ITO, NEW DELHI vs. M/S OPERA GLOBAL PVT. LTD., NEW DELHI

ORDER PER SUCHITRA KAMBLE, JM

This appeal is filed by the Revenue against the order dated 15/02/2011 passed by Ld. CIT (A)’s XVIII, New Delhi for the Assessment Year 2005-06.

“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the trading addition of Rs.1,45,01,481/- to Rs.10,68,331/- thereby giving a relief of Rs. 1,34,33,150/- without appreciating the facts discussed in the assessment order and remand report.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that the G.O of this year is duly supported by the books of accounts and bills and vouchers etc., despite the fact that complete books of accounts and bills for purchases in particular and bills/vouchers for expenses were not produced even during remand proceedings.

3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the above addition made by the A.O by mechanically applying last year’s figures cannot be sustained without appreciating the facts relating to various discrepancies discussed in detail in the assessment order and the remand report that the trading addition was not based on account of suppression of sales but on account of huge inflation in purchases from three parties and various other discrepancies.

6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that “from M/s Raja Fashion, the purchase figure as per the appellant’s book is Rs.72,71,311/- whereas per the party confirmation the figure is Rs.92,02,231/- thereby showing higher sales by the party of RS.19,30,920/-“ without appreciating the facts discussed in the assessment order and remand report that the total purchases from this party have been booked byte at a substantial inflated figure of Rs.1,38,89,773/-.

Thus, on the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the trading addition to the extent of difference in purchases of Rs.60445+10,00,000=10,68,331/- without appreciating the excessive amount of purchases booked in the names of above three parties by RS.2,01,95,369+1,03,00,973+66,18,462=3,71,14,799.

On the facts and circumstances of the case and in law, the Ld. 7. CIT(A) has erred in restricting the disallowance of Rs. 3,07,29,707/- made u/s 40(a)(ia) to RS.53,000/- only thereby giving a relief of RS.3,01,99,707/- without appreciating the facts discussed in the assessment order and remand report.

8. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that “the activities of fabrication, embroidery and finishing & washing were done in-house by the assessee and that part of the embroidery charges which related to payment to outsiders were less than Rs.50,000/- each” thereby deleting Rs.2,00,71,365/-. Embroidery charges of Rs.37,36,298/- and Finishing and Washing charges to the extent of Rs.16,04,529/- without appreciating the facts discussed in detail in the remand report and also without verifying the fact from the assessment record that (i) fabrication charges of Rs.42,86,882/- were paid to 15 parties above Rs. 1 lacs each and the balance amount of Rs.1.58 crore was paid to the workers of some outside contractors: (ii) Embroidery charges of Rs.19,60,540/- were shown paid to ten parties above Rs. 1 lacs each; and (iii) Finishing & Washing charges of Rs. 11,60,170/- have been shown paid to four parties above Rs. 1 lacs each, namely Jai Karan Pressing Rs. 3,765,785/- Santosh Washing & Finishing Rs. 5,03,244/-: Raj Kumar pressing Rs. 1,16,725/-; and Ahuja Brothers Rs. 1,63,416/-.

9. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that “dyeing & printing charges was on account of purchase of dyed/printed fabrics from various parties which as per the A.O do not require deduction of TDS” thereby deleting the entire disallowance made u/s 40(a)(ia) of rS.31,88,401/- without appreciating the fact discussed in remand report and also without verifying the facts from the assessment records that as per details of closing stock furnished vide letter dated 16/1/2007, the value of fabrics with Dyers has been shown at Rs.14,25,648/-.

10. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that “the Lab testing charges are also fully in house and hence there is no liability of TDS” thereby deleting

the entire disallowance made u/s 40(a)ia) of Rs .5,03,516/- without appreciating the facts of remand report and without verifying from the record that out of total amount of Rs.5,03,516/-, Rs.2,66,239/- was paid to M/s S.G.S India and Rs.2,34,917/- was paid to M/s Intertek Testing Services.

12. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that “commission was directly deducted by the foreign commission agent on sales made through him and only the balance amount, net of commission, was received by the appellant and since no payment has been made by the appellant, there is no liability of TDS” thereby deleting the entire disallowance made of Rs.6,61,613/- despite the fact that no evidence in this regard was furnished even during the remand proceedings.

proceedings and three of them were shareholders in the assessee company during the year.

4. The assessee is a Private Limited Company filed its return on 31/10/2005 declaring an income of Rs.10,85,211/- along with the said return, the assessee company has filed audited balance-sheet, profit and loss account, schedule of expenses, audit report and documents in support of deductions claimed. The business of the assessee company is a manufacturer and export of garments. The Assessing Officer while deciding the gross profit rate has given a finding that the gross profit rate declared in the A. Y 2005-06 is too low i.e. 16.72% compare to the immediate preceding assessment year where the assessee company has shown gross rate or 25.79%. Therefore, the Assessing Officer adopted G.P rate for the year under consideration too that of the immediate preceding assessment year as relates to disallowance u/s 40(ia). The Assessing Officer has disallowed charity and donations to the extent of Rs.17,556/-, disallowance out of ESI & PF towards Rs.2,08,542/- disallowance of payments made to false amounting to Rs.9,615/- disallowance of payments made to postman to RS.3,420/- disallowance of payments as to traffic challan to Rs.1,300/- disallowance of expenses incurred on behalf of ONS Creation Pvt. Ltd. to the extent of Rs.8,225/- disallowance of payment spent on mobile to Rs.19,509/- disallowance of payments made related to violation of public policy to Rs.6,150/- disallowance of payments for company registration to Rs.2,200/- disallowance of cash for depositing in bank account to Rs.5,300/- disallowance of income tax debited to profit and loss account to Rs.2,42,163/- disallowance of professional charges of Rs. 2,200/- disallowance of payment made to M/s Selective Placement Consultant to Rs.10,868/- disallowance of payment relating to Shri B. K. Chabra to Rs.53,000/- disallowance of payments made to Shri Sunil Bhattacharya to Rs.2 lac disallowance out of professional charges to Rs.3,50,000/- disallowance to salary expenses to Rs.10 lacs. As relates to disallowance u/s 40(ia) the Assessing Officer submitted that there was no details filed by the assessee and if at any stage the details if filed then there will be allow ability in view of the provisions of Section 40(ia).

4. The CIT(A) as relates to Ground No. 1 to 7 categorically observed that since the duty drawback is included in the sense the drastic deduction of 12% has resulted in the lowering G.P ratio in this assessment year which was pointed out by the assessee in its profit and loss account. The CIT(A) also accepted the contention of the assessee that all payments were made through banking channels and admitted that there is a possibility of discrepancy in party accounts due to lack of proper re-conciliation and non maintenance of stock register by the assessee. The CIT(A) has made an addition of Rs. 10,68,331/- and deleted the remaining disallowance of Rs.1,34,33,150/- as relates to Ground No. 8 to 12, the Ld. CIT(A) observed that since there is no payment to outsiders in salary and wages there is no question to deduction of TDS on the above payments as related to fabrication charges, embroider charges and finishing and washing charges. As relates to clearing and forwarding charges the assessee’s contention was that no payments was done over and above Rs. 50,000/- to any agent and hence there was no liability for TDS u/s 194C of the Income-tax Act. The said contention was accepted and the remand report was taken on record. The CIT(A) deleted the RS.3,07,29,707/- u/s 40(a)(ia) as relates to Ground No. 13, the CIT(A) deleted the estimated disallowance under the head of salary expenses.

