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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
ORDER PER H.S. SIDHU : JM
The Revenue has filed this Appeal against the impugned Order dated 31.8.2012 of the Ld. CIT(A)-XXVIII, New Delhi relevant to assessment year 2009-10.
2. The grounds raised in this Appeal read as under:-
1. The Ld CIT (A) erred in deleting the addition
made by the AO of Rs.39,70,700/- applying the GP rate of 36.22% as shown by asseessee in the previous year not appreciating the fact that the addition was made by the AO after detecting various defects and irregularities in the purchase bills, non-submission of books of accounts & original bills and rejecting the books of account uls 145(3) LT. Act,1961 after issuing show cause letter dated 19/12/2011.
2. The Ld CIT (A) erred in deleting the addition
made by the AO of Rs.17,98,135/- towards addition of 'capital' by summarily' accepting the assessee's version that the necessary documentary evidences regarding receipt of gift from his mother, Mrs. Sumitra Ahlawat
'were furnished during the course of assessment proceedings which is factually incorrect and contrary to the facts on records since the assessee failed to furnish confirmation from his mother and other necessary documentary evidences regarding receipt of gift from his mother inspite of various opportunities given to the assessee.
Further, the Ld. CIT (A) has wrongly mentioned in her order that all the documents are available on record vide note sheet entry dt.24/12/2011 but over looked by the AO.
Whereas fact to the matter is that there is no such note sheet entry dated 24/12/2011.
3. The Ld CIT (A) erred in deleting the addition
made by the AO of Rs. 14,30,371/- towards addition in fixed assets as the assessee failed to furnish the necessary documentary evidences inspite of various opportunities given to the assessee.
4. The Ld CIT (A) erred in deleting the addition
made by the AO of Rs. 15,05,159/- on account of unexplained sundry creditors as the assessee 'failed to furnish the necessary documents evidencinq identity, creditworthiness and genuineness of transactions w.r.t sundry creditors inspite of various opportunities given to the assessee.
5. The LD CIT (A) erred in deleting the addition
made by the AO of Rs. 3,20,000/- towards unexplained loans as the assessee failed to furnish the necessary documentary evidences inspite of various opportunities given to the assessee.
6. The Ld CIT (A) erred in deleting the addition
made by the AO of Rs. 1,96,085/- towards unsubstantiated Salary payments made by the assessee as the assessee failed to furnish the necessary documentary evidences inspite of various opportunities given to the assessee.
The Ld CIT (A) erred in restricting the additions made by the AO on account of personal use of conveyance, vehicle running,
telephone, tour & travel etc and also of Diwali expenses as the assessee failed to furnish the necessary documentary evidences to show that the above expenses were incurred wholly
& exclusively for business purpose inspite of various opportunities given to the assessee.
That the grounds of appeal are without
prejudice to each other.
The appellant craves leave to add, amend or modify any / all the grounds of appeal before
or during the course of the appeal.
The brief facts of the case are that assessee filed his return of income on 27.9.2009 declaring income of Rs.9,94,880/-. The return of the assessee was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) and the case was selected for compulsory scrutiny. Accordingly, statutory notices were issued to the assessee and served upon the assessee. In response to notices, the A.R. of the assessee attended the proceedings from time to time and filed the necessary details. The assessee is engaged in the business of export and is also participating in foreign Fair & Exhibition. The assessee has submitted turnover and profit ratio for the last three years, which is reproduced as under:-
Turnover Gross Net Profit% (lacs) Profit% AY 427.17 27.57 2.47 AY (preceding-1) 417.87 36.22 3.78 AY (preceding-2) 353.34 47.10 8.00 2.1 On perusal of the above table, the AO observed that there is sharp decline in the gross profit as well as net profit. He further observed that the reason given by the assessee in support of his claim stated that “The international business environment has been 5 down during the last several years. Big multinational companies, leading banks, major economics have suffering huge financial problems resulting in panic in the minds of consumer who are buying our products on foreign markets. We are exporting life style products, which are not necessity items, hence, were forced to reduce our profit margin in recession phase in the present cut throat competition between exporters from India, China and other South East Asian Companies. Head be not reduce out profit margin, our turnover would nose dived.” The above submission of the assessee has been considered by the AO, but not acceptable. On perusal of purchase bills, AO observed that out of total purchase bill many bills are tampered, fabricated and there is cutting and overwriting on them, which put the question mark on the authenticity of purchase bills. Further no books of accounts, original bills have been produced. In the absence of which the GP as shown by the assessee remained unverifiable and create doubt about the completeness and correctness of the books of account of the assessee were rejected u/s. 145(2) and accordingly the AO applied 36.22% GP which was declared by the assessee in previous year and the same was added back to the taxable income of the assessee. Accordingly, an amount of Rs. 39,70,700/- was added back to the taxable income of the assessee being 36.22% as reduced by the GP @27.57 declared by the assessee. Besides, above, the AO has also added back various additions mainly on the ground of non-furnishing of information/evidence i.e. on account of unexplained addition in capital amounting Rs. 17,98,135/-; addition of Rs. 14,30,371/- on account of fixed assets; addition of Rs. 15,05,159/- on account of unexplained sundry creditors; addition of Rs. 3,20,000/- towards unexplained loans as the assessee; addition of Rs. 1,96,085/- on account of unsubstantiated salary payment made by the assessee and addition of Rs. 1,33,070/- on account of conveyance/telephone/travelling and vehicle expenses. Accordingly, the assessed the income of the assessee at Rs. 1,04,34,680/- passed u/s. 143(3) of the Act vide order dated 30.12.2011. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A)-XXVIII, New Delhi, who vide his impugned order dated 31.8.2012 has partly allowed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
3. Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal.
