :-

“1. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 1,82,86,355/- made by the AO on account ol Disallowance of part interest expenses.

2. Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 70,67,233/- made by the AO on account o1 Estimated Gross Profit.

3.

Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs. 46,645/- made by the AO on account of Delayed Payment of Employee’s contribution towards ESI & PF.

4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”

3. The assessee company engaged in the business of manufacturing of sale of readymade garments and business. The assessee filed return of income declaring loss of Rs. (-) 2,94,63,712/-. The AO made addition of Rs. 1,82,86,355/- was excess interest which was claimed as an expense pertaining to the loan component transferred to M/s. Aero Club. The Assessing Officer also made addition of Rs. 70,67,233/- on account of estimated gross profit. The Assessing Officer also made addition on account of delayed payment of employees contribution towards PF/ESI amounting to Rs. 46945/-.

4.

Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.

5.

Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs. 1,82,86,355/- in respect of part interest expense without giving cogent finding. As regards ground No. 2, the Ld. DR submitted that the addition on account of estimated gross profit was properly determined by the AO and CIT(A) was not allowed in deleting the said addition. As regards ground No. 3 the Ld. AR relied upon the assessment order.

6.

Ld. AR submitted that in respect of ground No. 1, the CIT(A) has given a categorical finding. The assessee has repaid outstanding balance to M/s Aero Club and the balance of same loan was used for business purpose. Thus the Ld. AR submitted that the CIT(A) was right in deleting the addition. As regards ground No. 2, Ld. AR relied upon the order of the CIT(A). As regards ground No. 3 the Ld. AR relied upon the decision of Hon’ble Delhi High Court in case of CIT vs. AIMIL Ltd. (2010) 321 ITR 508 as well as that of Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. pronounced on 10.09.2018.

7.

We have heard both the parties and perused all the relevant material available on record. As regards ground No. 1, the CIT(A) has not taken into account the observations made by the Assessing Officer that the receipt of interest component is mismatch in terms of proportion of cost on such loan apportioned to M/s. Aero Club. Though the assessee/Ld. AR pointed out the same, the said fact is not emerging out from the assessment order or from the order of the CIT(A). Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say the assessee be given an opportunity of hearing by following principles of natural justice. Ground No. 1 is partly allowed for statistical purposes. As regards ground No. 2, the CIT(A) has given a finding that the business model of the company is different as compared to M/s. Aero Club and the products which are sold by the assessee company are totally different from the comparable M/s. Aero Club. Therefore, the CIT(A) has rightly deleted the addition. There is no need to interfere with the findings of the CIT(A), hence ground No. 2 is dismissed. As regards ground No. 3, the issue is squarely covered by the decision of the Hon’ble Delhi High Court in case of AIMIL Ltd. (supra) and that of Hon’ble Delhi High Court in case of Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. pronounced on 10.09.2018. Hence ground No. 3 is dismissed.

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