5. The Ld. AR submitted that Ground No. 1 to 7 deals with action of the A.O in making trading addition of Rs.1,45,01,481/- by adopting the GP rate of the preceding year. The A.O has made the impugned addition holding that the assessee did not furnish the various details asked for during the assessment proceedings. The A.O has further alleged that there were various discrepancies in the submissions of the assessee company. The A.O has also held that the assessee has deliberately not produced the books of accounts. The A.O, thus, adopted the GP rate of the last year, i.e. 25.79% and made the addition of Rs.1,45,01,481/-[15,98,84,034 x(25.79-16.72]. The A.O has discussed this issue in para 3.5-3.10 of the order. However, the said addition was restricted by the Ld. CIT (A) to an amount of Rs.10,68,331/- holding that the GP of the assessee for the year was duly supported by the books of accounts, bills and vouchers, further accepting the contention of the assessee that the expenditure incurred by the assessee on account of salaries and wages has also gone up during the year. The findings of the CIT (A) in this regard are at page 14-15 in Para 5.1 of the order. In this regard, the Ld. AR submitted that the A.O has rejected the books of accounts of the assessee company u/s 145(3) of the Act merely on the basis of surmises and conjectures. The assessee filed various documentary evidences during the course of assessment proceedings. However, the A.O, not being satisfied by the documents of the assessee company, has arbitrarily adopted the G.P rate of last year and has made the impugned addition. The A.O has rejected the books of accounts of the assessee company only on the basis that the GP rate of the assessee for the current year is lower than the GP rate of the previous year. It has been submitted by the assessee and also accepted by the CIT(A) that the fall in GP rate during the year was mainly because of the fact that the assessee used to record the duty drawback as part of its total turnover and used to book the same in the sales. The rate of duty drawback, however, got reduced to 2.5% from 14.5% during the year, thereby leading to a huge reduction in the sales, which further affected the GP rate. However, the A.O has completely disregarded the above submissions of the assessee. The Ld. AR further submitted that it is a settled law that mere non satisfaction of the A.O on a particular aspect does not mean that the same can be rejected on the ground that the books of accounts of the assessee are incomplete or incorrect. Mere rejection of the GP rate adopted by the assessee, cannot be a ground to reject the books of account of the assessee.

• DCIT Vs. Gajanan Traders[2007] 12 SOT 36 (Bangalore) (URO) • Ganesh Foundry VS. ACIT [2003] 130 Taxman 172 (Jodhpur) (MAG.) • Manohar Lal Vs. ITO [2000] (Jodhpur) 7. The Ld. AR while dealing with the Assessment Order stated that the AO pointed out the discrepancies in the amount of purchases made by the assessee from three parties, namely City Creations Pvt. Ltd., Rainbow Enterprises and Raja Fashions. In this regard, the submissions are as follows:-

(i) City Creations Pvt. Ltd.- The A.O has alleged that as per the details submitted by the assessee, the purchases made from the said party are Rs.2,22,06,527/- however, as per the reply of the party, the amount is Rs.20,11,158/- only. The A.O has further alleged that the figure appearing in the ledger account of the party in the books of the assessee is also Rs.20,11,158/-.

In this regard, it is submitted that the details of party-wise purchases was submitted by the assessee before the CIT (A). The ledger account of the party was also submitted (PB 36). As per the said ledger account, the purchases made from the said party are Rs.20,11,158/-. The A.O has stated that as per the confirmation of the party, the net sales made by the party were Rs.20,71,603/-. Therefore, the only difference which remains is Rs.60,445/- [20,71,603(-)20,11,158]. Thus, the CIT (A) has sustained the addition for an amount of Rs. 60,445/-.

(ii) Rainbow Enterprises:- The A.O has alleged that the total purchases shown from the party are for Rs. 1,54,87,182/-, whereas as per the reply of the party, the total sales made by the party are Rs.51,86,209/-. In this regard, it is submitted that the ledger account of the party in the books of the assessee company is enclosed at PB 32-35, which was submitted before the CIT(A) and the A.O in the remand proceedings. It is submitted that the A.O has wrongly taken the figure of Rs. 81,61,121/- from the ledger account, which is the total of the credit side, which also includes the opening balance. Therefore, the A.O has grossly erred in reconciling the balance of the party. As per the books of the assessee, assessee has purchased material of Rs.51,86,209/-, from the party. However, as per the reply of the party, the sales made are for Rs.51, 78,343/- [55,86,209(-)4,07,867], leaving a difference of RS.7,866/-, which has been sustained by the CIT(A).

