Addition cannot be made by ignoring the accounting procedure


Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
The return of income was filed on 31.03.2008 declaring income at Rs.1,01,784/-. The assessment was finalized u/s 143(3) on 29.12.2009 by making an addition of Rs.12,84,516/- on account of bogus sundry creditors and Rs.48,540/- on account of concealed sundry debtors.

Citation :
ITO, Ward 2 (3), Meerut. (APPELLANT) Vs. Shri Shiv Kumar Agarwal, Prop. M/s. Pem Synthetics, Vishwa Shanti Complex,Near Rani Mill, Delhi Road,Meerut.(PAN: ADOPA4774G)(RESPONDENT)

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘G’: NEW DELHI)

 

SHRI I.C. SUDHIR, JUDICIAL MEMBER

and

BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER

 

ITA No.3150/Del./2012

(ASSESSMENT YEAR: 2007-08)

 

ITO, Ward 2 (3),

Meerut.

(APPELLANT)

 

Vs.

 

Shri Shiv Kumar Agarwal,

Prop. M/s. Pem Synthetics,

Vishwa Shanti Complex,

Near Rani Mill, Delhi Road,

Meerut.

(PAN: ADOPA4774G)

(RESPONDENT)

 

CO No.320/Del/2012

(in ITA No.3150/Del./2012)

(ASSESSMENT YEAR: 2007-08)

 

Shri Shiv Kumar Agarwal,

Prop. M/s. Pem Synthetics, Meerut.

Vishwa Shanti Complex,

Near Rani Mill, Delhi Road,

(APPELLANT)

(PAN: ADOPA4774G)

 

Vs.

 

ITO, Ward 2 (3),

Meerut.

(RESPONDENT)

 

ASSESSEE BY: Shri Ashok Kumar, Advocate

REVENUE by: Smt. Jyoti Legha, Senior DR

 

ORDER

 

PER B.C. MEENA, ACCOUNTANT MEMBER:

 

The appeal filed by the revenue and cross objection filed by the assessee emanates from the order of CIT (Appeals), Meerut dated 22.03.2012.

 

2. The return of income was filed on 31.03.2008 declaring income at Rs.1,01,784/-. The assessment was finalized u/s 143(3) on 29.12.2009 by making an addition of Rs.12,84,516/- on account of bogus sundry creditors and Rs.48,540/- on account of concealed sundry debtors. The CIT (A) deleted these additions by holding as under:

 

“6. Decision and reasons therefore:

 

I have considered the facts of the case, findings of the A.O. and submissions of the appellant, I have also considered the accounting procedure being followed by the appellant and have perused the copies of accounts of the appellant in the books of his customer namely Olympic Fasteners and vice versa and the account of the supplier M/s Synfab Sales & Ind. Ltd in the books of the appellant as well as the copy of account of the customer namely M/s Olympic Fasteners in the books of the supplier. I have noted that the appellant has credited the account of the supplier by the amount of their bill by making corresponding debit entry in the account of the customer added with appellant's commission thereon. These entries were recorded by the appellant in the capacity of an agent only and this fact is explained during assessment proceedings as well as appeal proceedings. In case credit of the supplier M/s Synfab Sales & Ind. Ltd is treated as bogus, debit balance of customer M/s Olympic Fasteners shall have to be reduced correspondingly by that amount in order to nullify the effect of the accounting entry as a whole, as only one side (i.e. credit side) cannot be assumed as bogus while accepting the debit side thereof as correct. This is also substantiated by the fact that the supplier is showing the similar amount of balance in his books as due from M/s Olympic Fasteners as is shown by M/s Olympic Fasteners in their books of account to the credit of the

appellant. Non declaration of sale & purchase of material supplied by M/s Synfab Sales & Ind. Ltd to M/s Olympic Fasteners by the appellant in his books of account or to the Trade Tax department as his sale & purchase, was attributable to the fact that property in the said goods had never passed to the appellant during the whole transaction. This fact cannot be a base to hold the credit of M/s Synfab Sales & Ind. Ltd as bogus, ignoring the accounting procedure being followed by the appellant. From the copy of account of the supplier in appellant's books of account on record, it is apparent that the appellant has debited the amount of commission receivable of Rs.48540/- (net of TDS) to the account of the supplier and their credit balance towards supplies to customer was Rs.13,33,057/ as against Rs.12,84,516/- as considered by the AO. The AO has separately added this amount of Rs.48540/- holding the same as concealed debts of the appellant, apparently based on incomplete appreciation of facts on record.

 

In view of above observation, I hold that the A.O. has misdirected himself, based of wrong appreciation of facts on record, in reaching a finding that the credit of the supplier in the books of the appellant declared at Rs.12,84,5l6/- (Net of commission receivable of Rs.48,540/-) was bogus. I, therefore, delete the additions of Rs.12,84,516/- and Rs.48540/- totalling to Rs.13,33,056/-. In the result, Ground Nos. 1 & 2 are decided in favour of the appellant.”

