IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A': NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI RAJPAL YADAV, JUDICIAL MEMBER
ITA No. 4985/Del/2012
Assessment Year: 2009-10
ACIT, vs. Chanan Devi,
Circle Saharanpur, C/o Prop. N.S. Enterprises,
Uttar Pradesh. Kakkar Ganj,
Saharanpur.
AAMPD1747R
(Appellant) (Respondent)
&
ITA No. 5206/Del/2012
Assessment Year: 2009-10
Chanan Devi, vs. ACIT,
C/o Prop. N.S. Enterprises, Circle Saharanpur,
Kakkar Ganj, Uttar Pradesh.
Saharanpur.
AAMPD1747R
(Appellant) (Respondent)
Appellant by: Ms. Ashima Neb, Sr. DR
Respondent by: S/Sh. Sanjay Garg & Akansh Garg, Adv.
ORDER
PER S.V. MEHROTRA, A.M.
These cross appeals filed by the Revenue & Assessee are directed
against the order of ld. CIT(A)-Muzaffarnagar, dated 27/06/2012 for A.Y.
2009-10.
ITA Nos. 4985 & 5206/D/2012 2
2. Brief facts of the case are that the assessee had filed her return of
income declaring net income of Rs. 6,67,770/-. The assessment was
completed at a total income of Rs. 18,70,550/-, inter-alia, making addition of
Rs. 8,54,080/- on account of low GP; Rs. 2,50,950/- on various
disallowances; Rs. 10,875/- on account of difference in closing balance in
respect of some creditors; and Rs. 81,500/- on account of low house hold
withdrawals.
3. Ld. CIT(A) partly allowed the assessee's appeal in respect of above
disallowances/additions.
3.1 Being aggrieved with the order of ld. CIT(A) the Department is in
appeal before us and has taken following grounds of appeal:
1. "On the facts and in the circumstances of the case, the CIT(A)
has erred in law in deleting the addition of Rs. 7,11,260/- out
of Rs. 8,54,080/- made by the AO on account of low Gross
Profit by applying the GP rate of 9.7% as against 12%
applied by the Assessing Officer by ignoring the fact that in
the case of Smt. Amrit Rani Prop. M/s Niranjan Dass & Sons,
GP was shown @ 16.46% during the relevant accounting
period and in the case of Bhagat Ram Godha Ram, Punjabi
Market, Saharanpur, GP was shown @ 12.30%;
2. On the facts and in the circumstances of the case, the CIT(A)
has erred in law in deleting the disallowances of Rs.
1,62,545/- out of Rs. 2,50,950/- made by the AO on account of
various expenses by ignoring the fact that these expenses were
either excessive or fully un-vouched & unverifiable;
ITA Nos. 4985 & 5206/D/2012 3
3. On the facts and in the circumstances of the case, the CIT(A)
has erred in law in deleting the addition of Rs. 10,875/- made
by the AO on account of difference in closing balance in
respect of some creditors by ignoring the fact that the
difference in credit balance was noticed at the time of
assessment proceedings;
4. On the facts and in the circumstances of the case, the CIT(A)
has erred in law in deleting the addition of Rs. 81,500/- made
by the AO on account of low house hold expenses by ignoring
the fact that the personal withdrawals shown by the assessee
were considered to below."
4. Apropos ground no. 1, the AO observed that the trading results of then
assessee were as under:
Assessment Year 2007-08 2008-09 2009-10
Sales 2,45,16,461/- 2,53,18,411/- 3,09,24,363/-
Gross profit 18,68,154/- 19,66,960/- 24,06,843/-
Gross profit rate 7.61% 7.76% 7.78%
Net profit 1,53,520/- 1,71,580/- 1,38,097/-
Net profit rate 0.63% 0.67% 0.44%
4.1 He pointed out that the gross profit shown by the assessee was
extremely low in comparison to other cases dealing in this trade. In this
regard he pointed out that Smt. Amrit Rani, Prop. M/s Niranjan Das & Sons,
Saharanpur (Sister Concern) GP @ 16.46% had been shown for the A.Y.
2009-10. In the case of M/s Bhagat Ram Godha Ram, Punjabi Market,
Saharanpur, GP rate of 12.43% had been shown for the same assessment
year. He, therefore, applied a GP rate of 12% on the sales shown at Rs.
