MODGILL HOSIERY EXPORTS PRIVATE LIMITED,LUDHIANA V. ACIT, LUDHIANA

ITA 807/CHANDI/2014

AI Insights

The case involves M/s Modgill Hosiery Exports Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), Ludhiana, concerning various additions and disallowances made by the Assessing Officer under the Income Tax Act for the Assessment Year 2006-07. The main issues included disallowance for non-deduction of TDS on contractual payments, addition of out-of-books sales, disallowance of interest, and addition of stock-in-trade. The Tribunal examined each issue based on the submissions and evidence presented, including a special audit report and previous Tribunal decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633079 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Other Referred Cases: M/s Modgill International Clothing Ltd. (ITA No.425/Chandi/2016 order dated 21-04-2025)
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR LD.
• Assessee Lawyers: RISHAB SINGLA LD
• Keywords: TDS
• Section: 143(3); 133A; 40(a)(ia)

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH PHYSICAL HEARING BEFORE HON’BLE SHRI LALIET KUMAR, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं. / ITA No.807/CHANDI/2014 (िनधाŊरणवषŊ / Assessment Year: 2006-07) M/s Modgill Hosiery Exports Pvt. Ltd. Ludhiana Guru Vihar Rahon Road Ludhiana. बनाम/ Vs. ACIT Circle –III Ludhiana. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.AABCM-1393-G (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Shri Rishab Singla (Advocate) – Ld. AR ŮȑथŎकीओरसे/Respondent by : Dr Ranjit Kaur (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 02-06-2025 घोषणाकीतारीख /Date of Pronouncement : 09-06-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2006-07 arises out of an order of learned Commissioner of Income Tax (Appeals), Ludhiana [CIT(A)] dated 22-07-2014 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 21-08-2009 wherein Ld. AO made various additions / disallowances. The Ld. CIT(A) granted partial relief to the assessee. Aggrieved, the assessee is in further appeal before us. The Ld. AR 2 placed on record issue-wise chart and referred to the decision of the Tribunal in the case of assessee’s sister concern M/s Modgill International Clothing Ltd. (ITA No.425/Chandi/2016 order dated 21-04- 2025). A copy of the order has been placed on record. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing and sale of hosiery goods and clothes. 2. The assessee was subjected to survey u/s 133A on 01-12-2005 wherein certain discrepancies were found. Considering the nature and complexity of material as impounded during survey, special audit was carried out u/s 142(2A) on the basis of which the assessment has been framed. The major grievance of the assessee is – (i) Disallowance u/s 40(a)(ia) for want of TDS on contractual payments; (ii) Addition of out- of-books sales; (iii) Disallowance of interest u/s 36(1)(iii); (iv) Addition on account of transactions not forming part of books of accounts; (v) Addition of stock-in-trade. 3. Disallowance u/s 40(a)(ia) The assessee made contractual payment to various parties but defaulted in deducting tax at source. The Ld. AO made impugned disallowance u/s 40(a)(ia). After considering remand report, Ld. CIT(A) confirmed disallowance of Rs.93.58 Lacs. The only prayer of Ld. AR is that the respective payees have offered this income to tax and the assessee is in a position to avail the benefit of second proviso to Sec.40(a)(ia). Accepting the same, this issue stands restored back to 3 Ld. AO with a direction to the assessee to plead and prove its case. The corresponding grounds stand allowed for statistical purposes. 4. Addition of out-of-books sales for Rs.32.11 Lacs 4.1 The assessee purchased yarn from its sister concern M/s OTPL. Though the value of 6 bills tallied, there was variation in quantity and rate as recorded by the assessee. The assessee failed to produce copies of bills and VAT return of the supplier. The Ld. AO alleged that the assessee sold excess yarn of 16056.61 Kg out of books whereas it claimed full purchase expenditure. By adopting average sale rate of Rs.200/- per Kg, the addition of Rs.32.11 Lacs was made in the hands of the assessee. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 4.2 We find that there is nothing on record to demonstrate that the assessee has carried out any out-of-books sales. The value of the purchases as recorded tallies with the sales figures of the supplier. This addition is not supported by any concrete evidence on record and hence, deleted. 5. Disallowance of interest u/s 36(1)(iii) 5.1 The assessee claimed interest expenditure of Rs.47.66 Lacs. The assessee had withdrawn cash from its banks on different dates which were alleged to be diverted for personal use. On the date of survey, physical cash was Rs.1.07 Lacs as against book cash of Rs.12.16 Lacs. Accordingly, Ld. AO disallowed 25% of interest expenditure which was confirmed by Ld. CIT(A). 4 5.2 We find that this addition is also on mere allegation. Nothing has been shown as to how the funds were diverted by the assessee for non-business use. As per the mandate of Sec.36(1)(iii), the interest expenditure could not be disallowed in the absence of such findings. Therefore, this addition is not sustainable considering the provisions of Sec.36(1)(iii). We order so. 6. Addition of transactions not forming part of books 6.1 This addition is an estimated addition of 60% of certain entries aggregating to Rs.139.39 Lacs as found noted in various documents as found during survey. The Ld. AO alleged that number of transactions was not accounted for by the assessee in its books of accounts and the assessee was not able to explain the nature of these transactions. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 6.2 Upon perusal of case records, we find that this is only an estimated addition. There is no finding that the transactions as noted in the impounded document were not recorded in assessee’s books of accounts. Pertinently, these notings were made in a consolidated manner for various entities of assessee’s group. Considering the facts of the case and to plug any possible leakage of revenue, we direct Ld. AO to restrict the impugned addition to the extent of 10% of Rs.139.39 Lacs. The corresponding grounds stand partly allowed. 7. Addition of stock 7.1 The special auditor valued the closing stock on the date of survey at Rs.14.93 Lacs. The stock was found lying at the premises of 5 assessee’s sister concern M/s Modgill Fashion Exports. The assessee stated that the stock belonged to it and accordingly, the same was added to the income of the assessee on substantive basis whereas it was added protectively in the case of M/s Modgill Fashion Exports. The action of Ld. AO was confirmed by Ld. CIT(A) against which the assessee is in further appeal before us. 7.2 We find that the impugned stock was owned up by the assessee and accordingly, it was added on substantive basis. During assessment proceeding also, the assessee could not substantiate this claim. Therefore, no interference is required on this issue. The corresponding grounds stand dismissed. 8. Other Grounds of Appeal In the remaining grounds, the assessee assails confirmation of various other additions / disallowances. However, the same could not be substantiated during hearing before us. No material was shown to us to controvert the findings of lower authorities. Accordingly, all the other grounds stand dismissed. 9. In the result, the appeal stand partly allowed. Order pronounced on 09-06-2025. Sd/- Sd/- (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09-06-2025. 6 आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH "