X L PLASTICS,VADODARA vs. THE ADDL. CIT, RANGE-2, VADODARA

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ITA 278/AHD/2016Status: DisposedITAT Ahmedabad08 October 2018AY 2011-126 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Rs. 49,124 of the difference was properly explained and should be deleted. However, the remaining amount of Rs. 1,35,127 was confirmed as an addition, as the assessee's explanation that it pertained to earlier years was not sufficient to avoid taxability in the current year.

What were the facts?

The assessee had a difference of Rs. 1,84,251 in its bank reconciliation statement. The Assessing Officer added this amount to the total income, which was confirmed by the CIT(A). The assessee argued that some entries related to previous years and others were yet to be reconciled.

What were the issues?

Whether un-reconciled bank entries, some pertaining to earlier years, can be added to the current year's income. Whether reimbursement of ocean freight expenses attracts TDS obligations.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 40(a)(ia),Section 153

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD ‘A’ BENCH, AHMEDABAD

Per Pramod Kumar, AM:

1.

By way of this appeal, the assessee-appellant has challenged correctness of the learned CIT(A)’s order dated 26th October 2015 in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2011-12. 2. In the first ground of appeal, the assessee appellant has raised the following grievance:-

“On the facts and circumstances of the case, the Ld. CIT(A) is not justified both in law in confirming addition of Rs.184251/- (difference reflected in the bank reconciliation statement) being the amount credited by State Bank of India in the bank account of the appellant for which the bank has not given any clarification. It is prayed that the addition be deleted.”

3.

The assessee is engaged in manufacturing different types of packaging products. During the course of scrutiny assessment proceedings, the Assessing Officer noticed a difference of Rs.1,84,521/-. While this difference was explained by the assessee but the Assessing Officer rejected the explanation by observing as follows:-

“3. Bank Reconciliation Statement :

3.1.

Vide this office notice u/s 142(1) r.w.s. 129 of the Act dated 03.09.2013, the assessee was requested to submit the details of bank accounts along with bank

I TA N o. 2 7 8 /A hd / 20 1 6 X L P la st ic s Vs . A CI T Ass e ss me n t Y ea r : 2 0 11 - 1 2 reconciliation statement. The assessee vide submission dated 18.11.2013 has submitted the reconciliation statement. On verification of the statements submitted by the assessee with respect to the State Bank of India, account no. 10140677715, it was noticed that there is a difference of Rs.1,84,251/- in the bank reconciliation statement.

3.2.

Vide order sheet entry dated 16.12.2013, the assessee was requested to explain as to why the difference of Rs.1,84,251/- of the bank reconciliation statement should not be added to the total income of the assessee. The assessee vide its submission dated 24.12.2013 has stated that "The bank has passed some wrong credit entries in our bank account. Some of the entries which belongs to earlier years have been corrected in this year and wrong credit entries of this year have been corrected in the next year. Seven entries, credits are still not settled.

Complete sheet indicating date of wrong credit entries, nature, amount along with correction date is filed herewith".

The submission of the assessee is considered but not found to be tenable. The assessee has not produced the details in respect of all the entries. From the details of these so called wrong entries, there are some entries of cash deposits as well as "transfer" credits. Furthermore the assessee itself has admitted that seven entries are yet to be settled. The assessee has also not produced any evidence to show that the entries which are claimed to have been corrected as per above submission, either from banks or through bank books/ bank statements. In view of the above, the difference of Rs.1,84,251/- in bank book and bank statement as per bank reconciliation statement filed is added to the total income.”

4.

Aggrieved, assessee carried the matter in appeal before the CIT(A), but without any success. Learned CIT(A) confirmed the action of the Assessing Officer by observing as follows:-

“5.3 I have carefully considered the facts and the circumstances of the case, the observations of the Assessing Officer and the material available on the record. It is clear from the records that the corrections were carried out during the year under consideration, the entries were reflected in assessee’s bank accounts during the relevant year and are yet to be reconciled.

The assessee's argument that the entries pertain to earlier years, therefore, should not be considered during the year under consideration is also not valid as the entries were reflected in assessee's bank statement during the year under consideration as they were reconciled by the bank during the year under consideration and were effected during the current year and had impact on the financial results of the assessee during the year under consideration. The assessee has failed to explain the entries with relevant evidence/details and its only argument is that these relate to earlier years, even though, it is clear that these entries were reflected in his account for the first time during the current year, there are some entries of cash deposits as well as credit entries and I TA N o. 2 7 8 /A hd / 20 1 6 X L P la st ic s Vs . A CI T Ass e ss me n t Y ea r : 2 0 11 - 1 2 needed to be explained with supporting evidence. Since the assessee has failed to do so, the order of the Assessing Officer in this regard is upheld. The assessee fails on this ground of appeal.”

