STAR GRANITES PRIVATE LIMITED,CHITTOOR vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD

PER S. RIFAUR RAHMAN, A.M. :

This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)–10, Hyderabad, dated 27-03-2017, for the AY. 2004-05.

:- 2 -: ITA No. 1145/Hyd/2017

Assessing Officer completed the assessment u/s. 143(3) making the following disallowances:

Rs. a Difference in sundry debtors 45,45,463 b Disallowance u/s. 43B 4,62,545 c Interest receivable 5,86,375 d CST claim recoverable 9,30,852 e Interest on deposit 17,457

Aggrieved with the above order, assessee preferred an appeal before the CIT(A). Ld.CIT(A) gave partial relief to the assessee. Aggrieved with the above order, assessee preferred an appeal before us, raising the following grounds of appeal:

“1 The order of the learned Commissioner of Income-Tax (Appeals) is erroneous in law and on the facts of the case.

2 The learned Commissioner of Income-Tax (Appeals) erred in sustaining the disallowance of Rs. 45,45,463/- towards the difference in sundry debtors.

3 The learned Commissioner of Income-Tax (Appeals) erred in sustaining the disallowance of Rs.4,49,332/- towards municipal taxes, out of total disallowance of Rs. 4,62,542/- u/s. 43B, since such municipal taxes were already paid but at erroneously disclosed as payable in the financial statements.

3.1 The learned Commissioner of Income-Tax (Appeals) ought to have verified whether or not such an amount of Rs. 4,49,332/- towards municipal taxes had been claimed as expenditure for the current year before sustaining the disallowance.

3.2 The learned Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to verify the claim of Rs.10,681/- towards provident fund, out of total disallowance of Rs.4,62,542/- u/s 43B, after having perused the evidence of payment of such provident fund and ought to have directed the Assessing Officer to delete the disallowance.

:- 3 -: ITA No. 1145/Hyd/2017

4 The learned Commissioner of lncome-tax (Appeals) erred in sustaining the disallowance of Rs. 5,86,375/- towards interest receivable, irrespective of the fact that the Assessing Officer in his remand report observed that the claim of the assessee is correct.

4.1 The learned Commissioner of Income-Tax (Appeals) ought to have considered that the amount of Rs. 5,86,375/- consists of amounts which was already taxed in earlier year or not liable for tax in the current year and hence erred in sustaining the disallowance.

5 The learned Commissioner of Income-Tax (Appeals) erred in directing the Assessing Officer to delete the addition of Rs. 9,30,852/- towards CST claim recoverable, upon verification once again by the Assessing Officer, since the Assessing Officer during remand proceedings already verified the documents and stated that the claim of assessee is correct.

6 The learned Commissioner of Income-Tax (Appeals) erred in directing the Assessing Officer to delete the addition of Rs. 17,457/- towards interest, upon verification once again by the Assessing Officer, since the Assessing Officer during remand proceedings already verified the documents and stated that the claim of assessee is correct.

7 Any other ground of appeal that may be pleaded with the prior approval by the Hon'ble Tribunal during the course of appellate proceedings”.

:- 4 -: ITA No. 1145/Hyd/2017

Particulars Amount (Rs) Opening Balances as on 01.04.2002 1,27,47,162 Add: Sales during the year 13,71,525 1,41,18,687 Less: Amount received during the year

Amount received in INR 12,58,129 Amount received in Foreign Currency 8,51,517 Foreign Exchange difference 21,911 21,31,557 Closing Balance as on 31.03.2003 1,19,87,130

* Details of Sundry Debtors for the year 2003-04 as submitted by the assessee

Particulars Amount (Rs) Opening Balance as on 01.04.2003 1,19,87,130 Add: Sales during the year 7,58,992 1,27,46,122 3,42,540 Closing Balance as on 31.03.2004 1,24,03,582

