LSV MICRO DEVICE PRIVATE LIMITED,NEW DELHI V. ACIT CENTRAL CIRCLE-18, NEW DELHI

ITA 291/DEL/2023

AI Insights

The case involves M/s L S V Micro Device Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) concerning additions made to their income for the Assessment Year 2018-19. The additions were based on findings from a survey and subsequent assessments, which included alleged excess stock and undisclosed sales, as well as disallowed salary expenses. The Tribunal examined the valuation of stock, the treatment of alleged excess and short stock, and the legitimacy of salary claims. The Tribunal's decision partially favored the assessee by reducing the excess stock addition and allowing the full salary claim, while upholding the addition for short stock.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705480 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPTA
• Assessee Lawyers: UDIT DAD
• Keywords: Search and seizure
• Section: 132; 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.291/Del/2023 (ASSESSMENT YEAR 2018-19) M/s L S V Micro Device Private Limited B-28, Saman Park, Ashok Vihar, North West, Delhi-110052. PAN-AAACL6719J Vs. ACIT, CC-18, New Delhi. (Appellant) (Respondent) Assessee by Shri Udit Dad, Adv. Department by Ms. Amisha S Gupta, CIT-DR Date of Hearing 06/05/2025 Date of Pronouncement 30/06/2025 O R D E R PER MANISH AGARWAL, AM: This appeal is filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-27, New Delhi [CIT(A) in short], in Appeal No. CIT(A), Delhi-27/10379/2017-18 dated 30.12.2022 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ in short) for Assessment Year 2018-19. 2. Brief facts of the case are that assessee is a company engaged in the manufacturing of remote, setup boxes, battery etc. The return of income was filed on 29.09.2018 decaling total income of 2 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO Rs.4,14,490/-. A search and seizure operation was carried out u/s 132 of the Act at various business of the residential premises pertaining to Laxmi Remote Group of cases at Delhi NCR. A survey was also conducted at the business premises of the assessee u/s 133A constituted at B-28, Ground Floor, Savan Park, New Delhi on 23.08.2017. 3. During the course of search incriminating documents pertaining to assessee company found and seized, thus, the proceedings u/s 153C were initiated in the case of the assessee in terms of satisfaction note recorded on 02.09.2019. The AO observed that during the course of survey, stock physically available at the business premises/godowns of the assessee was quantitative and valued according to which, there was excess stock of Rs.38,83,430/- of various items which were added to the total income of the assessee. Besides this, certain items were also found short amounting to Rs. 2,02,239/- and by treating it as undisclosed sales, GP rate of 12% was applied. The AO further applied GP of 20% on the goods found in excess and accordingly further addition of Rs. 47,011/- was made. Further, on the basis of the statement of one of the employee who happened to be the relative of the Director, AO concluded that the salary was claimed in excess by Rs.2,28,000/-. Accordingly, the same was disallowed and added to the total income. Against this order of AO, assessee preferred first appeal before the Ld. CIT(A), who vide impugned order partly allowed the appeal of the assessee wherein the additions on account of shortage and excess of Rs.43,73,711/- was 3 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO reduced to Rs.11,28,899/- and further confirmed the disallowance out of salary. Aggrieved by the said order, the assessee preferred present appeal before the Tribunal by taking following grounds of appeal:- 1. “That the Ld. CIT(A) has grossly erred both in law and fact in sustaining a sum of Rs. 11,04,629/- on account of the alleged excess stock found during the survey which is highly, unjustified, uncalled for and bad in law. 2. That the Ld. CIT(A) has grossly erred in upholding the addition of Rs. 2,02,239/- in respect of alleged shortage of stock without appreciating the facts and circumstances of the case. 3. That the Ld. CIT(A) has grossly erred both in law and on facts in sustaining the disallowance of Rs. 2,28,000/- out of the total sum of Rs. 6,00,000/-debited as salary in the profit and loss account. 4. The assessee craves to leave add, alter, and modify any other ground of appeal at the time of hearing.” 4. With respect to the grounds of appeal No.1 & 2, Ld. AR submits that the stock was quantified and valued by the Departmental Officials during survey wherein various scrap items available were also included in the total quantity and value of the stock and no credit is allowed despite the details provided by the assessee. The Ld. AR further submits that business premises of assessee is small and have three floors where the entire stock is kept. He stated that the goods mainly import from China is duly recorded in the books of account. The items dealt in by the assessee are very small in size and look very similar to each other which are packed in very thin polythene packing and, therefore, many items got mixed up and, 4 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO therefore, their valuation could not be done properly during the course of survey. He further submits that there were certain defective items which have no/very meager value and were mixed up and their valuation was also done at the market value. Ld. AR thus requested that if value of these scrap and damaged stock is reduced, there is no excess stock. With regard to the shortage of stock, similar argument is placed that the items were available, however, they were got mixed up, therefore, they could not be reported before the survey authorities at the time of physical quantification of stock available on the godown of the assessee. Regarding salary, he submits that the salary was genuinely paid to the employees who worked at the shop cum godown. He therefore requested for the deletion of the additions uphold by ld. CIT(A). 