Kiran Sehgal, New Delhi vs Department Of Income Tax

ITA NO. 4840/Del/2011

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "D", NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER I.T.A. No. 4840/DEL/2011 A.Y. : 2007-08 Dy. Commissioner of Income Tax, Smt. Kiran Sehgal, Circle 26(1), VS. J-12/5, Rajouri Garden, New Delhi New Delhi - 110 027 D-9, Vikas Bhavan, (PAN: AATPS5864P) New Delhi (APPELLANT) (RESPONDENT)

Department by : Sh. Gaurav Dudeja, Sr. DR Assessee by : Sh. Shailender Bajaj, CA and Sh. Vibhu Sehgal, CA

Date of Hearing : 17-03-2015 Date of Order : 20-03-2015

ORDER PER H.S. SIDHU, JM

Revenue has filed this appeal against the Order dated 4.8.2011 passed by the Ld. Commissioner of Income Tax (Appeals)-XXIV, New Delhi pertaining to assessment year 2007-08.

2. The grounds raised by the Department read as under:-

"(i). On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the trading addition of Rs. 18,92,680/- made by the AO on account of low GP.

(ii) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving a finding that the

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AO had neither investigated the issue nor has brought any evidence on record to prove that expenditure was bogus. This is contrary to facts on record.

(iii) The order of the AO may be restored and the order of the CIT(A) may be set aside with respect to the above mentioned ground(s).

(iv) The Appellant craves to be allowed to amend, delete or add any other ground(s) of appeal during the course of hearing of this appeal.

3. The brief facts of the case are that the assessee filed her return of income on 31.10.2007 declaring a total income of Rs.17,37,330/-. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued and served on the appellant. The appellant is the proprietor of M/s. Kiran Associates, which was engaged in the business of manufacturing of garments for export in international markets. During the year under consideration, M/s. Kiran Associates remained a proprietary concern of the appellant for eleven months till 28.02.2007 and thereafter, it became a partnership firm by the same name w.e.f. 01.03.2007. The Assessing Officer found during the course of assessment proceedings that the appellant had debited salary and wages expenses in the books of account which were at a ratio of 22%, as compared to the average of last two years at 15.4%, leading to a decline in the profit of the concern. When he called for the details of the employees, he found. that the appellant had submitted a list of 516 employees for claiming salary/wages of Rs.84,11,438/-, out of which only 34 employees were still continuing to work in the factory, while the rest of them had left. Based on this information, the AO came to a

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conclusion that the appellant has inflated the expenses under the head salary and. wages to reduce tax incidence and to declare a reduced GP ratio at 10.42% as against 18.53% in the last year. He increased the GP ratio by 5% and made an addition of Rs.18,92,680/- to the income of the assessee vide his assessment order dated 2.12.2009 passed u/s 143(3) of the I.T. Act, 1961.

4. Against the aforesaid assessment order of the Assessing Officer, Asseessee appealed before the Ld. First Appellate Authority, who vide impugned order 4.8.2011 has partly allowed the appeal of the assesee and deleted the addition of Rs. 18,92,680/-.

5. Aggrieved by the aforesaid order dated 4.8.2011, Revenue is in appeal before the Tribunal.

6. At the time of hearing Ld. Departmental Representative has relied upon the order of the Assessing Officer and reiterated on the contentions raised in the grounds of appeal filed by the Revenue.

7. On the other hand, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and also filed a Comparative Gross Profit and Net Profit of Kiran Associates for 5 years i.e. Financial Years 2002-03 to 2006-07 and stated that the Ld. CIT(A) has passed a well reasoned order on the basis of the previous records of the assessee, therefore, the appeal filed by the Revenue may be dismissed by upholding the order of the Ld. CIT(A).

8. We have heard both the parties and perused the records,

especially the impugned order dated 4.8.2011, we find that Ld.

CIT(A) has carefully considered the submissions of the assessee, the

documents and evidences placed on record, as well as the reasoning

given by the AO in the assessment order for making the addition.

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ITA NO. 4840/Del/2011

We find considerable cogency in the Ld. CIT(A)'s opinion that the

assessee has placed sufficient evidences on record in the form of

monthly expenditure on salaries and wages, monthly details of

employees and the complete list of employees who had left the job.

The appellant has been able to prove that there is a direct nexus

between the expenditure incurred on salaries/wages of

Rs.84,11,438/- and the business of the appellant whose total

turnover of exports during the year was Rs.3.78 crores. Ld. CIT(A)

observed that on the other hand, the AO has neither investigated

the issue, nor has brought any evidence on record to prove that the

expenditure incurred was bogus and that the list of employees was

fabricated. We note that the Ld. CIT(A) was right in observing that

he had no justification for invoking section 145(3) and rejecting the

audited books of accounts of the assessee. Ld. CIT(A) further

observed that the AO has also not pointed out any other mistake in

the books of accounts maintained by the assessee. In view of the

above, we are of the considered view that Ld. CIT(A) has rightly

held that the addition made by the AO to the income of the assessee

to the tune of Rs. 18,92,680/- by increasing the GP ratio by 5% after

rejection of trading results u/s. 145(3) of the Act was not justified. In

the background of the aforesaid detailed discussions, we find that

Ld. CIT(A) has rightly deleted the addition of Rs.18,92,680/- on this

count. Therefore, we do not see any reason to interfere with the

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well reasoned order of the Ld. CIT(A), accordingly, we uphold the

same and decide the issue against the Revenue by dismissing this

ground of appeal.

9. In the result, the Appeal filed by the Revenue stands dismissed.

Order pronounced in the Open Court on 20/03/2015.

Sd/- Sd/-

[B.C. MEENA] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 20/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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