DCIT, FARIDABAD vs. M/S. LAKHANI INDIA LTD., FARIDABAD

The substantive grievance of the revenue read :- “1. “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the disallowance of Rs. 1,31,66,791/- which was made by the AO as per provisions of section 14A(3) of the I.T. Act by applying Rule 8D(2)(ii) & 8D(2)(iii) I.T. Rules being expenditure relatable to income not includable in total income.” 2. “Whether on the facts and in the circumstances of the case, Ld. CIT(A) was right in law in deleting the disallowance of Rs.27,82,055/- which was made by the AO as per provisions of section 36(l)(iii) of the I.T. Act being interest for the period from the date of payment to the date of assets put to use is to be capitalized.” 3. “Whether on the facts and in the circumstances of the case, Ld. CIT(A) was right in law in deleting the disallowance of Rs.2,16,56,114/- out of total disallowance of Rs.9,49,96,740/-which was made by the AO on the account of difference in Gross Profit”.

The appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.”

None appeared on behalf of the assessee inspite notice we, therefore, decided to proceede exparte.

We find force in the contention of the Ld. DR while deleting the addition the CIT(A) held as under :- The issue has already been adjudicated by me in the case of the appellant in appeal no 69/2013-14 for assessment year 2010-11 and the relevant part of the same is reproduced below :

It can be seen from the aforementioned finding of the CIT(A), the finding is totally irrelevant to the issue agitated before the CIT(A). Therefore, in the interest of justice and fair play we restore this issue to the files of the CIT(A) with a direction that the CIT(A) shall decide this issue in true perspective of the underlying facts in the issue after giving a reasonable opportunity of being heard to the assessee.

Ground No.2 is treated as allowed for statistical purpose. 14. Ground No.3 relate to the deletion of the disallowance of Rs.21656114/- out of total disallowance of Rs.94996740/-.

Facts on record show that the additions made by the AO comprise of two components. The first relates to the differential rate taken in the valuation of ‘Ethylene Vinyl Acetate (EVA) amounting to Rs.13656114/- and the second component related to the lumpsum disallowance of Rs.80 lacs out of wages.

When the matter was agitated before the CIT(A), the CIT(A) deleted both the additions by holding as under :-

In Para 7.3, the AO has made an addition of Rs.1,36,56,114/- on account of differential in the raw material cost of Ethylene Vinyl Acetate (EVA). The appellant in its submissions has clearly explained the difference in the cost of Ethylene Vinyl Acetate (EVA) in the case of the appellant as well as in the case of Lakhani Rubber Udyog Pvt. Ltd. It is seen that the sister concern of the appellant i.e, Lakhani Rubber Udyog Pvt. Ltd. is engaged in manufacturing of hawai chhapal and the appellant company is engaged in manufacturing of shoes. It is the contention of the appellant that there are various qualities of Ethylene Vinyl Acetate (EVA) and resultantly the quality of Ethylene Vinyl Acetate (EVA) for shoes is of better quality, as compared to the quality used in Ethylene Vinyl Acetate (EVA) for chappals. Perusal of the assessment order reveals that the various bills for justifying the rates of Ethylene Vinyl Acetate (EVA) in the two concerns were produced before the AO during the course of assessment proceedings. The same have also been examined by the AO as evident from the assessment order. However, the AO while rejecting the contention of the appellant has not provided any cogent reasons for the same. Thus keeping of these facts and perspective, I find merits in the arguments of the appellant and thus this particular addition I/"' made by the AO is deleted. 29 In Para 7.4 of the assessment order, the AO has made an ad-hoc disallowance of Rs.80,00,000/- from the wage expenses. Perusal of the assessment order reveals that the AO has observed that the personal expenses have in fact decreased vis-a-vis the sales as compared to the earlier years. From the submissions of the appellant, it is seen that from Financial Year 2009-10 to 2010- 11, the personal expenses were 12.63% of the sales and in the year under consideration the same are for Rs.10.96%. The personal expenses of the appellant have been accepted by the Department in the earlier years @12.63% and when the same are @ 10.96% in the current year, ad-hoc disallowance has been made. In view of these facts, I find no reasons to justify the ad-hoc addition of Rs.80 lacs made by the AO and thus this addition made by the AO is deleted.

Before us the DR strongly supported the findings of the AO. It is the say of the DR that during the assessment proceedings the assessee neither filed any details nor any bills/ vouchers in support of its claim. The DR further stated that the CIT(A) has held that the details were furnished before the AO and the AO has not given any cogent reason for rejecting the contention of the assessee, according to the DR this is not in line with the facts of the case as the assessee never produced any details.

We have carefully perused the orders of the authorities below. The AO while discussing the GP rate of the assessee made additions on account of differences in EVA and lumpsum additions of wages and estimated the GP addition. In our considered opinion once the AO has estimated the GP addition at Rs.3,26,11,396/- which was sustained by the CIT(A) all the related expenses are deem to be allowed and, therefore, there should not be any further addition in trading account. Therefore, modifying the findings of the CIT(A) we direct the AO to delete the addition on account of EVA and wages. Modifying the findings of the CIT(A) ground No.3 is dismissed. 19. In the result, the appeal filed by the revenue is allowed in part for statistical purpose.