4.1. Further, Assessing Officer noticed that assessee submitted an amount of Rs. 3,42,540/- was received during the year. The notes forming part of the accounts enclosed in Balance Sheet for this assessment year as shown in Sr. No.4 that earning in foreign exchange reported by the company to the Govt. of India and also certified by the management that was shown as nil. According to the Assessing Officer, there may be chance that the assessee might have received remittance from debtors in Indian currency. However, the assessee has not justified the amount so received during the year to the extent of Rs. 3,42,540/-. Since the assessee could not produce or furnish the details called for the Sundry

:- 5 -: ITA No. 1145/Hyd/2017

Debtors relating to AY. 2003-04 and 2004-05, it was re-worked out by the Assessing Officer as below:

Statement - 1: Sl Description Amount (Rs) No 1 Sundry Debtors as on 31-03-2002 1,27,47,1162 2 Opening Sundry Debtors as on 01-04-2002 1,27,47,162 3 Add: Export Sales during tax year 13,71,525 4 Total 1,41,18,687 5 Less: Amount collected by Bank as per (Notes to the A/c) 8,51,517 6 Total 1,32,67,170 7 Less: Written Off during the year 61,68,043 8 Total Sundry Debtors as on 31-03-2003 70,99,127 9 Sundry Debtors as shown in the Balance Sheet filed along with the return for the Asst. 1,19,87,130 Year 2003-04 10 Difference in Sundry Debtors 48,88,003

Statement - 2: Sl Description Amount (Rs) No 1 Sundry Debtors as on 31-03-2003 70,99,127 2 Opening Sundry Debtors as on 01-04-2003 70,99,127 3 Add: Export Sales during the tax year 7,58,992 4 Total 78,58,119 5 Less: Amount collected by Bank as per (Notes NIL to the A/c) 6 Total 78,58,119 7 Less: Written off during the year NIL 8 Total sundry debtors as on 31-3-2003 78,58,119 9 Sundry debtors as shown in the balance sheet filed along with the return for Asst. year 1,24,03,582 2004-05 10 Difference in sundry debtors 45,45,463

4.2. As per the above statement, the difference as arrived by the Assessing Officer was disallowed. Aggrieved with the above

:- 6 -: ITA No. 1145/Hyd/2017

order, assessee preferred an appeal before the CIT(A). Before the CIT(A), assessee made the following submissions:

“6.2. The A.O recorded in the assessment order that the figure of sundry debtors shown in the balance sheet is Rs.1,24,03,582 and that the gross sales during the year under "account were only Rs, 7,58,992/-. The A.O stated that on account of this reason, the assessee was asked to "justify the sundry debtors shown". The A.O recorded that the assessee furnished a reconciliation statement. The A.O observed that the foreign currency earnings were NIL as per notes forming part of balance sheet, at Sl.No.4 He recorded that the assessee was asked to produce details of amount of Rs.3,42,540 He rejected the same without assigning any cogent reasons. After making some observations about the correctness of the receipt of Rs.3,42,540/- received during the year. He stated that the assessee did not produce the same. Thereafter the A.O recast and reworked the sundry debtors for F.Y 2002-03 and F.Y 2003-04 as under: (The table given is extracted from the Assessment order) Statement No. 1: Sl Description Amount (Rs) No 1 Sundry Debtors as on 31-03-2002 1,27,47,1162 2 Opening Sundry Debtors as on 01-04-2002 1,27,47,162 3 Add: Export Sales during tax year 13,71,525 4 Total 1,41,18,687 5 Less: Amount collected by Bank as per (Notes to the A/c) 8,51,517 6 Total 1,32,67,170 7 Less: Written Off during the year 61,68,043 8 Total Sundry Debtors as on 31-03-2003 70,99,127 9 Sundry Debtors as shown in the Balance Sheet filed along with the return for the Asst. 1,19,87,130 Year 2003-04 10 Difference in Sundry Debtors 48,88,003

Statement No. 2: Sl Description Amount (Rs) No 1 Sundry Debtors as on 31-03-2003 70,99,127 2 Opening Sundry Debtors as on 01-04-2003 70,99,127 3 Add: Export Sales during the tax year 7,58,992 4 Total 78,58,119