In this case, Notice of hearing to the assessee was sent by the Registered AD post, in spite of the same, assessee, nor his authorized representative appeared to prosecute the matter in dispute, nor filed any application for adjournment. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, we are of the view that no useful purpose would be served to issue notice again and again to the assessee, therefore, we are deciding the present appeal exparte qua assessee, after hearing the Ld. DR and perusing the records.
We have heard the Ld. DR and perused the relevant records, especially the impugned order. With regard to ground no. 1 relating to deletion of addition of Rs. 39,70,700/- by applying the GP rate of 36.22% is concerned, we find that the Method of accounting has been accepted for several years on same set of facts. The onus was on revenue to show that accounts were incomplete or incorrect and true profits could not be deduced from the books of accounts maintained by the appellant which were also duly audited and no adverse inference was drawn by the auditor. If expenses claimed remained unexplained, A.O could have disallowed the same without rejecting the books of accounts. The assessee has not been provided with details of comparable cases. The assessee should have been provided with an opportunity to rebut before rejecting the books of accounts and estimating the profits. Estimate should be based on some evidence and material. Best judgment assessment to be made (estimation shall have a rational nexus to the available material and the circumstances of the case. In view of the facts and circumstances of the case the Assessing Officer was not justified in rejecting the books of accounts by applying section 145(3) of the IT Act and estimating Gross Profit @ 36.22%. The addition made by the AO to the tune of Rs. 39,70,700/- was therefore, rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 1 raised by the Revenue.
With regard to ground no. 2 relating to deletion of addition of Rs. 17,98,135/- on account of capital is concerned, we find that during the assessment year under consideration assessee received gift from his mother Smt.Sumitra Ahlawat who is an assessee in the same Ward39(2) Delhi on 24.12.2011. Following documents were filed in response to query dated- 19.12.2011:
Copy of Income Tax Return of Sumitra Ahlawat
2. Copy of Bank Statement of Sumitra Ahlawat
Copy of cheques deposited by Sumitra Ahlawat
4. Copy of Bank A/ c of Sh. Vivek Vikas reflecting the amount
received.
6.1 Also following confirmation of gift from Sumitra Ahlawat were filed:
(a) Identity of Smt. Sumitra Ahlawat is proved by enclosing the PAN No. and Income Tax Return.
(b) Genuinenity is proved by enclosing the Bank Statement of both the parties.
(c) Source of funds proved by enclosing the copy of cheques received from the Post Office against matured I.V.P.
(d) Smt. Sumitra Ahlawat is a senior citizen and is an assessee since last 25 years.
6.1.1 We note that the AO leaving aside all genuine and explainable credits in the capital account added as Rs.17,98,000/-.
6.1.2 In view of the above facts and evidences it cannot be established that it is unexplained cash credit. All the above documents are available on record vide note sheet dated- 24.12.2011 but overlooked by the A.O. Hence, the addition of Rs.17,98,135/ - made by the Assessing Officer was uncalled and unjustified, therefore, was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 2 raised by the Revenue.
7. With regard to ground no. 3 relating to deletion of addition of Rs. 14,30,371/- on account of fixed assets is concerned, we find that A.O has made an addition of Rs.14,30,371/- discarding the expenses capitalized towards Mart No F-447 under the head Fixed Assets. The addition on fixed assets includes capitalization of Interest on Loan Rs.4,49,509/ - which is verifiable from the bank statement and cannot be disallowed. Further the balance amount includes expenses for which details were provided along with the photocopy of bills. The A.O picked up the figure of Rs.14,30,371/- which is not appearing in any details provided nor does it match with any calculation done by the A.O. During the course of proceedings appellant provided a separate sheet giving detail of addition to fixed assets along with the copy of bills but the A.O ignored each and every document available on record making the addition. In view of the above facts and evidences it cannot be said that it is unexplained. In our considered view, the relevant documents are available on record but overlooked by the A.O.
Therefore, the addition of Rs.14,30,371/- made by the AO was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 3 raised by the Revenue.
