HASTIMAL P JAIN ,HUBLI vs. THE INCOME TAX OFFICER WARD-1(1), HUBLI

O R D E R Per Shri A.K. Garodia, Accountant Member Both these appeals are filed by the assessee and the same are directed against two separate orders of ld. CIT(A)-Hubli dated 06.02.2017 for Assessment Year 2012-13 and dated 20.02.2017 for Assessment Year 2013-14. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. The grounds raised by the assessee for Assessment Year 2012-13 in as under.

1. The learned Assessing Officer had erred in passing the order in the manner passed by himand the learned Commissioner of Income tax (Appeals) has erred in partially confirming thesame. The impugned order to the extent confirmed by the CIT(A) being bad in law andrequired to be quashed. 2.1 In any case and without further prejudice, the assessing officer had in erred in adding asum of Rs.7,01,326/- by treating the creditors as fictitious liability and the learned CIT(A) haserred in confirming the same to the extent of Rs. 6,81,350/- On the facts and circumstances ofthe case and the law applicable, the addition as made and partially confirmed being totallyerroneous both on facts and law is to be deleted.

2.2 The authorities below have erred in holding that the appellant has failed to prove thecreditors with documentary evidences to the extent of Rs. 6,81,350/-. The conclusions /observations of authorities below being totally erroneous and without basis both on facts and laware to be disregarded and the addition made/confirmed is to be deleted. 2.3 In any case, the additions as made/confirmed are without basis and made only onsurmises and conjectures are to be deleted.

3. The appellant denies the liability to pay interest u/s 234A, 234B and 234C of the Act.The interest having been levied erroneously is to be deleted.

by the assessee for Assessment Year 2013-14 in are as under. “1. The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned Commissioner of Income tax (Appeals) has erred in partially confirming the same. The impugned order to the extent confirmed by the CIT(A) being bad in law is required to be quashed. 2.1 In any case, the assessing officer had erred in adding a sum of Rs. 63,73,319/- on account of difference in book balance of sundry creditors and parties account by holding the same to be fictitious liability and the learned CIT(A) has erred in confirming the same. On the facts and circumstances of the case and the law applicable, the addition as made / confirmed is to be deleted. 2.2 In any case, the additions as made/confirmed are without basis and made only on surmises and conjectures are to be deleted.

3. The authorities below have erred in not allowing the deduction claimed u/s. 35AC of the Act on the ground that the receipt does not specify whether the Donee trust is notified by CBDT /Central Government under the provisions of section 35AC of the Act. The action of authorities below being totally erroneous both on facts and law is to be disregarded the deduction as claimed is to be granted to the appellant.

4. The appellant denies the liability to pay interest u/s 234A, 234B and 234C of the Act. The interest having been levied erroneously is to be deleted.

5. In view of the above and other grounds to be adduced at the time of hearing it is requested that the impugned order be quashed or at least the addition made by treating the creditors as fictitious liability be deleted and interest levied be also deleted.” & 1173/Bang/2017 Page 3 of 8

4. At the very outset, it was submitted by ld. AR of assessee that one of the issues involved in Assessment Year 2013-14 is also involved in Assessment Year 2012-13 and in addition to this, there is one more issue involved in Assessment Year 2013-14 as per ground no. 3 of the appeal of that year. She submitted that ground no. 3 in Assessment Year 2013-14 is not pressed. Ground no. 3 in Assessment Year 2013-14 is rejected as not pressed.