 

Against which the revenue is in appeal by taking the following grounds:-

 

“1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) was right in law and in fact in deleting the addition of Rs.13,33,056/- ignoring the fact that the assessee failed to explain how in absence of purchases, creditor could exist and further totally failed to explain the credit entry appearing in its balance sheet.

 

2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and in fact in deleting the addition of Rs.13,33,056/- ignoring the legal position that onus to prove such creditor was entirely upon the assessee which totally remained undischarged. Reliance is placed on the following judgments-

 

I. CIT Vs. Korlay Trading Co. Ltd. (Cal.) 232 ITR 820.

II. Krishan Kumar Jhanb Vs ITO and Anr (Punjab & Haryana) 17 DTR 249

III M/s. Sejai International Ltd. Vs. CIT,Meerut (All.)Appeal No.306 of 2010

 

3. In the facts and circumstances of the case, the order of the Commissioner of Income tax (Appeals) may be set aside and that of the A.O. restored.”

The assessee has filed the cross objection by taking the following grounds:-

 

“1. That the order of Ld. Commissioner IT.(Appeal) Meerut has based very rightly on the substantial facts & law, because of right prospective consideration of correct appreciation of facts on record(deletion of impugned demand Rs.13,33,056/- made in this case by him accordingly.

 

2. That the entries of sundry creditors and debtors in the balance sheet of the objector/Respondent had been recorded in the capacity of an agent only based upon the actual appreciation of facts and circumstances of the normal course of business trend of the respondent business.

 

3. That the Ld. Commissioner (I.T.) Appeal has passed the order impugned in accordance of Laws and facts considering the accounting entry as a whole, as only one side (i.e.) credit side cannot be assumed as bogus while accepting the debit side there of as correct.

 

4. That the reliance placed at the following judgments

 

a. CIT Vs. Korlay Trading Co. Ltd. (Cal) 232 ITR 820.

b. Krishan Kumar Jhanb Vs. ITO and Am (Punjab & Haryana ) 17 DTR 249

c. M/s Sejai International Ltd. Vs. CIT, Merrut (AIL) Appeal No.306 of 2010.

 

by the Appellant have not relied similarities with the facts and circumstances of the cross objector in pursuance of natural law and justice.”

 

3. We have heard both the sides on these issues. The assessee was carrying out the business of trading of yarn and fabric on his own account as well as on commission basis. Assessee had shown sundry creditors of Rs.13,15,269/-. On cross verification, Assessing Officer did not find the matching amount of Rs.12,84,516/- in the copy of books of Synfab Sales & Industries Ltd.. CIT (A) had considered the method of accounting of assessee and also accounts of these concerns. The assessee is a commission agent of M/s. Synfab Sales & Ind. Ltd., Silvasa, Panchsheeel Polyster Pvt. Ltd., Daman and Him Chemical Ltd., Nalagarh.

 

Total billing during the year was Rs.1,54,39,920/- and the main customer was M/s. Olympic Fasteners, Meerut. Out of the total billing amount, Rs.1,50,61,287/- was for the material of M/s. Synfab Sales & Ind. Ltd.. The total purchases from this supplier was Rs.1,49,86,357/-. The commission amount was Rs.74,930/- @ half per cent of the total amount. The debit note of Rs.1,50,61,287/- was debited to M/s. Olympic Fasteners, Meerut. The amount was credited in the account of M/s. Synfab Sales. The account of M/s. Olympic Fasteners was debited by the same amount after adding half per cent commission. Thus, these entries were recorded by the assessee in the capacity of an agent only. Thus, the difference noted by Assessing Officer was on account of accounting procedure followed by assessee. It has been clarified by assessee and accepted by CIT (A). Considering these facts, we find that CIT (A) was justified in deleting the addition and we sustain the same.

 

4. Since the cross objection filed by the assessee is in support of the order of CIT (A) which we have sustained, the cross objection of the assessee has become infructuous and accordingly, dismissed.

 

5. In the result, the appeal of the revenue and cross objection of the assessee stand dismissed.

Order pronounced in open court on this 3rd day of May, 2013.

 

Sd/- Sd/-

(I.C. SUDHIR) (B.C. MEENA)

JUDICIAL MEMBER ACCOUNTANT MEMBER

 

Dated the 3rd day of May, 2013/TS

 

Copy forwarded to:

 

1. Appellant

2. Respondent

3. CIT

4. CIT (A), Meerut.

5. CIT (ITAT), New Delhi.

 

AR, ITAT

 

NEW DELHI

 

Diganta Paul
on 24 June 2013
Published in Taxation
Views : 875


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