:- 7 -: ITA No. 1145/Hyd/2017

5 Less: Amount collected by Bank as per (Notes NIL to the A/c) 6 Total 78,58,119 7 Less: Written off during the year NIL 8 Total sundry debtors as on 31-3-2003 78,58,119 9 Sundry debtors as shown in the balance sheet filed along with the return for Asst. year 1,24,03,582 2004-05 10 Difference in sundry debtors 45,45,463

6.3 The assessee submits that the amount of Rs.61,68,043 reduced by the AO in the F.Y 2002-03 (vide item 7 in statement No.1 given above) in fact pertains to F.Y 2001-02. Hence the said reduction is an arithmetical error. In this connection the assessee invites attention to schedule 10 on page 10 of the additional evidence wherein the amount of Rs.61,88,044 was reduced in the Financial year 2001-02. On the basis of this evidence, it may be seen that the AO is not correct in reducing Rs.61,68,043 in financial year 2002-03.

6.4 The assessee also invites attention to the fact that the amount of Rs.61,88,043 was added in the assessment for Asst. Year 2002-03. As can be seen from the assessment order for A.Y 2002-03 submitted at pages 22 to 24 of the addl. Evidence submitted before C.I.T(A).

6.5 It is of utmost importance to note that the discrepancies in the statements of earlier years cannot be the basis for making additions in the current year. Accordingly, the opening balance of sundry debtors as at 1-4-2003 could not have been disturbed by the AO for making additions in F.Y 2003-04 (A.Y 2004-05). Consequently, the only addition, if at all, that the A.O could make was by disbelieving the receipts of Rs.3,42,540 during the current year (F.Y 2003-04). To illustrate:

Op.bal. of sundry debtors as at 1-4-03 Rs.1,19,87,130 Add: sales during the year Rs. 7,58,992 Total Rs.1,27,46,122 Cl.bal as shown by assessee Rs.1,24,03,582 Difference Rs. 3,42,540

6.6 The difference of Rs. 3,42,540 is what the AO disbelieved as per narration in the assessment order.

6.7 Thus the AO is not correct in making addition of Rs.45,45,063. At best he could have made addition of Rs.3,42, 540 even which has no basis since the said amount represents receipts during the year.

:- 8 -: ITA No. 1145/Hyd/2017

6.8 The assessee prays that the addition of Rs. 45,45,463 may be directed to be deleted”.

“7.6 Major difference arose since the assessee did not consider the amount of Rs.61,68,043/- written off during the FY 2002-03 and considered by the Assessing Officer and not considered by the assessee in the written submissions. Even though, there is a claim that the amount of Rs. 61,88,043/- relates to FY 2001-02 the assessee did not prove this by filing the financial accounts for FY 2002-03 wherein sundry debtors were shown. Since the assessee did not prove that the action of the Assessing Officer is not correct in spite of giving several opportunities no relief can be granted to the assessee on this. The assessee also mentioned that the addition to the extent of Rs.3,42,540/- could have been made by the Assessing Officer. Even this amount was not proved before the Assessing Officer by filing the requisite details like bank account etc. In view of the finding of CIT(A) for A.Y 2002-03 also the accounts of the assessee are not reliable and no relief can be granted to the assessee. Therefore, this ground of appeal is dismissed”.

5.1. Before us, Ld.AR brought to our notice (in Pg. No. 9 of the Paper Book), which is Sundry Debtors schedules for the Financial Year ending 31-03-2002, which is relating to AY. 2002-03 which has outstanding balance of Rs. 1,27,47,164/- and also brought to our notice in Pg. No. 10 of the Paper Book that in Schedule 10 in which assessee has written-off the Sundry Debtors to the extent of Rs. 61,88,044/-. Further, he brought to our notice in Pg. Nos. 22 to 24, which is the assessment order for the AY. 2002-03 in which the Assessing Officer has disallowed the bad debts written-off during that AY. 2002-03. He submitted that since the bad debts written-off is disallowed by the Assessing Officer in that assessment year, once again the Assessing Officer cannot disallow the same

:- 9 -: ITA No. 1145/Hyd/2017

amount during this assessment year. Since the bad debts is disallowed, it amounts to carry forward of the outstanding balance in the AY. 2002-03, which is carried on with the adjustment in the current assessment year also, as such there is no change in the carry forward of amount of the Sundry Debtors. Therefore, the Assessing Officer should not have re- worked the outstanding balance of the Sundry Debtors, Assessing Officer has doubt only with regard to collection from Sundry Debtors to the extent of Rs. 3,42,540/-. If at all to be disallowed, he should have disallowed only to the extent of this amount.

