DCIT Vs D&Y Technologies Pvt. Ltd. (ITAT Delhi)
AO Cannot Sit in Businessman’s Chair- Fall in GP/NP Alone No Reason to Reject Books – No Disallowance of Director’s Salary Without Evidence – Tribunal Favors Assessee
Assessee is engaged in manufacturing of mobile phone parts. AO observed that remuneration of Rs.15 lakh was paid to Director Ms. Seran Lee, a Korean national. AO disallowed the entire remuneration on the ground that Assessee failed to furnish proof of her professional/academic qualifications & justification for payment. CIT(A) deleted the addition holding that Ms. Seran Lee was an old-time Director managing day-to-day operations, had declared remuneration in her ITR, & AO had no material to treat the same as excessive or non-business. It was held that AO cannot dictate how business should be run.
AO further noted fall in GP rate from 18.57% in preceding year to (-) 2.12% & NP rate from 9.33% to (-) 15.17%. Unsatisfied with Assessee’s explanation that fall was due to production of new mobile parts, higher rejection, & customer-controlled pricing, AO rejected books & made addition of Rs.7.97 crore. CIT(A) deleted the addition, holding that AO neither issued specific show cause nor called for books before rejection, nor pointed out any defects. Merely because of fall in profits, books cannot be rejected unless shown that fall was due to non-genuine expenses or suppression of receipts.
