KNS OVERSEAS PVT.LTD.,BANGALURU vs. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -4 (1)(1), BANGALURU

The assessee has filed this appeal challenging the order dated 29.12.2017 passed by Ld. CIT(Appeals)-4, Bangalore and it relates to the assessment year 2012-13. The assessee is challenging the addition of Rs.690.00 lakhs made by the assessing officer and confirmed by Ld. CIT(A).

None appeared on behalf of the assessee, even though the notice of hearing was sent by registered post and also through the revenue to the assessee. Hence we proceed to dispose of the appeal ex parte, without the presence of the assessee.

We heard Ld. D.R and perused the record. The AO noticed that the assessee has received an advance of Rs.690.00 lakhs from its Customer for supply of iron ore goods in an earlier year. The assessee disclosed the same as liability in its books of accounts. The assessee submitted that it could not make supplies to the customer in view of ban imposed by the Hon’ble Supreme Court. The AO noticed that the assessee is maintaining books of accounts on mercantile basis. The assessee was also having stock of iron ore of Rs.1367.48 lakhs. The AO also noticed that the ban imposed by Hon’ble Supreme Court is only in respect of mining activity. Accordingly, the AO took the view that there was no ban for the assessee to sell its existing stock to its customer. The AO also noticed that the ban was lifted on 05-04-2011. Accordingly, he took the view that the advance amount of Rs.690.00 lakhs should have been offered by the assessee as its income. Accordingly, he added the same to the total income of the assessee. The Ld. CIT(A) also confirmed the same.

We notice that the AO has assessed the above said amount only for the reason that there is no ban for sale of its existing stock to its customers. The question of recognizing an advance amount as trading receipt shall arise only if there is corresponding movement of goods resulting in sales. We notice that the AO has not examined this aspect. Further, there should not be any dispute that entire sales amount cannot be assessed as income of the assessee, i.e., the corresponding cost should be allowed as deduction. This point has also escaped the attention of the AO. Under these set of facts, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by Ld. CIT(A) and restore this issue to the file of the AO for examining the same afresh. We also direct the assessee to fully co- operate with the AO for completion of set aside proceedings.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.