5.2. On the other hand, Ld.DR relied on the orders of the Revenue authorities.

5.3. Considered the rival submissions and material on record. We noticed that the Assessing Officer has re-worked the Sundry Debtors for the current assessment year from the period 31-03-2002 to 31-03-2004. In arriving the closing balance as on 31-03-2003, Assessing Officer reduced Rs. 61,68,043/- as the assessee has written off during the year and arrived at the revised closing balance of Rs. 70,99,127/-. As brought to our notice the Balance Sheet as on 31-03-2002 which is placed on record at Pg. No.9 of the Paper Book, it is clearly shown that the assessee has closing balance of Sundry Debtors, which is less than six months to the extent of Rs. 1,27,47,164/-. This closing balance is arrived only after writing-off of the Sundry Debtors to the extent of

:- 10 -: ITA No. 1145/Hyd/2017

Rs. 61,88,043/-. Therefore, in that assessment year, Assessing Officer has disallowed the claim of assessee with regard to Sundry Debtors written-off. It has no relevance as far as carry forward of the closing balance as on 31-03-2002. Simply because the above balance of Rs. 1,27,47,164/- is nothing but closing balance after writing-off of the bad debts during the year. Therefore, the opening balance carried over by the assessee is proper. Therefore, the adjustment made by the Assessing Officer with regard to Rs. 61,68,043/- is not proper. Accordingly, it is deleted. With regard to the collection of Rs. 3,42,540/-, assessee has not submitted any information. Accordingly, we direct the Assessing Officer to disallow to this extent. Therefore, this ground raised by the assessee is partly allowed.

Rs. a) Provident fund payable 10,681 b) Professional tax payable 2,532 c) Municipal Taxes payable 4,49,332

Total: 4,62,545

6.1. Aggrieved with the above order, assessee preferred an appeal before the CIT(A). After verification of the submissions

:- 11 -: ITA No. 1145/Hyd/2017

of assessee, Ld.CIT(A) found that provident fund payable by the assessee is to the extent of Rs. 10,681/- is found to be proper and he directed the Assessing Officer to verify the same and allow the above deduction. With regard to professional tax payable and municipal tax payable, Ld.CIT(A) rejected the contentions of assessee.

6.2. Since the assessee does not want to pursue Ground No. 3.1, the same is dismissed.

6.3. With regard to Ground No. 3.2, he submitted that Ld.CIT(A) has remitted the matter back to the Assessing Officer to allow after verification of the information submitted before him. Therefore, there is no grievance to the assessee.

6.4. Considered the rival submissions and facts on record. We noticed that the Ld.CIT(A) has remitted the issue to the file of the Assessing Officer to allow the contentions of assessee after verification, we do not see any reason to interfere with the orders. This ground is dismissed.

:- 12 -: ITA No. 1145/Hyd/2017

Aggrieved with the above findings, assessee preferred an appeal before the CIT(A) and made submissions. Ld.CIT(A) forwarded the submissions of assessee to Assessing Officer and in the remand report, Assessing Officer agreed with the submissions of assessee. However, Ld.CIT(A) dismissed the ground raised by the assessee with the following findings and observations:

“9.4 The details filed by the assessee are as under: "Extract of Account of Receivables For the period from 01.04.2003 to 31.03.2004 Date Particulars Amount Amount Balance (DR) (CR) Interest receivables 01.04.2003 Opening 2,71,370.00 balance 01.04.2003 Balance 1,57,577.00 1,13,793.00 transferred from expense payable A/c Wealth tax receivables 01.04.2003 Opening 4,72,582.00 4,72,582.00 balance 7,43,952.00 1,57,577.00 5,86,375.00 Closing balance as on 31.03.2004 debit Rs. 586375.00."