(iii) Raja Fashions- The A.O has alleged that the total purchases shown by the assessee from the said party are Rs.1, 38,89,773/-, whereas as per the reply of the party, the amount is Rs.72,71,311/-. In this regard, the ledger account of the party in the books of the assessee company is enclosed at PB 25-31, which was submitted before the CIT (A) as well as the A.O during the remand proceedings. A perusal of the account would reveal that the purchases made by the assessee during the year are Rs.72, 71,311/-. However, as per the reply receiveds from the party, the figure was Rs.92, 02,231/- leaving thereby a difference of RS.19, 30,920/-. It was submitted by the assessee that the purchases made by the assessee have been fully confirmed by the party, however, certain additional sales have been shown, for which the assessee should not be held responsible. It was also submitted that the payments have been received by the assessee through banking channels. Therefore, considering the above facts, an ad- hoc addition of Rs.10, 00,000/- was sustained by the CIT (A), and the balance addition was deleted.

4.9. Therefore, it is clear that the Ld. CIT(A), considering the facts of the case and the documentary evidences in this regard, has rightly restricted the addition made by the A.O to an amount of Rs.10,68,331/- [60,445 (+) 7,866(+) 10,00,000], and thus, the order of the CIT(A) be upheld.

• ITO Vs. Dr. Willmar Schwabe India (P.) Ltd. [2005] 3 SOT 71 (Delhi) • Jindal Photo Films Ltd. Vs. ITO [2006] 5 SOT 272 (Delhi) • Whirlpool of India Ltd. Vs. JCIT [2007] 16 SOT 435 (Delhi) Also, assessee has deducted TDS on the commission charges of the agent, is an undisputed fact. Therefore, the addition made by the A.O has been rightly restricted by the CIT(A) to an amount of Rs.53,000/-.

• DCIT Vs. M/S FCB Ulka Advertising Pvt. Ltd (ITA No. 5404/Mum/2007 & & C.O No. 293/Mum/2007 dated 21th May 2014) Hon’ble Mumbai ITAT. • ACIT Vs. Amtek Auto Ltd. [112 TTJ 455 (Del)] • DCIT Vs. Yash B. Johar, (ITA No. 2612/Mum/2008, A.Y 2004-05 dated 5/1/2010) • Devji Nenshi Palani Vs. ITO, (ITA No. 6519/Mum/2009, A.Y 2006-07 dated 29/10/2010) 11. The assessee further submitted that the ITAT in assessee’s group of companies case held that since no amount was paid to any of the employee exceeding minimum related to attract the TDS provision, therefore, no TDS was deducted the same factual aspect has been applied here in the present case as well.

13. We have perused all the records and taken into account, contentions of both the parties from the record it can be seen that as relates to Ground No. 1 to 7, the CIT (A) has admitted that there is a possibility of discrepancies in party accounts and the same cannot be ruled out due to lack of proper re- conciliation as well as the stock register was not maintained by the assessee but the CIT(A) also has given a finding that all the payments were made through banking channels and assessee has given ledger account and copies of letters of credit before the Assessing Officer. The assessee company also submitted confirmation of the parties as per the Assessing Officer ’s enquiry. The CIT(A) has rightly added Rs. 10 lacs and deleted the remaining disallowance. Hence, Ground No. 1 to 7 will not sustain. As relates to Ground No. 8 to 12, the CIT(A) has given a finding that in all respective salary and wages there was no payment which was made above 50,000/- and, therefore, the same is not coming under the purview of Section 194C for TDS deduction. The record also speaks the same. The remand report also has not stated that there was a payment more than Rs.50,000/- to any of the administrative staff or outsiders related to the expenses. Hence, these grounds are also not sustainable. As relates to expenditure under the head salary the assessee filed the details before the Assessing Officer and the same was not controverted by the Assessing Officer in the remand proceedings. Thus, this ground also does not sustain.

The order is pronounced in the open court on 15th of February 2016.