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Hemla Embroidery Mills Pvt. Ltd. Versus DCIT, Circle-I, Faridabad

2016 (4) TMI 353 - ITAT DELHI

Addition on account of reduction in gross profit of 6% - sale made to sister concern - Held that:- No infirmity in the order of ld CIT(A) in confirming the addition to the extent of ₹ 3,01,352/- on sale made to sister concern as the assessee could not explain the fall in gross profit on distress sale made by assessee to its sister concern. The plea of safeguarding itself from the clutches of slow down and of wastages is not supported by evidence. Merely disclosure of sales figures and sale .....

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d it for the reasons best known to him. This fact is apparent from the details of purchases furnished by assessee at paper book page no 13. Therefore the main reason for lower gross profit is also the reasons of the debit of unaccounted purchases by the assessee to the profit and loss account. In the result we confirm the order of ld CIT (A) in confirming the addition of ₹ 3,01,352/- on account of lower gross profit in post survey period on sale made to sister concern - Decided against ass .....

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the assessee has offered income of ₹ 5 crore which has been taxed by the AO. Further the application of this income has not been accepted. Because of the reason that provision of section 69B does not contain identical provision as contained in section 69C of the act. For the purposes of allowance of depreciation AO has not stated that any conditions mentioned in section 32 of the Act has not been met with. Neither AO has put any question to the assessee about the ownership of the assets, u .....

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9C but u/s 69B of the Act. In view of this the disallowance of depreciation of ₹ 350000 cannot be upheld. In the result we reverse the finding of the ld CIT(A) in disallowing the depreciation - Decided in favour of assessee.

Disallowance of repairs and renovation expenditure - Held that:- Assessee has offered income of ₹ 5 crore by crediting this sum as other income and showed in schedule 12 of the profit and loss account. Simultaneously the assessee has debited ₹ 40 .....

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ver it did not offer any explanation about the source of such expenditure then same is required to be added under the provision of section 69C of the act. As the amount is covered by provision of section 69C obviously proviso mentioned therein is applicable which prohibits the allowance of any expenditure as deduction under any head of income which has been taxed u/s 69C of the Act. In view of this we confirm the action of the lower authorities in confirming the disallowance of ₹ 40 lacs a .....

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en by the assessee before us:- 1. That the learned CIT (A) has erred in not deleting the whole of ₹ 12,05,150/- added by AO on account of reduction in GP by 6% during the period from 24-2-09 to 31-3-09 ignoring the explanations given regarding as well as the fact that fabric sale without and value addition cannot result in the same GP as for garments. 2. That the learned CIT (A) has erred in confirming the disallowance of depreciation of ₹ 3,50,000/- on ₹ 70,00,000/- voluntaril .....

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; 40,00,000 on account of Repairs & renovation of showroom made during the year, which were held to be Capital in nature. 2. The ground No.1 is against the confirmation of addition of ₹ 3,01,352/- by the ld CIT(A) on account of reduction in gross profit of 6% during the period from 24.02.2009 to 31.03.2009. 3. Brief fact of the case of this ground is that a survey operation was carried out at the premises of the appellant on 24.02.2009. During the course of survey unaccounted stock of .....

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0 lakhs, debited building account with Rs and claimed depreciation thereon and also debited cash on hand by ₹ 9,50,000/-. Therefore on the disclosure of ₹ 5 crores assessee has debited the expenses of ₹ 3805000 on account of purchases, ₹ 40 lakhs on account of Repairs expenditure. Assessee claimed depreciation on the building account capitalized of ₹ 70 lakhs. During the course of assessment proceedings the AO asked the assessee to provide details of post survey and .....

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the actual sale and is done to reduce the effect of surrendered amount during the survey. Therefore he made an addition of 6% of sales of post survey period. The total addition made was ₹ 12,05,150/-. The assessee preferred the appeal before the ld CIT(A) who in turn deleted the addition to whole of the turnover to restrict it to sales made to sister concern of ₹ 5022546/- and applied ratio 6% confirming the addition of ₹ 301352/- . Against this the assessee is in appeal before .....