8. With regard to ground no. 4 relating to deletion of addition of Rs. 15,05,159/- on account of unexplained sundry creditors is concerned, we find that the figure of Rs.5,01,943/- consist of Sundry Creditors of Rs.4,89,096/- and Rs. 12,8471- as creditors from credit card and Telephone. Confirmation from Mohan Lal Devendra Kumar Saraf confirming the balance of Rs. 1,67,627/- was available on record and the confirmation received from SACHDEVA FABRICS for Rs. 1,80,507/- directly received. The amount of Rs. 7546/- of SAURAYA SECURITY SERVICES (P) LTD., it is very meager and the amount of Rs. 45,432/- belongs to Custom Clearing and no notice was issued to them. Out of Rs. 4,89,096/- total of creditors confirming Rs.3,48,134/- is available on record and the rest amount are below Rs.10,000/- and no notices were issued to them by the A.O. In view of the above facts and evidences, the addition of Rs.15,05,159/- made by the AO was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 4 raised by the Revenue.
9. With regard to ground no. 5 relating to deletion of addition of Rs. 3,20,000/- on account of unexplained loans is concerned, we find that assessee has received unsecured loan from the old parties and confirmations are available on record. These loans have been received from old lenders who are assessee since last 10 years in the same ward 39(2). Detail of unsecured loan taken and repaid during the year is mentioned in the tax audit report also Rs.25,000/- have been paid to Romita Ahlawat during the year and Rs. 2,70,000/- were received from her. The loan is continuing for more than 6 years. In view of the above facts and evidences it cannot be said that it is unverified, unsecured loan. Relevant documents are available on record butt overlooked by the A.O. The addition of Rs. 3,20,000/ - made by the AO was therefore, uncalled for and therefore, the same was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 5 raised by the Revenue.
With regard to ground no. 6 relating to deletion of addition of Rs. 1,96,085/- on account of unsubstantiated salary payments made by the assessee is concerned, we find that assessee has claimed in balance sheet salary payable amounting to Rs. 1,96,085/- and the amount of salary payable has already been considered in P&L A/c. However, the list of employees to whom salary was payable on 31st March had been provided to the AO and the salary was paid to these employees in the first week of April. In view of the above, the disallowance of Rs. 1,96,085/- made by the AO was uncalled for and unjustified, hence, the same was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground no. 6 raised by the Revenue.
With regard to ground no. 7 relating to restricting the additions made by the AO on account of personal use of conveyance, vehicle running, tour and travel etc. and also of Diwali Expenses is concerned, we find that it is a fact that element of personal use cannot be ruled out completely. We further find that the ITAT Delhi 'G' Bench in for Asstt. Year 2007-08 in the case of Shukal Chand Jain as per its order dated 29.02.2012 has held as under:
"7 Ground No.3 & 4 is inter-connected. In these grounds of appeal, assessee is impugning ad hoc disallowance out of car expenses, telephone expenses etc. The findings of the learned Assessing
Officer on this issue read as under:
"The assessee has claimed vehicle expenses of Rs. 1,11,837/-, insurance at Rs.34,036/- and car depreciation at Rs. 103,811 totaling to Rs.
2,94,694/- out of which 1/6th which comes to Rs. 41,615/- is disallowed being the element of personal use of car by Prop. can not be ruled out, moreover the assessee is not maintaining any logbook showing the separate use of vehicle.
The assessee has claimed Telephone expenses at Rs. 103177/- pertaining to telephone installed at office and residence of the assessee. Since no call register has been maintained by the assessee that how much calls have been made for business purposes and how much calls have been for personal use. In the absence of same and considering the fact that the element of personal use of telephone cannot be ruled and a sum of Rs.
17,196/ - being 1/ 6th of telephone expenses are disallowed for personal elements.”
11.1 We note that assessee has not shown any log book in respect of car being run for the purpose of business maintained. Similarly, whether assessee has maintained any call register demonstrating that telephone was exclusively used for the purpose of business. In the present case, the Assessing Officer has disallowed Rs.1 ,33,070/- being 1/5th of the total expenses (i.e. Rs. 6,65,354/- under the head telephone expenses, vehicle maintenance and depreciation on car and motor cycle. Though the element personal use is always there but disallowance of 1/5th of total expenses under this head seems to be on a higher side. Therefore, the Ld. CIT(A) has rightly held that it would be reasonable to restrict the disallowance to 1/10th of the total expenses. Accordingly, in view of the facts and circumstances of the case and the judgment of Delhi ITAT (supra), Ld. CIT(A) was of the considered opinion that the Assessing Officer is not fully justified in making a disallowance of Rs.1 ,33,070/- being 1/ 5th of the total expense. Hence, he rightly restrict the disallowance to 1/10th of the total expenses i. e. Rs. 66535 / - and sustain the order of the Assessing Officer to this extent. Further, with regard to Disallowance of Diwali Expenses on the eve of very important Hindu’s festival is concerned, we note that in view judgment of Delhi ITAT (supra) as discussed and adjudicated above, we are of the considered opinion that the Assessing Officer is not fully justified in making a disallowance of Rs.51,277/- being 1/5th of the total expense, hence, Ld. CIT(A) has rightly restricted the disallowance to 1/10th of the total expenses i.e. Rs.25638.51 and sustained the order of the Assessing Officer to this extent, which does not need any interference on our part, hence, we uphold the same and reject the ground no. 7 raised by the Revenue.
In the result, the appeal filed by the Department stands
dismissed.
Order pronounced in the Open Court on 01/09/2017.