DCIT, New Delhi V. M/s. Deepak Fashion Pvt. Ltd., New Delhi

ITA 1835/DEL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6942 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 1
• Next Hearing Date: 27-09-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TARUN KHANDHARI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER ITA NO.1835/DEL/2016 ASSESSMENT YEAR : 2012-13 DCIT, CIRCLE 7(1), NEW DELHI. VS. DEEPAK FASHION PVT. LTD., 22A, JANPATH, NEW DELHI. PAN: AACCD2449F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARUN KHANDHARI & MS RENU SURI, CA DEPARTMENT BY : SHRI RAJESH KUMAR, SR. DR DATE OF HEARING : 27.09.2016 DATE OF PRONOUNCEMENT : 28.09.2016 ORDER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A) ON 1.1.2016 IN RELATION TO THE ASSESS MENT YEAR 2012-13. ITA NO.1835/DEL/2016 2 2. THE FIRST GROUND IS AGAINST THE DELETION OF A DDITION OF RS.18,15,257/- MADE BY THE AO ON ACCOUNT OF EMPLOYEES BENEFIT EXPE NSES. 3. BRIEFLY STATED, THE FACTS OF THE GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR A SUM OF RS.24,65,440/- ON ACCOUNT OF EMPLOYEES BENEFIT EXPENSES. THE AO OBSERVED THAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE INCURRED SALARY AND WAGES AMOUNTING TO RS. 39,000/-, WHICH INCREASED TO RS.18.58 LAC DURING THE YEAR. IN RESP ONSE, THE ASSESSEE SUBMITTED THAT DURING THE CURRENT YEAR IT CARRIED O UT MORE MANUFACTURING/EXPORT IN COMPARISON WITH THE PRECEDI NG YEAR WHICH LED TO INCREASE IN SALARY AND WAGES. THE AO NOTICED THAT WHEREAS THE REVENUE FROM OPERATIONS INCREASED BY 11.85% ALONE, SALARY A ND WAGES INCREASED BY 4666%. BY ALLOWING A HIKE OF 11.85% TO THE AMOU NT OF SALARY AND WAGES INCURRED IN THE PRECEDING YEAR, THE AO DISALL OWED EXCESSIVE SALARY AMOUNTING TO RS.18,15,257/-. THE LD. CIT(A) DELETE D THE ADDITION. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE SHIFTED FR OM TRADING TO ITA NO.1835/DEL/2016 3 MANUFACTURING OF GARMENT DURING THE YEAR. THE ASSE SSEE PLACED DETAILS OF MONTH-WISE EXPENSES, SALARY SHEET, MUSTER ROLL BEFO RE THE AO DURING THE ASSESSMENT PROCEEDINGS, BUT, NO ADVERSE INFERENCE W AS DRAWN. IN MY CONSIDERED OPINION, THE LD. CIT(A) HAS RIGHTLY OBSE RVED THAT CHANGE IN THE NATURE OF BUSINESS FROM TRADING TO MANUFACTURING GA RMENTS LED TO INCREASE IN SALARIES AND WAGES. APART FROM THAT, IT IS SEEN THAT THE AO HAS NOT GIVEN ANY COGENT REASON FOR MAKING THIS DISALLOWANC E EXCEPT FOR INCREASING THE AMOUNT OF ALLOWABLE SALARY BY 11.85% , BEING THE PERCENTAGE INCREASE IN REVENUE FROM OPERATION. THIS IS NOT A RIGHT COURSE OF ACTION. IF THE AO WAS NOT SATISFIED WITH THE CL AIM OF EXPENSES, HE OUGHT TO HAVE CARRIED OUT EXAMINATION BY GOING THROUGH TH E DETAILS FURNISHED AND FURTHER RECORDS, IF NECESSARY. NOTHING OF THE SORT HAS BEEN DONE. IN MY CONSIDERED OPINION, THE LD. CIT(A) WAS RIGHT IN DEL ETING THE DISALLOWANCE. 5. THE ONLY OTHER ISSUE IS AGAINST THE DELETION OF ADDITION OF RS.16,53,085/- MADE BY THE AO BY INVOKING THE PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE PAID A SUM OF RS.16,53,085/- TO MS ANITA GUGNANI AS FASHION DESIGNER FEES, WHO HAPPENED TO BE A DAUGHTER OF ONE OF THE D IRECTORS. THE AO ITA NO.1835/DEL/2016 4 DISALLOWED THIS AMOUNT BY NOTICING THAT NO SUPPORTI NG EVIDENCE WAS FURNISHED. HOWEVER, THE LD. CIT(A) OVERTURNED THE ASSESSMENT ORDER ON THIS ISSUE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE PA ID A SUM OF RS.16.53 LAC TO MS ANITA GUGNANI, WHO IS A FASHION DESIGNER AND CONSULTANT. SINCE THE ASSESSEE STARTED THE BUSINESS OF MANUFACTURING IN T HE CURRENT YEAR, AS AGAINST TRADING IN THE PRECEDING YEAR, IT WAS, BUT, NATURAL THAT THE SERVICES OF FASHION DESIGNERS WERE REQUIRED FOR THE PURPOSE. APART FROM EARNING INCOME FROM THE ASSESSEE, MS ANITA GUGNANI EARNED I NCOME FROM OTHER SOURCES AS WELL. FROM HER RETURN FILED FOR THE CUR RENT YEAR, THE LD. CIT(A) NOTICED THAT SHE DECLARED GROSS RECEIPTS OF RS.39.5 4 LAC AND OFFERED HER BUSINESS INCOME U/S 44AD, WHICH HAS NOT BEEN DISPUT ED BY THE DEPARTMENT. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE LD. DR WITH ANY CONTRARY MATERIAL. IN VIEW OF THE FOREGOING DI SCUSSION, I AM OF THE CONSIDERED OPINION THAT THE LD. CIT(A) WAS RIGHT IN DELETING THIS ADDITION. ITA NO.1835/DEL/2016 5 7. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.09.20 16. SD/- [R.S. SYAL] ACCOUNTANT MEMBER DATED, 28 TH SEPTEMBER, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.