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Income Tax Appellate Tribunal, DELHI BENCHES “B”: DELHI
Before: SHRI BHAVNESH SAINI & SHRI N.K. BILLAIYA
This appeal by Assessee has been directed against the Order of the Ld. CIT(A), Muzaffarnagar, Dated 15.01.2014, for the A.Y. 2008-2009. Earlier, appeal of 2 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. assessee were dismissed for default. The Order have been recalled and appeal was fixed for hearing on merits.
We have heard the Learned Representatives of both the parties and perused the material available on record.
In this case, A.O. passed the assessment order under section 143(3) Dated 27.12.2010 determining the income of assessee at Rs.7,37,172/- after making certain additions against the returned income of Rs.92,362/-. The assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) noted certain dates of hearing, when there were no compliance to the notice or adjournment was sought. Ultimately, appeal of assessee were decided ex-parte in the absence of assessee. The Ld. CIT(A) enhanced the assessment by Rs.48,19,852/- and Rs.7,01,777/-. The assessee challenged both the additions in the present appeal.
As regards the addition of Rs.48,19,852/-, the A.O. directed the assessee to produce complete details of 3 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. unsecured loans with confirmation and statement of bank account of the lenders. The assessee filed reply along with documents. The A.O. noted that there is a frequent trend of cash deposits and cheques issued to the assessee company. The assessee were directed to produce these loans to ascertain the creditworthiness and genuineness of the transaction. The assessee filed complete details, but, failed to produce the lenders to substantiate the various cash deposits in their bank account deposited on the date or immediately before the date when unsecured loan was taken. The assessee failed to provide documents substantiating the reasons for cash deposit by such lenders. The A.O, therefore, noted that assessee failed to prove genuineness and creditworthiness of these transactions. The A.O. accordingly made the addition of Rs.4,78,000/- in respect of 04 credits namely Mr. Anoop Kumar, Anoop Kumar HUF, Mr. Abhishek Agarwal and Ms. Sushma Agarwal. The Ld. CIT(A) noted that the balance-sheet of the assessee shows that there was unsecured loans of Rs.52,97,852/-. But, A.O. made addition of Rs.4,78,000/-
4 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. only. The Ld. CIT(A), therefore, issued show cause notice as to why the total unsecured loans of Rs.52,97,852/- should not be treated as unexplained and addition should not be enhanced by Rs.48,19,852/-. There was no response from the side of the assessee. The Ld. CIT(A), therefore, enhanced the addition under section 68 of the I.T. Act in a sum of Rs.48,19,852/-.
Learned Counsel for the Assessee submitted that out of the total sundry creditors of Rs.52,97,852/-, there are opening balance of Rs.28,72,331/-, therefore, no addition of opening balance could be made which are coming from earlier years. Copy of the balance-sheet and list of the unsecured loans giving details of opening balance etc., are filed on record. He has, therefore, submitted that matter may be remanded to the Ld. CIT(A) for decision afresh.
On the other hand, Ld. D.R. submitted that even addition of the opening balance could be made. Since, assessee did not explain this issue before the Ld. CIT(A) in 5 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. spite of service of the notice, therefore, addition has been correctly made.
After considering the rival submissions, we are of the view that the matter requires reconsideration at the level of the Ld. CIT(A). Learned Counsel for the Assessee filed details of the sundry creditors in a sum of Rs.52,97,852/- which shows that there was opening balance of Rs.28,72,331/- in the case of unsecured loans. Since the opening balance do not pertain to assessment year under appeal, therefore, such amount could not be added. It would show that Ld. CIT(A) without verifying the facts and merely on account of ex-parte order enhanced the addition. This issue, therefore, requires reconsideration at the level of the Ld. CIT(A). We, accordingly, set aside the Order of the Ld. CIT(A) and restore this issue to his file with a direction to re- decide this issue in accordance with law, by giving reasonable, sufficient opportunity of being heard to the assessee. The assessee is directed to cooperate with the Ld. CIT(A) and shall produce sufficient documentary evidences
6 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. before him on this issue. This ground of appeal of Assessee is allowed for statistical purposes.
8. As regards addition of Rs.7,01,777/-, the A.O. considered the issue of wages expenses. The assessee submitted before the A.O. that bills and vouchers are mis- located due to flood in Moradabad. The A.O, therefore, disallowed 10% of wages expenses in a sum of Rs.1,66,110/-. The Ld. CIT(A) while considering this issue ex-parte noted that in preceding assessment year, assessee has shown gross profit rate of 14.7%, therefore, the profit should be enhanced. The Ld. CIT(A) in the absence of bills and vouchers etc., enhanced the addition to Rs.7,01,777/-. Learned Counsel for the Assessee submitted that Ld. CIT(A) did not consider the reason explained before A.O. for disallowing wages expenses. He has submitted that the Ld. CIT(A) enhanced the addition without rejecting the books of account of the assessee.
9. On the other hand, Ld. D.R. relied upon the impugned order and submitted that in assessment year under appeal, assessee has shown gross profit rate of 7 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. 10.58%. However, in the preceding assessment year, gross profit rate was shown at 14.7%, therefore, it was rightly enhanced by the Ld. CIT(A).
10. After considering the rival submissions, we are of the view that enhancement of the income of Rs.7,01,777/- is wholly unjustified. There may be a fall in gross profit rate as compared to assessment year under appeal with the preceding assessment year, but, falling gross profit by itself is no ground to make the addition against the assessee. The Ld. CIT(A) did not point out any defect in maintenance of the books of account by the assessee. The A.O. in the office note has recorded that assessee produced the books of account, bills and vouchers and other relevant documents which have been verified by him and test-checked. The A.O. also did not point out any specific defect in maintenance of the books of account by assessee. The A.O, therefore, did not reject the book results of the assessee. The Ld. CIT(A) also did not reject the book results of the assessee. Therefore, there was no justification for him to enhance the gross profit by applying the profit rate of 14.7% as declared
8 ITA.No.1178/Del./2016 M/s.Singhal Thermopack Pvt. Ltd., Ghaziabad. in the preceding assessment year. In view of the above discussion, we set aside the Orders of the authorities below and delete the enhancement of income by Rs.7,01,777/-. This ground of appeal of assessee allowed.
However, we may note that the Ld. CIT(A) did not decide the issue of disallowance of Rs.1,66,110/- on account of wage expenses. He is, therefore, directed to decide this ground in accordance with law, by giving reasonable, sufficient opportunity of being heard to the assessee. This ground of appeal of assessee is allowed.
In the result, appeal of Assessee partly allowed for statistical purposes.
Order pronounced in the open Court.