Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES: ‘C’, NEW DELHI
Before: SHRI RS SYAL & SMT. BEENA PILLAI
ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by revenue against order dated 22/01/15 passed by Ld. CIT (A)-17, New Delhi for assessment year 2011-12 on following grounds of appeal: “1. Whether Ld.CIT(A) has erred in deleting addition of Rs.4,96,917/- on account of 14A disallowance and not considering the facts and circumstances in this regard.
2. Whether Ld.CIT(A) has erred in deleting addition of Rs.34,56,761/- made on account of low G.P. and not taking into
ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International consideration of facts and circumstances of rejection of books of accounts u/s 145(3) of the Act on account of discrepancies found in books of accounts and stock register. 3. Whether Ld.CIT(A) has erred in deleting addition of Rs.92,568/- and not considered the facts with regard to unjustified travelling allowances.”
Brief facts of the case are as under: Assessee filed its return of income on 17/09/11 declaring total income of Rs.1,17,12,470. The case was selected for scrutiny and accordingly statutory notices under section 143 (2) and 142 (1) of the Income Tax Act, 1961 (the Act) along with questionnaire was issued and served upon the assessee. Representatives of the assessee appeared before Ld.AO and in response to the notice issued, filed details as called for from time to time. 2.1. Assessee is a partnership firm engaged in the business of manufacturing and export of handicraft and handloom products. Assessee had declared income from business or profession, capital gains and income from other sources for the year under consideration. Assessment was completed by making following disallowances: • disallowance of Rs.4,96,917/-under section 14 A • addition of Rs.34,56,761/-on account of low gross profit • disallowance of Rs.1,42,744/-out of car expenses and travel expenses.
Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT (A). Ld.CIT (A) after going through the submissions advanced by assessee partly allowed the appeal.
ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International 4. Aggrieved by the order of Ld.CIT (A) revenue is in appeal before us now.
Ground No. 1: Revenue raised this ground against addition made by Ld.AO under section 14 A being deleted by Ld.CIT (A). Ld.Sr.DR submitted that Assessing Officer has rightly disallowed 0.5% of the investments made by assessee under rule 8D (2) (iii) of the Act. He placed reliance upon the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT reported in 402 ITR 640.
On the contrary Ld.AR submitted that the only disallowance that could be made under section 14 A is STT expenses which could be directly related to earning of exempt income. He submitted that no indirect cost could be attributable to the earning of exempt income as it is an admitted position that there has been no interest payment to anyone including partners or their capital and that the investment in mutual funds has been made out of appellant’s own fund. He also submitted that even the partners have not been paid any salary and therefore no other expenses could be attributable to the disallowance under section 14 A. 7. We have perused the submissions advanced by both the sides in the light of the records placed before us. 8. There is no dispute regarding the direct expenses that has been computed by assessee which has a bearing on earning of exempt income. It is also an admitted position that assessee has disallowed a sum of Rs. 1,20,418/-. Further there is no dispute regarding absence of indirect expenses that could be attributable ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International to the earning of exempt income under rule 8D (2) (ii). However as per the recent decision of Hon’ble Supreme Court in the case of CIT versus Maxopp investments Ltd (supra) investments has to be considered for the purposes of disallowance under rule 8D (2) (iii). We are therefore inclined to reverse the observations of Ld. CIT (A). The only concession that can be granted to assessee is to direct Ld.AO to consider only those investments that has yielded exempt income to assessee.
We therefore direct Ld.AO to consider investments that has yielded exempt income to assessee while computing the expenses that are attributable to the earning of exempt income under rule 8D (2) (iii).
Accordingly this ground raised
by revenue stands allowed for statistical purposes.
11. Ground No. 2 raised by revenue is in respect of deletion of addition made on account of low GP rate.
12. Ld.Sr.DR submitted that during assessment proceedings, assessee failed to provide details for determining correct trading results. He placed reliance upon observations of Ld.AO, regarding discrepancies observed in the manner in which assessee has maintained its books of accounts. Ld.Sr.DR submitted that assessee had also not maintain any stock register due to which the books of accounts were rejected under section 145 of the Act. He submitted that the GP rate declared by assessee for the year under consideration was 12.94% which was low as compared to immediately preceding 2 assessment years. He thus submitted that assessing officer was right in adopting 18.70 as the GP rate for the year under consideration.
ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International 13. Ld.AR on the contrary submitted that assessee has never had GP rate stable in the preceding assessment years. He submitted that the business activity of assessee is such that it keeps varying depending upon the market price as assessee is engaged in the business of export of textile items and procures the materials on the basis of export order paid by it. Ld.AR submitted that the price at which the order is procured by assessee and the price at which the purchases are made from the market depends upon the market conditions, orders in the market, the capacity of the supply to produce, the price in the season, the exchange rate etc. He thus placed reliance upon the categorical observations of Ld.CIT (A).
We have perused the submissions advanced by both the sides in the light of the records placed before us.
It is also observed that Ld.CIT(A) has dealt with each and every objections raised by Ld.A.O. in paragraph 7.2 – 7.8 at pages 31 to 41 of his order. For the sake of brevity the same is not reproduced herein again and we refer to and rely upon the same.
On perusal of observations of Ld.CIT (A) regarding remand report which was called for from Assessing Officer, Ld.AO issued notice under section 133(6) of the Act to parties from whom assessee purchased materials. Ld.AO has also recorded that the parties had responded through their Authorised Representatives. Ld.CIT(A) further observed that before rejecting books of accounts, Assessing Officer failed to conduct further enquiries in respect of parties or had bought any materials on record based on which an adverse view could be drawn.
ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International 17. On the basis of the above discussions and the specific observations by Ld. CIT (A) we do not find any infirmity in the decision of Ld. CIT (A) in deleting the addition made by Ld.AO. Accordingly this ground raised by revenue stands dismissed.
18. Ground No. 3 raised by revenue is against the tour and travel expenses being deleted by Ld. CIT (A).
19. Ld.Sr.DR submitted that assessee had failed to submit the details of expenses incurred for travelling and tours along with documentary evidences because of which the addition was made by Ld.AO.
20. On the contrary Ld.AR placed reliance upon the observations of Ld. CIT (A).
21. We have perused the submissions advanced by both the sides in the light of the records placed before us.
22. It is observed that Ld. CIT (A) deleted the addition as Assessing Officer had failed to substantiate his reasoning for disallowance. But in our considered opinion, for any expenditure to be allowable under section 36 of the Act, assessee has to establish by way of documentary evidences, bills regarding the travel expenditure having been incurred exclusively for the purpose of business. Admittedly assessee has neither filed any details before Ld. AO nor before Ld. CIT (A). We therefore do not agree with the relief granted by Ld. CIT (A) as assessee has not discharged its onus of establishing the expenditure having incurred for the purposes of business. There has been no documentary evidences that has been placed on record even before us as to the purposes of business. Accordingly this ground raised by revenue stands allowed.
ITA 2186/Del/2015 A.Y.: 2011-12 ACIT vs. Hansa International 23. In the result appeal filed by revenue stands partly allowed. Order pronounced in the Open Court on 31.05.2018.