3,09,24,363/- as against 7.78% declared by the assessee and worked out
the GP addition at Rs. 13,04,080/-. He pointed out that assessee had
ITA Nos. 4985 & 5206/D/2012 4
disclosed Rs. 4,50,000/- to cover up the discrepancy in stock at the time of
survey u/s 133A of the I.T. Act and, therefore, the addition was restricted to
Rs. 8,54,080/-. Ld. CIT(A) had called for a remand report on the
submissions made by the assessee and the AO had submitted its remand
report vide letter dated 18th May, 2012. The AO in remand report had relied
on various decisions of Hon'ble Courts in support of trading addition to which
assessee had filed rejoinder which has been reproduced in ld. CIT(A)'s order
in para 3.1.1.
4.2 After considering the assessee's submissions in detail, ld. CIT(A)
concluded that GP is to be estimated @ 9.7% and on that basis computed
the addition of Rs. 1,42,820/- as under:
Total Turnover Rs. 3,09,24,363/-
GP @ 9.7% Rs. 29,99,663/-
Less GP declared Rs. 24,06,843/-
Less amount surrendered Rs. 4,50,000/- Rs. 28,56,843/-
Total : Rs. 1,42,820/-
Thus, he restricted the addition to Rs. 1,42,820/-.
5. Ld. DR submitted that AO had adopted the GP rate of similar
businesses and, therefore, the same should have been accepted.
5.1 We have considered the submissions of both the parties and have
perused the record of the case.
6. Admittedly, the AO has not rejected the books of account but assessee
in course of survey had surrendered the amount of Rs. 4,50,000/- to cover
up the discrepancy in stock and other items found at the time of survey.
ITA Nos. 4985 & 5206/D/2012 5
Therefore, the books of account were not reliable. The estimation made by
ld. CIT(A) is quite reasonable considering the entirety of facts and
circumstances particularly because in the case of M/s Niranjan Das & Sons,
Saharanpur, the concern was dealing in retail trading of gents suiting and
shirting, whereas the assessee dealt in wholesale as well as the retail
trading of ladies suits. Therefore, there was no basis to draw comparison
with this firm. Similarly, M/s Bhagat Ram Godha Ram was dealing in retail
as well as wholesale trading of branded gents suiting and shirting, whereas
assessee dealt in wholesale as well as retail trading of ladies suits.
Therefore, the trading results of this firm were also not the guiding factor.
We, therefore, do not find any reason to interfere with the order of ld. CIT(A).
7. In the result, this ground is dismissed.
8. Brief facts apropos ground no. 2 are that AO had made disallowances
in respect of various expenses as under:
S.No. Head of Expenditure to which Amount claimed in Profit & Reason for disallowance Amount disallowed
Amount debited by assessee Loss Account Or disallowance made
1. Direct Expenses 2,75,711/- a) Partly vouched
b) Assessee could not furnished
any satisfactory explanation.
2. a) Disawar Expenses a) 71,773/- No voucher/evidence produced 75,000/-
b) Shop Expenses b) 46,424/- by assessee.
c) Customer Welfare c) 22,309/- Details of persons purposes
d) Generator Expenses d)15,000/- And traveling not given.
e) Packing Expenses e)16,591/-
f) Travelling Expenses f) 58,186/-
3. Salary 9,32,100/- a) Salary/Attendance Register not 1,00,000/-
maintained .
b) salary paid to family members
of higher side in comparison to
other employees
4. Telephone Expenses 21,495/- Possibility of personal use could 5,375/- (being 1/4th
Not be ruled out Of total expenses
Made)
5. Car Expenses 25,950/- No car shown in the table of fixed 25,950/-
Assets.
ITA Nos. 4985 & 5206/D/2012 6
TOTAL 2,50,950/-
9. Ld. CIT(A), after considering the remand report of the AO and rejoinder
of the assessee, deleted the addition of Rs. 50,000/- under the head "direct
expenses", inter-alia, observing that there was only marginal increase by
.08% due to increase in freight rate. Further, the assessee had also
provided the details of freight and cartage rate paid against each purchase
bill for the period from 20.11.2008 to 31.03.2009. He further observed that
assessee had maintained goods receipt note which were attached with the
purchase bills. Further, the AO in the remand report merely reiterated its
findings given in the assessment order and did not controvert the details and
evidences furnished by the assessee. As regards the addition of Rs.
75,000/- in respect of other expenses, the ld. CIT(A) restricted the addition to
Rs. 34,512/- being 15% of the expenses claimed by assessee. As regards
the disallowance under the head `salary of Rs. 1 lakh', ld. CIT(A) restricted
the disallowance to Rs. 50,000/-, inter-alia, observing as under:
"The facts of the case, submissions made by the appellant,
remand report of the AO and rejoinder of the appellant
have been carefully considered. It is observed that the AO
had made addition of Rs. 1,00,000/- being disallowance of
expenses debited under the head `salary' on the ground
that no salary/attendance register was maintained.