5.

The assessee is not satisfied and is in further appeal before us.

6.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

7.

We have noted that the assessee’s explanation with respect to the difference of Rs.1,84,251/- is as follows:-

“As regards ground No. 1 addition of Rs.1,84,251/-. The Ld AO has added sum of Rs.1,84,2517- reflected in bank reconciliation statement for which the firm had explained that the amounts were deposited directly by customers through RTGS and NEFT for which the bank did not give any intimation to the firm. Therefore, the said entries could not be credited any party's account.

The entries as per reconciliation dtd. 31.03.2011 are as under.

Date Particulars Amt.(Rs.) Related Financial Year 05.10.2010 Clearing Br. 10475 10350/- Entry Cleared on 19.11.2011 13.10.2010 Clearing Br. 988 21597/- Entry Cleared on 23.11.2011 30.10.2007 Cash deposit 5000/- Relates to F.Y. 2007-08 29.12.2007 Transfer 1000/- Relates to F.Y. 2007-08 04.01.2008 Transfer 100000/- Relates to F.Y. 2007-08

Date Particulars Amt.(Rs) Related Financial Year 01.02.2008 Clearing 5000/- Relates to F.Y. 2007-08 23.06.2008 Clearing 5000/- Relates to F.Y. 2008-09 01.08.2008 Transfer 1085/- Relates to F.Y. 2008-09 10.08.2009 Bom. Juhu Branch 1655/- Relates to F.Y. 2009-10 14.08.2009 Cash br. 9664 1000/- Relates to F.Y. 2009-10 11.02.2010 br. 6229 1124/- Relates to F.Y. 2009-10 20.03.2010 Transfer br. 2854 10/- Relates to F.Y. 2009-10 25.03.2010 Br. 4328 Delhi 1545/- Entry cleared on 29.06.2011 25.03.2010 Br. 707 2206/- Relates to F.Y. 2009-10 29.03.2010 Br.3145 828/- Relates to F.Y. 2009-10 10.06.2010 Clearing br. 10573 2000/- Relates to F.Y. 2010-11 madurai 09.11.2010 Br. 10390 1655/- Relates to F.Y. 2010-11 Bangalore 07.01.2011 Clearing 60899 br. 7023/- Entry cleared on 07.1 1.2012 10390 20.01.2011 Clearing ch. No. 1781/- Relates to F.Y. 20 10- 11 60946 br. 10390 09.02.2011 Branch 4328 2808/- Relates to F.Y. 2010-11 19.02.2011 Branch no. 10395 8609/- Relates to F.Y. 2010-11

I TA N o. 2 7 8 /A hd / 20 1 6 X L P la st ic s Vs . A CI T Ass e ss me n t Y ea r : 2 0 11 - 1 2 18.03.2011 Br. 10554 1551/- Relates to F.Y. 2010-11 21.03.2011 Br. 900 1424/- Relates to F.Y. 2010-11 Total Rs 184251/-

The appellant firm has been able to get clarification of amount of Rs.49,124/- received from different parties. The said amount is adjusted in financial year 2011-12 and 2012-13. The copies of ledger account of parties are enclosed. The details are as under.

Name of party Date of Amt.(Rs.) clarification M.L. Industries, Jaipur 19.11.2011 10350/- Ashwin Polymers, Madurai 23.11.2011 21597/- Excel Poly Pack, Virudhunagar 29.06.2011 1545/- JO Bland Enterprises, Malur, Kolar, 17.07.2012 7023/- Karnataka Hind Plast, Chennai 13.07.2012 8609/- Total Rs. 49124/-

Thus, out of twenty three entries in the reconciliation statement, the above five entries have been cleared, leaving balance of Rs. 135127/- (184251-49124). The firm is making rigorous effort to get details from bank to clear the entries.

Out of balance of Rs. 135127/- the below mentioned entries do not pertain to financial year 2010-11 (Asst. Year 2011-12).