5. Regarding the common issue involved in both the years, it was submitted by ld. AR of assessee that in Assessment Year 2012-13, the AO made addition of Rs. 1,10,30,397/- including addition on account of sundry creditors of Rs. 7,01,326/- + Rs. 1,03,29,071/-. She submitted that the assessee carried the matter in appeal before CIT(A). The ld. CIT (A) has confirmed the addition of Rs. 6,81,350/- out of the addition made by the AO of Rs. 7,01,326/- in respect of sundry creditors and in this manner, he allowed part relief out of the addition made by the AO in respect of sundry creditors whereas the entire addition made by the AO of Rs. 1,03,29,071/- in respect of sundry creditors was deleted by CIT(A). She submitted that in the present appeal before the Tribunal, the assessee is disputing the part addition upheld by CIT(A) of Rs. 6,81,350/- out of sundry creditors and it includes Rs. 93,917/- in respect of Bhikusa Books Manufacturers Islampur and Rs. 5,87,433/- in respect of another creditor M/s. Veerji Paper Mills P. Ltd. She submitted that both these amounts were already included by the assessee in its income in a later year and therefore, the addition made in the present year should be deleted. Even if the addition in the present year is upheld then direction should be given to the AO that in the later year, when the assessee has itself included these amounts in the income of the assessee in that year, the AO should exclude these amounts in that year from taxable income. In respect of Assessment Year 2013-14, she submitted that in this year, the AO made addition of Rs. 63,73,319/- in respect of various sundry creditors on this basis that the credit appeared in the books of the assessee is more than the amount shown by the respective creditors as receivables from the assessee. She submitted that in respect of the creditors for which addition is made by the AO and confirmed by CIT(A), the assessee has suo & 1173/Bang/2017 Page 4 of 8 moto added the amount in question in the income of the assessee in a later year and therefore, in this year also, this addition should be deleted. For this year also, this was the alternative submission of the ld. AR of assessee that even if the addition in this year is confirmed then direction should be given to the AO to grant relief in the later year when the assessee has suo moto has added this amount in its income because otherwise it will amount to double taxation of the same amount. The ld. DR of revenue supported the order of CIT(A) in both years.

6. We have considered the rival submissions. We find that in Assessment Year 2012-13, the decision of CIT(A) is contained in para nos. 15 to 19 of his order which are reproduced hereinbelow for ready reference. “15. In the case, of Jaimata Paper Mills Ltd., assessee has shownRs.19,976/- as liability in the balance sheet whereas the party has filedconfirmation letter according to which, it has to receive only Rs.58/-. This isbecause on 31/03/2012 this party has passed entries for. having issuedcredit note for Rs.32.050/- and Rs.17.868/- totaling to Rs. 49,918/-.

16. The assessee in its books has wrongly shown the closing balance atRs.49,976/- instead of Rs.19,976/- and it has not accounted for the creditnote for the A.Y. 2012-13. Instead, it has taken it for case for any addition,on verification this is found correct and the addition of Rs.19,976/- is deleted. In the case of Bhikusa Books Manufacturers Islampur, theassessee has shown liability of Rs.93,917/- whereas this partly has shownamount receivable at Rs.11,091/-. Against the name of Umamaheshwar Rao Packing industry wrongly, in fact the amount receivable is nil. Whilefiling reconciliation statement the assessee has stated that, Rs. 93,917/- shown as due to party on 31/03/2012 which is wrong because it has notconsidered the following credits made by the party as appearing in thebooks of the assessee. 1. 31/12/2011 credit as per party's ledger Rs. 50,292/- 2.31/03/2012 credit as per party's ledger Rs. 77,119/- ----------------- Rs.1,27,411/- Less: debited by the assessee on 17103/2012 Rs. 33,494/- ----------------- Rs. 93,917/- Less: opening credit balance shown by the Rs. 93,917/- ---------------- Balance as on 31/0312012 NIL

17. Instead of showing NIL balance the assessee has shown & 1173/Bang/2017 Page 5 of 8 Rs.93,917/- as due to be paid to this party. Thus, as against no liability both as perassessee and the party the assessee has shown Rs.93,917/- as on 31/03/2012 as outstanding and the assessee's explanation that, the saidcredits of Rs.50,292/- and Rs.77,119/- has been accounted for in the nextassessment year is wrong. The fact is, as on 31/03/2012 there is noamount due by the assessee. Since the assessee follows mercantilesystem of accounting Rs.93,917/- shown as creditor in the case of Bhikusa Book Manufacturers requires to be disallowed as fictitious liability. Theaddition made of Rs.93,917/- is hereby confirmed.