Further, salary paid to family members was on the higher
side in comparison to other employees. On the other hand
the appellant has contended that salary paid in terms of
ITA Nos. 4985 & 5206/D/2012 7
percentage of sales is lower by 0.17%. Further, it has
been contended that the individual salary paid to family
members was lower than the salary payable to a clerk of a
bank/State Government/any corporate house. The
appellant has furnished copy of account salary in the
ledger of the appellant. It is observed that the AO has not
brought any adverse material evidence on record to
suggest that the salary paid to family members was
excessive. On the other hand, the appellant has not
maintained vouchers in respect of payment of salary.
Further, no separate salary register/attendance
register/muster roll have been maintained by the appellant.
Furthermore the appellant has not furnished nature of
duties performed by the employees with reference to
educational qualification. Keeping in view the fact that
salary paid to staff has been allowed by the AO in the
preceding years, therefore, it would be reasonable and
justified if the addition is restricted to Rs. 50,000/- which is
hereby confirmed. The balance amount of Rs. 50,000/- is
directed to be deleted. Ground no. 8 is partly allowed."
10. As regards, the disallowance of Rs. 25,950/- under the head "car
expenses", ld. CIT(A) restricted the disallowance to 15% being Rs. 3,893/-,
inter-alia, taking note of the fact that the car expenses were actually incurred
on account of petrol reimbursed to one Shri Sushant Gandhi, a staff member
for using his car while going on tours to nearby areas for collection from
debtors and for obtaining orders for the assessee firm.
ITA Nos. 4985 & 5206/D/2012 8
10.1 We have considered the submissions of both the parties and have
perused the record of the case.
11. We find ourselves in agreement with the order of ld. CIT(A) restricting
the disallowances to reasonable expenditure after considering in detail the
reasoning and explanation given by the assessee. Department has not
brought on record any evidence to controvert the factual aspects pleaded
before ld. CIT(A) which he has noted in his order, reproduced above.
11.1 We, accordingly, confirm the order of ld. CIT(A) on this issue.
12. In the result, this ground is dismissed.
13. Brief facts apropos ground no. 3 are that in course of assessment
proceedings, notices u/s 133(6) were issued to the creditors shown in the
balance sheet. In respect of the following creditors, difference in credit
balance was noticed as under:
S.No. Name & Balance, Balance, Difference
add. Of the as shown as shown
Creditors by the by the
assessee Creditor
1. Varundev 41,860/- 36,440/- 5,450/-
Overseas
(P) Ltd.
2. Bemi Tex 65,575/- 60,150/- 5,425/-
Total 10,875/-
13.1 Therefore, the AO made an addition of Rs. 10,875/-. Ld. CIT(A)
deleted the addition, inter-alia, observing as under:
"The facts of the case, submissions made by the appellant,
remand report of the AO and rejoinder of the appellant
have been carefully considered. It is observed that the AO
had made addition of Rs. 10,875/- as there was difference
ITA Nos. 4985 & 5206/D/2012 9
in closing balance shown by Varundev Overseas (P) Ltd.
(Rs. 5450/-) and Bemi Tex (Rs. 5,425/-). On the other
hand, the appellant has contended that the appellant was
allowed at an agreed rate of discount by the creditors,
subject to the condition that the payment was made within
time. In view of the above, the appellant accounted for the
discount at the time of making payments and also raised a
debit note to the concerned party. Some of the parties
account for the cash discounts on the date of issuing bills
itself without mentioning the same on the purchase bills.
As such, the payment of bills outstanding at the end of the
year were made by the appellant in the next year, the
discount/rate difference was accounted for by the
appellant. As per the appellant the copy of account of next
year i.e. 2010-11 of the above referred two parties were
submitted to the AO during the course of assessment
proceedings wherein the aforesaid amounts stood debited
on the date of payment made. The appellant has furnished
copies of account of the aforesaid two parties as on
31.03.2010 wherein the amount of Rs. 5,450/- has been
debited on 01.05.2009 in the account of Varundev
Overseas P. Ltd. Surat against rate difference. Similarly
in the case of Bemi Tex, Surat the amount of Rs. 5,435/-
had been debited on 01.05.2009 against rate difference.
Thus, then appellant has reconciled the difference in
closing balance totaling to Rs. 10,875/- (Rs. 5,450/- + Rs.
5,435/-). In the light of the above facts it is held that the
AO was not justified in making addition of Rs. 10,875/-.