Entries relating to financial year 2007-08(Asst. Year 2008-09)

Date Particulars Amt.(Rs.) Related Financial Year 30.10.2007 Cash deposit 5000/- 2007-08 29.12.2007 Transfer 1000/- 2007-08 04.01.2008 Transfer 100000/- 2007-08 01.02.2008 Clearing 5000/- 2007-08 Total Rs. 111000/-

Entries relating to financial year 2008-09(Asst. Year 2009-10)

Date Particulars Amt.(Rs.) Related Financial Year 23.06.2008 Clearing 5000/- 2008-09 01.08.2008 Transfer 1085/ 2008-09 Total Rs. 6085/-

Entries relating to financial year 2009-10(Asst. Year 2010-11)

Date Particulars Amt.(Rs.) Related Financial Year 10.08.2009 Bom. Juhu Branch 1655/- 2009-10 14.08.2009 Cash br. 9664 1000/- 2009-10 11.02.2010 br. 6229 1124/- 2009-10

I TA N o. 2 7 8 /A hd / 20 1 6 X L P la st ic s Vs . A CI T Ass e ss me n t Y ea r : 2 0 11 - 1 2 20.03.2010 Transfer br. 2854 10/- 2009-10 25.03.2010 Br. 707 2206/- 2009-10 29.03.2010 Br. 3145 828/- 2009-10 Total Rs. 6823/-

Thus, amount relating to financial years 2007-08 (Rs. 111000/-), 2008-09 (Rs. 6085/-) and 2009-10 (Rs. 6823/-) do not pertain to financial year 2010-11 relating to Asst. Year 2011-12 and therefore, total of Rs. 123908/- need not be added to the income for Asst. Year 2011-12. If at all, addition is required to be made it should be in the respective assessment years and not in the Asst. Year 2011-12. If at all additions is required to be made than only amount relating to F.Y. 2010- 11 (Asst. Year 2011-12) of Rs. 11219/- needs to be added to the total income.”

8.

On a perusal of the above details, we find that the entries to the extent of Rs.49,124/- are properly explained. To this extent, therefore, the impugned addition indeed deserves to be deleted. As regards the remaining amount, primary explanation of the assessee is that the amount of Rs.1,10,000/- pertains to AY 2008-09, Rs.6,085/- pertains to AY 2009-10 and Rs.6,823/- pertains to AY 211-12 and should be excluded from the income of the present assessment year. If the assessee thinks that by giving this explanation, he will be able to avoid taxability of these amounts as the assessment for those assessment years cannot be reopened, in our opinion, he is certainly mistaken. Such an approach will in fact be counter productive. Explanation 2(a) to section 153 categorically provides for such a situation, i.e. when an income is excludable from taxable income of one year because it was taxable in some other assessment year, and provides for mechanism to bring it to tax in such other assessment year, even after the permissible time to frame assessments or reassessment has elapsed. Learned counsel, on being pointed out this legal framework, does not press the point further. We, therefore, confirm the disallowance to the extent of the remaining amount i.e. Rs.1,35,127/-.

9.

Ground no.1 is thus partly allowed.

10.

In ground no.2, the assessee has raised the following grievance:-

“On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred and is not justified both in law and on facts in confirming application of provisions of section 40(a)(ia) of the Act and thereby confirming disallowance of Rs.375860/- being reimbursement of expenses given to Orient Marine Line Pvt Ltd without deduction of TDS. It is prayed that the disallowance u/s 40(a)(ia) of Rs.375860/- be deleted.”

11.

So as far as this issue is concerned, it is sufficient to take note of the fact that the amount in question pertains to reimbursement of ocean freight to the C&F agent who, in turn, has paid the amounts to the shipping company, the authorities below have upheld the disallowance on the ground that it’s a payment to non-resident and the assessee was under an obligation to deduct tax at source from the same. The nature of payment is also disputed by the Assessing Officer and the CIT(A) inasmuch as the expenditure was classified as ‘Exhibition Exps.’ And that there was no evidence about the payment

I TA N o. 2 7 8 /A hd / 20 1 6 X L P la st ic s Vs . A CI T Ass e ss me n t Y ea r : 2 0 11 - 1 2 being in the nature of freight expenses. The assessee is aggrieved and is in further appeal before us.

12.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

13.

On a perusal of bills, copies of which are placed before us at pages 16 and 17 of the paper-book, we are satisfied that the payment is made on account of reimbursement of ocean freight expenses even though it was booked exhibition charges as the ocean freight was in connection with exhibition of products. As the payment is in the nature of reimbursement of freight expenses, in our considered view, the tax withholding obligations were not attracted. We, therefore, uphold the plea of the assessee and delete the impugned disallowance of Rs.3,75,860/-.

14.

Ground no.2 is thus allowed.

15.

In the result, the appeal is partly allowed. Pronounced in the open court today on the 8th October, 2018 Mahavir Prasad Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 8th October, 2018 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

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