9.5 From the above it is dear that the amount of Rs.2,71,370/- is opening balance and addition made during this assessment year comprises an addition of Rs.4,72,582/- which is mentioned as opening balance as on 01.04.2003. Therefore, the submission of the assessee is incorrect as there is no clarity with regard to the items mentioned in the assessment order i.e., interest receivable on loans and advances. 9.6 The submissions of the assessee and remand report of the Assessing Officer have been considered. In the remand report the Assessing Officer accepted that the assessee's grounds of appeal appear to be correct. However, CIT(A) confirmed the addition of

:- 13 -: ITA No. 1145/Hyd/2017

Rs.2,71,370/- for A.Y 2002-03. Since the assessee did not clarify the exact nature of receivables no relief can be given to the assessee. There is also discrepancy in the figures mentioned in the table reproduced above. Therefore, this ground of appeal is dismissed”.

7.1. Ld.AR submitted that the interest receivable to the extent of Rs. 2,71,370/- is opening balance as on 01-04-2003. This cannot be disallowed as the same is not relating to the current assessment year.

7.2. Considered the rival submissions and facts on record. We noticed that the CIT(A) came to the conclusion after verifying the table, which is reproduced herein:

"Extract of Account of Receivables For the period from 01.04.2003 to 31.03.2004 Date Particulars Amount Amount Balance (DR) (CR) Interest receivables 01.04.2003 Opening 2,71,370.00 balance 01.04.2003 Balance 1,57,577.00 1,13,793.00 transferred from expense payable A/c Wealth tax receivables 01.04.2003 Opening 4,72,582.00 4,72,582.00 balance 7,43,952.00 1,57,577.00 5,86,375.00 Closing balance as on 31.03.2004 debit Rs. 586375.00."

7.3. From the above table, it is noticed that the interest receivable to the extent of Rs. 2,71,370/- and wealth tax receivable to the extent of Rs. 4,72,582/-, both are opening balances as on 01-04-2003. There is an adjustment in interest

:- 14 -: ITA No. 1145/Hyd/2017

receivable account on 01-04-2003 to the extent of Rs. 1,57,577/-. So making the balance of interest receivable to the extent of Rs. 1,13,793/- even the wealth tax receivable is opening balance. Therefore, we are not in agreement with the findings of the Ld.CIT(A). Both the interest receivable and wealth tax receivable which is outstanding as on 31-03-2004, combined together Rs. 5,86,375/- which is disallowed by the Assessing Officer. Therefore, we direct the Assessing Officer to delete the disallowance of Rs. 5,86,375/-. This ground is allowed.

8.1. Ld.AR submitted that the Assessing Officer agreed the submissions made by the assessee in his remand report and the Ld.CIT(A) even though remitted back to the file of Assessing

:- 15 -: ITA No. 1145/Hyd/2017

Officer for further verification. He prayed that this addition should be deleted.

8.2. Considered the rival submissions and facts on record. We notice that assessee has submitted relevant information before the Assessing Officer during the remand proceedings. The Assessing Officer in his remand report agreed with the information supplied by the assessee and confirmed that this may be deleted. It does not prove any point again remitting the issue back to the file of Assessing Officer for further verification. Therefore, the ground raised by the assessee is allowed.

9.1. Ld.AR submitted that the Assessing Officer agreed the submissions made by the assessee is his remand report and the Ld.CIT(A) even though remitted back to the file of Assessing

:- 16 -: ITA No. 1145/Hyd/2017

Officer for further verification. He prayed that this addition should be deleted.

9.2. Considered the rival submissions and facts on record. We notice that assessee has submitted relevant information before the Assessing Officer during the remand proceedings. The Assessing Officer in his remand report agreed with the information supplied by the assessee and confirmed that this may be deleted. It does not prove any point again remitting the issue back to the file of Assessing Officer for further verification. Therefore, the ground raised by the assessee is allowed.

Order pronounced in the open court on 31st October, 2018

Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 31st October, 2018 TNMM

:- 17 -: ITA No. 1145/Hyd/2017

Copy to :