SHRI BIRENBHAI DEEPAKBHAI PARIKH,AHMEDABAD vs. THE DCIT, CIRXLE-3(1)(1), AHMEDABAD

The instant appeal filed by the assessee is directed against the order dated 11.09.2020 passed by the learned Commissioner of Income Tax (Appeals) – 9, Ahmedabad arising out of the order dated 28.11.2018 passed by the Assessing Officer, Circle 3(1)(1), Ahmedabad under section 143(3) of the (Shri Birenbhai Deepakbhai Parikh vs.DCIT) Asst.Year.– 2016-17 - 2 - Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2016-17, whereby and whereunder the claim of business loss of Riddhi Siddhi Trade Link to the tune of Rs.1,37,394/- and business expenditure of De-Param Healthcare to the tune of Rs.4,56,788/- has been disallowed.

Heard the parties, perused the relevant materials available on record.

The assessee engaged in the business of trading in clothes under the name and style of M/s. Riddhi Siddhi Tradelink and also in the business of manufacturing and trading of drugs and medicines under the name and style of M/s. De-Param healthcare filed its return of income declaring total income of Rs.26,91,310/- on 15.10.2016. The case was selected for scrutiny and relevant notices under S.143(2) of the Act dated 11.07.2017, followed by notice under S.142(1) of the Act dated 06.08.2018 was issued to the appellant, followed by a fresh notice under S.142(1) of the Act dated 03.11.2018 due to change of incumbent was served upon the assessee. During the assessment proceedings, the assessee showed loss of Rs.1,37,394/- from Riddhi Siddhi Tradelink and loss of Rs.3,48,036/- from De-Param Healthcare. In support of loss, the assessee contended that there was no sale or purchase of any products in the business of M/s. Riddhi Siddhi Tradelink though various direct expenses incidental to the business was incurred. In fact, the loss of Rs.1,37,394/- is mainly related to the rent expenses for Godown of Rs.1,32,000/-. Since, the assessee accepted the fact of no business activity carried out during the concerned year 2015-16, the genuineness of the payment was not found related to the business by the AO and the claim of Rs.1,37,394/- was disallowed.

So far as the disallowance on account of business expenditure of De- Param Healthcare of Rs.2,28,394/- out of the total disallowance of Rs.4,56,788/- confirmed by the learned CIT(A) is concerned, we find that the assessee has sold goods of Rs.57,29,092/- and the goods returned is Rs.50,12,201/- because of products remained unsold in the hands of distributors. It is relevant to mention that the assessee is dealing in sales of various medical products to its distributor and if any product remains unsold in the hand of distributor, distributor returns the unsold product to the assessee. Apart from that we find that assessee has incurred various fixed direct and indirect expenses including administrative expenses, which were also found to be incurred at higher amount. The learned AO disallowed the 3/4th of such expenses, which was worked out Rs.4,56,788/-.

In appeal, the learned CIT(A) confirmed the disallowance of Rs.2,28,394/-. However, the fact of return of sales is found to be duly reflected in the financial statement of De-Param Healthcare appearing at page no.70 onward in the paper book. In fact, the copy of the P&L account duly certified by the Auditor, the copy of the ledger of sales return, sales return memo, goods transfer note etc. issued by the purchase parties has been duly filed by the assessee and has been carefully considered by us which is found to be sufficient to substantiate the involvement of high element of expenditure of net sale of Rs.7,16,890/- by the assessee. Hence, disallowance of Rs.2,28,394/- due to non-supporting evidence adduced by the assessee (Shri Birenbhai Deepakbhai Parikh vs.DCIT) Asst.Year.– 2016-17 - 5 - deserves to be deleted. Thus, we delete the addition made by the authorities below.

In the result, assessee’s appeal is allowed.