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re-survey period to 24.29% during the post survey period. When the post survey transactions are analyzed in detail, it is found that the fall in GP is primarily on account of the fact that the appellant hardly earned any gross profit in the sale of plain cloth made to its sister concern amounting to ₹ 50,00,000/- in the post survey period. If this transaction is excluded, the GP rate in the pre and post survey period comes to almost the same, i.e., 30%. When asked to explain the reasons be .....

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transaction, it would have to pay paid an amount of ₹ 12 lacs on account of interest. This amount is much more than what the appellant would have received from its sister concern, even if it had sold plain cloth at such a price to its sister concern which would have yielded a gross profit rate of 30% in that transaction. More precisely, the appellant that sold plain cloth to the tune of ₹ 50 lacs to its sister concern in the post survey period. Applying a GP rate of 30% on this trans .....

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its sister concern. Thus the arrangement made by the appellant with its sister concern resulted in a higher gross and hence, net profit for the appellant. 3.3. If this reasoning is accepted, the next question which arises is whether there is any difference in profitability (GP Rate) between pre and post survey .period .in appellant's, transactions with its sister concern. Though the appellant did not sell plain cloth to its sister concern during the pre survey period, a comparison of prices .....

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this clearly shows that even in pre survey period there is a 20% to. 30% price differential between sister concern and un-related parties. Even after substantiating this point, the appellant has not ruled out a slightly higher price differential in the post survey period between sister concerns and unrelated parties by submitting that 4% higher price differential can be considered on the sale of plain cloth in the post survey period amounting to ₹ 2,00,000/-. 3.4 Thus, by way of these argu .....

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was getting pre survey period, the gross profit in its transaction with this sister concern in the post survey period should have been 7% instead of 1% shown by the appellant. The difference i.e. 6% is applied to the total sale of plain cloth in the post survey period to the sister concern amounting to ₹ 50,22,546/-, which gives an addition of ₹ 3,01,352/-. The addition made by the AO is confirmed to this extent. The ground of appeal is thus partly allowed. 6. We find no infirmity in .....

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ee on sale of goods to sister concern at no profit no loss but the sale them at cost is stated the commercial expediency of the assessee. However no commercial expediency was demonstrated before the lower authorizes. Further assessee has debited the whole of the unaccounted purchases to the profit and loss account of ₹ 3,80,50,000/- and claimed it as deduction and AO has allowed it for the reasons best known to him. This fact is apparent from the details of purchases furnished by assessee .....

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; 350,000/- on ₹ 70 lacs voluntary admitted as income on account of addition made to the building account based on statement recorded of the Director of the company where in disclosure of ₹ 5 crores as stated above has been made. Out of the above disclosure of ₹ 70 lacs has been disclosed on account of addition to building at 16/4, Mathura Road, Faridabad. On this addition assessee claimed depreciation @5%. However same was disallowed by the ld AO applying provision of section .....

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aimed that provision of section 69C have wrongly been applied to the facts of the case and decision of Hon ble Gujarat High Court is also not applicable for the reasons that that it is a case of survey and assessee has owned income during the course of survey proceedings. Therefore there is no applicability section 69C of the Act. Further the addition on account of unaccounted building shall be on account of section 69B and not section 69C of the act. Against this ld DR relied on the orders of l .....

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₹ 5 crore which has been taxed by the AO. Further the application of this income has not been accepted. Because of the reason that provision of section 69B does not contain identical provision as contained in section 69C of the act. For the purposes of allowance of depreciation AO has not stated that any conditions mentioned in section 32 of the Act has not been met with. Neither AO has put any question to the assessee about the ownership of the assets, user of those assets and consequent .....

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of this the disallowance of depreciation of ₹ 350000 cannot be upheld. In the result we reverse the finding of the ld CIT(A) in disallowing the depreciation, hence ground No.2 of the appeal is allowed. 10. Ground No.3 & 4 of the appeal is against the confirmation of disallowance of ₹ 40 lacs out of repairs and renovation expenditure which was voluntarily admitted by the assessee pertaining to expenses incurred on showroom during the year. This expenditure was disallowed by the A .....

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