18. In the case of Veerji Paper Industries Pvt. Ltd., Bidar, Rs.5,87,433/- is shown as outstanding liability by the assessee as on 31/03/2012. The AOhad sent letter to this party. The AO has said that, the letter sent has notbeen delivered. The assessee before me states that, this- party has closedthe factory. He has filed the party's ledger as appearing in his books.Between 01/04/2011 to 31/03/2012 the assessee has made purchases tothe extent of Rs.50,66,252/- and paid the party of Rs.44,78,819/- duringthis period. Thus, leaving a balance of Rs.5,87,433/- which is shown by theassessee as outstanding liability against this party assundry creditor. Theletter sent to the assessee is unserved. The assessee says the factory isclosed. The balance shown by the assessee of Rs.5,87,433/- may in allprobability represent the credit notes to be issued by the party or any otherreason. Since the creditor has not confirmed the same and the assesseehimself says the factory is closed, there is every possibility of assessee writing off this amount as fictious liability. But, as on date creditor has notconfirmed this. Therefore, Rs.5,87,433/- requires to be disallowed. Hence,the addition made of Rs.5,87,433/- is hereby confirmed.

19. In the result out of Rs.7,01,326/- shown as sundry creditors anddisallowed by the AO, only Rs.93,917/- and Rs.5,87,433/- requires to beadded and the rest of the amount requires to be deleted. Rs.6,81,350/-(5,87,433+93,917) is the addition sustained on this account.”

7. Similarly, in Assessment Year 2013-14, the decision of CIT(A) on this issue is contained in para nos. 6 to 9 of the order of CIT(A) in Assessment Year 2013-14 and the same are reproduced hereinbelow for ready reference. “6. The appellant has made certain purchases from certain parties andhis closing balance for the FY 2012-13 relevant to the impugned yeardiffered when verified by the AO during scrutiny proceedings with thebalances in the books of the concerned creditors. The AO, after confronting the appellant, made certain additions on this count. The party wise detailsin this regard are as under: & 1173/Bang/2017 Page 6 of 8 Balance Balance Sr inthe in the Addition No Name of the creditor books of books of Difference made by the the the AO appellant creditor Jay JS Paper 1 Recycling, 11,39,706 1,21,619 10,18,087 11,39,706 Nanjangud Canara paper Mill P 2 15,04,320 9,65,056 5,39,264 1,73,405 LTD Gayatrishakti Paper 3 3,29,998 1,39,480 1,90,518 1,90,518 & Boards 4 Bhikusa Papers P Ltd 1,51,484 11,093 1,40,391 1,40,391 5 Classic Papers 11,54,230 5,53,642 6,00,588 600,588 GMJ Paper & 6 7,86,189 97,513 6,88,676 40,058 Boards Shreenidhi Papers P 7 45,73,274 41,84,414 3,88,860 3,74,463 Ltd Paper Packaging 8 57,74,236 20,57,046 37,17,190 37,14,190 P.Ltd TOTAL ADDITION 63,37,319

and statement of facts only.

9. I find the discount earned is nothing but income of the assessee as itis given on the basis of purchases made from the particular dealers forspecified quantity. The discount so earned goes to directly affect the GP inturn affecting the total income. The AO is right by saying that, beforefinalizing the accounts, the assessee should have obtained copy ofaccounts from such patties, ascertained the discount received and offeredthe same as income of the current assessment year. The discount receivedduring the year should have been offered in the year itself, since theassessee is following mercantile system of accounting. Accordingly, I holdthat, there is no defect or deficiency found in the order of the assessingofficer. The addition is sustained and the grounds dismissed.”

8. From the relevant paras reproduced from the order of CIT(A) in both years, it is seen that a categorical finding is given by CIT(A) in both years that the difference in amount of outstanding as per assessee’s books and that the amount shown as receivables by the respective creditors is on this account that the respective creditors has allowed some discount in the present year which is not accounted for by the assessee in the present two years. The assessee has not booked this income in the present two years and it is the claim of the assessee that the assessee has booked the income in some later year. Factual aspect regarding the claim of the assessee that he has booked the income in the later year is not before us but so far the addition made by the AO in the present two years is concerned, we find no infirmity in that because as per the assessee also, this difference is on account of income of the assessee although the assessee has booked income in a later year as per claim made before us. Under these facts, we feel it proper to uphold the addition in the present two years but to avoid double taxation of the same, we direct the AO that if the assessee brings evidence on record before the AO that the amount in dispute in these two years is actually offered by the assessee for taxation in a later year then such amounts should be excluded from the taxable income of such later year. With these observations, we restore the matter back to the file of AO for fresh decision as per above discussion after providing reasonable opportunity of being heard to assessee.