DCIT, CIRCLE-7(1), NEW DELHI vs. D&Y TECHNOLOGIES PVT. LTD., NEW DELHI

The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-3, New Delhi[“Ld. CIT(A)”, for short]dated 12.01.2019for the Assessment Year 2016-17 raising following grounds of appeal :-

Aggrieved, assessee preferred an appeal before the ld. CIT (A) who deleted the addition by observing as under :- “5.3 I have considered the facts of the case and the submission made by the AR. It has been contended that Ms. Seran Lee is an old time director of the company and is a Korean National and is well qualified and she has declared the complete remuneration in the ITR filed by her. It is further submitted that the AO cannot dictate the nature in which business is to be done. On perusal of the complete acts, I am of the opinion that the AO has not specified any reason for making the disallowance and for treating the remuneration as excessive. It is not the AO's case that the remuneration was paid for purposes other than that of business. It is correct that the AO cannot sit in the chair of the businessman. The AR has rightly relied upon various case laws on this issue. Keeping in view all these facts, the addition made by the AO is deleted and the ground of appeal is allowed.”

Aggrieved, Revenue is in appeal before us.

On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A).

Considered the rival submissions and material placed on record. We observe that Ms. Seran Lee is a Director and a Korean National. It is brought to our notice that she is well qualified and continued to do the services of the Director in the company. She has already declared the complete remuneration received from the company in her return of income, therefore, there is no justification for the AO to disallow the same. Therefore, we do not see any reason to disturb the findings of the ld. CIT (A). Accordingly, ground raised

Aggrieved, assessee preferred an appeal before the ld. CIT (A) who after going through the detailed submissions made by the assessee deleted the addition by observing as under :- “7.3 I have considered the facts of the case and the submission made by the AR. It has been contended that the AO did not issue any specific show cause notice before making the addition and the AO did not call for the books of account before rejecting the books. The addition has been made and the books of account have been rejected only on the basis of explanation given for drop in profits and no further information was called for by the AO. The AR has furnished the reasons for fall in GP & NP rate. The AR has relied upon various case laws challenging the decision of the AO. I have perused the complete facts of the case. It is observed that the AO has made the addition in a summary manner without pointing out any defect/ in the maintenance of the books of account by the appellant. It is surprising that the books have been rejected without calling for the same. No reason has been specified to reject the explanation given by the appellant to justify the fall in GP & NP rates. I am of the opinion that the AO has wrongly rejected the books of account without furnishing any just and proper reason and also without providing any opportunity to the appellant. Merely because there was a fall in profitability, the books of account cannot be rejected by the AO unless it is established that the fall in profits is due to booking of expenses not incurred for the purposes of the business or Suppression of revenue receipts. No such finding has been given by the AO. In these Circumstances, it is difficult to uphold the decision of the AO. Accordingly, the addition made by the AO is deleted and the ground of appeal is allowed.”

Aggrieved, Revenue is in appeal before us.

On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT(A).

Considered the rival submissions and material placed on record. We observe that the AO has rejected the books of account without calling for any specific information from the assessee nor issued any notice on this aspect. The AO rejected the books of account merely on the basis of fall in GP and NP. We observe that assessee has submitted a detailed reasons justifying the fall of profit before the ld. CIT (A). For the sake of repetition, it is reproduced below :- “The assessee’s profit has dropped due to higher consumption of raw material, majorly due to rejection and drop in sales when compared with the previous year. The assessee manufactures parts for mobile phones. New models are launched on a daily basis. There are instances where there is difficulty in achieving the quality desired by the customer, this leads to increase in costs due to rejection. Also, costing is controlled by the customer. The customer controls the sales price. Hence, the assessee who is a contract manufacturer has to abide by the customers decision. The assessee is subject to various laws and audits and books of account of the assessee are accepted by all authorities, Detailed information on purchase of raw material and sale of finished goods for the years 2014- 2015 and 2015-2016 is enclosed at Annexure "E".

Since the assessee has explained the reasons for fall of GP and NP, we observe that the AO has rejected the books of account and proceeded to complete assessment without bringing on record cogent reasons for taking such decisions to reject the books of account and he proceeded to make addition in a summary manner without pointing out any defect in the maintenance of books of account nor given any analysis on account of fall in profits. It is the business decision of the businessman to conduct in such a manner beneficial to his business. It is not the duty of the tax authorities to direct how a business should be handled or conducted. After considering the findings of the ld. CIT (A), we do not see any reason to disturb the findings of the ld. CIT (A). Accordingly, ground no.2 raised by the Revenue is dismissed.

In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 22nd day of September, 2025.