ITA Nos. 4985 & 5206/D/2012 10
The same is directed to be deleted. Ground No. 10 is
allowed."
14. Having heard both the parties, we do not find any reason to differ from
the findings of ld. CIT(A) because the assessee had duly reconciled the
difference in closing balance.
15. In the result, this ground is dismissed.
16. Brief facts apropos ground no. 4 are that assessee had shown
withdrawals for household at Rs. 38,500/-. The AO, taking note of the fact
that the family of the assesse comprised of herself, son and daughter-in-law
and the total withdrawals made by the family members were to the tune of
Rs. 3,43,000/-, concluded that the same were low. He estimated the
household withdrawals at Rs. 10,000/- per month and made an addition of
Rs. 81,500/- (Rs. 1,20,000/- - Rs. 38,500/-).
17. Ld. CIT(A) deleted the addition observing as under:
"The facts of the case, submissions made by the appellant,
remand report of the AO and rejoinder of the appellant
have been carefully considered. It is observed that the AO
had made addition of Rs. 81,500/-on the ground that the
appellant had made withdrawals for household expenses
only at Rs. 38,500/- which held as low keeping in view the
status of the appellant. On the other hand, it has been
vehemently argued that the appellant's family consisted of
self, son and daughter-in-law and total contribution made
by the family members was at Rs. 3,43,000/-. It has further
been argued that the quantum of contribution made by
ITA Nos. 4985 & 5206/D/2012 11
each family members is the outlook of the appellant and it
is not a case of the AO to decide the same. It is observed
that though the appellant has not significantly contributed
towards withdrawals for household expenses but at the
same time the AO cannot lose sight of the fact that the
other family members have also contributed to such
expenses which aggregate to Rs. 3,43,500/- which are held
as adequate to meet the requirements of the appellant's
family. In light of the above facts it is held that the AO
was not justified in making addition of Rs. 81,500/-. The
same is directed to be deleted. Ground No. 11 is allowed."
18. Having heard both the parties, we do not find any reason to interfere
with the order of ld. CIT(A) because the findings of ld. CIT(A) that assessee
had not significantly contributed towards withdrawals of household expenses
as family members had substantially contributed towards the family
requirements have not been controverted by Department. We, accordingly,
confirm the order of ld. CIT(A).
19. In the result, the Department's appeal is dismissed.
20. Now, we take up the ITA No. 5206/D/2012. The assessee has taken
following grounds of appeal:
1. "Because the ld. CIT(Appeals) has grossly erred in law
and on facts in applying GP rate of 9.7% as against 9.24%
declared by the appellant and thereby confirming part
addition of Rs. 1,42,820/- in the income of the appellant.
1.1Because the AO did not find any discrepancy in the books
of accounts and, therefore, the ld. CIT(Appeals) was
ITA Nos. 4985 & 5206/D/2012 12
wholly unjustified in applying the GP rate of 9.7% (as
against 12% by Assessing Officer) instead of 9.24%
declared by the appellant.
1.2Because the application of GP rate of 9.7% by the ld.
CIT(Appeals) as against 12% made by the AO is also
wholly arbitrary being not based on any material and,
therefore, partial addition sustained of Rs. 1,42,820/- is
contrary to facts and law.
2. Because expenses, shop expenses, customer welfare,
generator expenses, packing expenses, traveling expenses
totaling Rs. 2,30,283/- were incurred wholly and
exclusively for the purpose of business and, therefore, the
ld.CIT(Appeals) has erred in law and on facts in
confirming partly disallowance of Rs. 34,512/- out of such
expenses.
3. Because the ld. CIT(Appeals) has erred in law and on facts
in confirming a disallowance of Rs. 50,000/- in salary
account out of total disallowance made of Rs. 1,00,000/-
by ld. AO."
21. Ground no. 1 is identical to ground no. 1 of Department's appeal and,
therefore, for the reasons stated for the said ground in Department's appeal,
the assessee's appeal is dismissed.
22. Ground no. 2 and 3 of the assessee's appeal have been considered by
us and, therefore, for the reasons given therein both the grounds raised by
the assessee are dismissed.
23. In the result, the assessee's appeal is dismissed.
ITA Nos. 4985 & 5206/D/2012 13
24. In the result, both the appeals are dismissed.
Order pronounced in the open court on 02/06/2014
Sd/- Sd/-
(RAJPAL YADAV) (S.V. MEHROTRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 02/06/2014
*Kavita
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY
By Order
ASSISTANT REGISTRAR
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