5. On the other hand, the Ld. Sr. DR supported the order of the lower authorities and submitted that before the Ld. CIT(A) assessee filed reconciliation statement, according to which it is claimed by the assessee that there was excess stock of Rs.11,04,629/- for which the additions confirmed by ld. CIT(A). He thus stated that now there remained no basis for the assessee to further claim for deductions out of the excess stock, he thus, requested for the confirmation of the order of Ld. CIT(A) which according to ld. DR is quite reasonable. 6. Heard both the parties it is seen that the total stock found was quantified, inventoried and valued by the survey authorities in presence of employees of the assessee who assisted in identifying and intimating the cost price, according to which total stock value was 5 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO Rs.92,30,654/-. Assessee during the course of appellate proceedings, it reworked the value of stock after taking into consideration each individual item and placed the value. As per assessee, the stock as per books of accounts was Rs.81,26,025/- as on the date of survey and, thus claimed that as against the total excess stock of Rs. 38,83,430 as quantified during the course of survey, actual difference was only Rs.11,04,629/-. It is also claimed by the assessee that this stock also includes scrap of defective items, however, they could not be segregated. The Ld. CIT(A) based on the working of the assessee reduced the additions from 38,83,432/- to 11,04,629 and further deleted the profit estimated by AO on such excess stock. Before us, the assessee has failed to bring on record any evidences with respect to the claim that scrap/damaged goods which were included in the total quantity of stock as quantified by the survey authorities. However, possibility of damaged/ defective stock merged into regular stock cannot be ruled out. Under these circumstances, in our considered opinion, further credit of 20% should be given on account of the possibility of damaged/defective stock merged into total stock quantified by the survey authorities. Accordingly, the addition of Rs.11,04,629/- is further reduced by the sum of Rs.2,20,925/- and the confirm and balance addition. According, Ground of appeal no.1 of the assessee is partly allowed. 7. In ground of appeal No.2, the assessee has challenged the addition of Rs.24,270/- being the profit @ 12% on such shortage of 6 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO stock. After hearing both the parties, we find no error in the order of the ld. CIT(A). Accordingly, Ground No.2 of the assessee is dismissed. 8. In ground of appeal No.3, the assessee has challenged the disallowance of salary of Rs.2,28,000/-. Before us, the Ld. AR submit that the salary out of total salary of Rs.6,00,000/-, a sum of Rs. 3,00,000/- was claimed as paid to staff, Rs. 2,40,000/- was paid as labour charges and the remaining amount of Rs.60,000/- was paid towards accountancy charges. He further submits that the AO has allowed only 1,80,000/- for salary towards the Ms. Shilpa Behal, one of the staff member and further allowed Rs.1,92,000/- paid to other four staff persons including labour and disallowed the remaining salary by ignoring the fact that assessee is having premises consisting of four floors where goods are stored which is reshuffled/circulated on daily basis and thus to put them at the proper place, labour charges towards loading, unloading and for placing were paid on regular basis, and therefore, this claim of the assessee being incidental to the business activity and incurred on day to day business operations. He further submits that accountancy charges should be allowed as maintenance of accounts is not denied. He thus prayed that the salary expenses claimed at Rs. 6,00,000/- deserves to be allowed. 9. On the other hand, the Ld. Sr. DR supported the order of the lower authorities and submit that the AO has based on the statements of the Ms. Shilpa Behal, employee and relative of Director 7 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO available at the time of survey, allowed the salary and, therefore, there is no infirmity in order of lower authorities which deserves to be uphold. 10. Heard both the parties. From the perusal of the statements of Ms. Shilpa Behal and also considering the fact that assessee premises is having of four floors where goods were lying which fact is verified by the department during survey. We find force in the arguments of Ld. AR that services of labour were obtained on daily basis to arrange the stock lying in the shop at all the floor. Further services of employees are required to manage each floor. With regard to accounting charges, total annual payment of Rs. 60,000/- was claimed as aid to accountant which is quite reasonable looking to the volume of business. In view of these facts, we find that the claim of payment salary at Rs.6,00,000/- on the total turnover Rs.2.20 crores of retails sales of petty electronic items is reasonable and thus, is allowed. Accordingly, disallowance of Rs.2,28,000/- is hereby deleted. Ground of appeal No.3 of the assessee is allowed. 11. As a result, the appeal of the Assessee is partly allowed. Order pronounced in the open court on 30.06.2025. Sd/- Sd/- --/-/-/- (MADHUMITA ROY) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.06.2025 *Amit Kumar, Sr.Ps* 8 ITA No.291/Del/2023 L S V Micro Device Private Limited vs. ITO Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "