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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 12.06.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
The grounds raised
by the assessee are as under:
1. In the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have directed the Ld. AO to allow the provision of Rs. 37,87,0007- made towards buy back, being warranty in nature.
2. In the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have held that there is no mismatch of income of Rs. 1,86,800/-as per appellant's books and Form 26AS and accordingly, ought to have directed the Ld. AO to delete the addition in its entirety.
It is humbly prayed that the reliefs as prayed for here-in-above and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted.
The appellant craves leave to amend or alter any ground, or add a new ground which may be necessary.”
The facts in brief are that the AO observed during the course of assessment proceedings that assessee has created provisions for buy back of Rs.37,87,000/- and accordingly called upon the assessee to justify the admissibility of the same. The assessee submitted before the AO that it has provided for @ 2% of the current sales towards the possible loss on possible sale returns against current year’s sales. The AO found the reply of the assessee as not tenable and issued a show cause notice to the assessee as to why the same should not be added to the income of the assessee which was replied by the assessee by submitting that it is dealing in the branded jewellery and sales are made through store chains. The assessee submitted that as per its sales policy, it purchases back the branded jewellery from the customers so sold at agreed discounted price as per the warranty given to the customers at the time of sale and accordingly it has provided for Rs.37,87,000/- being 2% of the current sales. During the year the assessee had repurchased jewellery amounting to Rs.23,56,880/-. However, the AO was not convinced with the reply of the assessee and treated the same as purely provisions created against profits which are not allowable under section 37 of the Act and added the same to the income of the assessee.
3 M/s. Nascent Jewellery Pvt. Ltd.
4. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on this ground by holding that the provisions created by the assessee has no scientific basis. On a query to furnish the details of last five years the assessee submitted that this is first year of operation and therefore there no past data in the business of the assessee are available. The Ld. CIT(A) also noted that in the subsequent years out of the provision created during the year of Rs.37,87,000/- assessee utilised provision to the tune of Rs.16,65,134/- and balance was written back in the P&L Account. The ld CIT(A) also noted that the business was finally discontinued from 01.01.2013.
5. After hearing both the parties and perusing the material on record, we observe that this is the first year of operation of the assessee and assessee at the time of selling goods gave warranty to the customers that the customers are free to get the jewellery return at an agreed price. The assessee, in order to provide for losses which may result from sales return, created provisions @ 2% of the total sales during the year. Thus, the assessee created Rs.37,87,000/- on the total sales @ 2%. The Ld. A.R. also referred to the audited annual accounts of the assessee filed at page No.15 & 16 for the financial year 2012-13 wherein Rs.21,21,866/- was written back the details whereof are filed at page No.21 of the paper book and the remaining amount of Rs.16,65,134/- was utilised towards loss on repurchase of jewellery. Thus it is clear from the above that the provisions created by the assessee has been used to set off the loss resulting from sales return or offered to tax in the subsequent year by writing back the surplus provisions. If the order of Ld. CIT(A) is affirmed upholding the order of AO then it would result
4 M/s. Nascent Jewellery Pvt. Ltd. in double taxation which is not permissible under the Act. We are therefore not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue . Accordingly, we reverse the order of Ld. CIT(A) and direct the AO to allow deduction of the provisions created by the assessee for repurchase of the jewellery.
The second issue raised by the assessee is against the confirmation of Rs.1,86,800/- by Ld. CIT(A) as made by the AO towards mismatch of income between the books of accounts and form 26AS.
The facts in brief are that the AO during the course of assessment proceedings found that there is a difference of Rs.1,86,000/- between the books of accounts and form No.26AS consisting of two amounts Rs.1,25,000/- and Rs.61,8000/-. The assessee submitted before the AO that the differential amount of Rs.61,8000/- was offered to tax in the subsequent year whereas with regard to the remaining amount of Rs.1,25,000/- the assessee submitted that the same is not income of the assessee. However, the reply of the assessee did not find favour with the AO and he added the same to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the TDS was claimed during the year and therefore corresponding income has to be offered in the same year by disregarding the fact that assessee has shown the same as liability as the same represented the excess amount received on account of advertising cost by raising debit note. In the next year after reconciling the account with 5 M/s. Nascent Jewellery Pvt. Ltd. the party, the same was offered to tax. As regards the second addition of Rs.1,25,000/- which was due to difference between the amount appearing as per form 26AS Rs.11,25,000/- from Riotinto Diamonds Ltd. whereas as per books of accounts the amount was Rs.10 lakhs. The assessee submitted that the said amount is not an income of the assessee. The said party deducted TDS on Rs.11,25,000/- of Rs.22,500/- which the assessee claimed TDS in the current year. The Ld. CIT(A) held that same has to be offered in the current year as the TDS was taken in the current year by ignoring the assessee’s submissions that the same is not income of the assessee.
After hearing both the parties and perusing the material on record, we observe that the difference of Rs.61,800/- was on account of excess amount paid by the party in respect of re- imbursement of advertisement cost. The assessee claimed the TDS in the current year whereas the amount was carried forward to the subsequent year as liability as this represented excess amount received from the party whereas the amount for which the debit note issued was duly shown as income of the assessee. In the next year the assessee reconciled the account with the said party and the said amount was offered to tax in the second year which is corroborated from the statement of sundry credit balances written back, a copy of which is filed at page No.21 in the F.Y. 2011-12 relevant A.Y. 2012-13. In case this addition is confirmed it would result in double taxation which is not permissible under the Act. We are therefore inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition of Rs.61,8000/-. So far as the addition of Rs.1,25,000/- is concerned, the same is not income of the 6 M/s. Nascent Jewellery Pvt. Ltd. assessee as is clear from the tax invoice issued by the assessee dated 18.12.2011 to Riotinto Diamonds Ltd. The bill is issued for Rs.10 lakhs for promotional counters on which VAT @ 12.5% was charged which calculated at Rs.1,25,000/-. Thus the aggregate bill amount calculated at Rs.11,25,000/-. We are, therefore, inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition of Rs.1,25,000/-.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 13.08.2019.