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From the Courts »
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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

ACIT, Circle Saharanpur, Uttar Pradesh. Vs. Chanan Devi, C/o Prop. N.S. Enterprises, Kakkar Ganj, Saharanpur.
June, 05th 2014
               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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