Court emphasizes the need for substantial evidence to support disallowances in tax assessments.

अपीलाथ५कीओरसे/ Appellant by : ^{Shri Rishab Singla (Advocate) – Ld. AR} ঋ(cid:529)थ५कीओरसे/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 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 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.