PFITOP INTERNATIONAL ,KOLKATA vs. I.T.O.,WARD-22(2), KOLKATA

The issue raised in Ground No. 1 relates to the addition of Rs.1,66,735/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of unsecured loan taken from Standard Chartered Bank by treating the same as the liability, which was ceased to exist.

The assessee in the present case is a partnership firm, which is engaged in the business of wholesale trading of medicines. The return of Assessment Year: 2015-2016 PFITOP International income for the year under consideration was filed by it on 28.09.2015 declaring total income at ‘NIL’. In the balance-sheet filed along with the said return, unsecured loan of Rs.2,29,065/- taken from Standard Chartered Bank was shown by the assessee. In response to the notice issued by the Assessing Officer under section 133(6) of the Act, the Standard Chartered Bank, however, confirmed the outstanding balance payable by the assessee at Rs.62,330/-. Since the assessee could not explain this difference of Rs.1,66,735/-, the Assessing Officer treated the same as the bogus liability and an addition of Rs.1,66,735/- was made by him to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer as the assessee failed to reconcile the difference of Rs.1,66,735/- in the balance of outstanding loan taken from Standard Chartered Bank.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has invited my attention to the copy of statement issued by Standard Chartered Bank placed at page no. 264 & 265 of the paper book to show that the loan liability of Rs.74,668/- representing mainly the interest and penal interest charged by Standard Chartered Bank upto 01.09.2009 was sold to M/s. Saha Finlease Pvt. Limited. On a query raised by the assessee, he, however, failed to explain as to how the said liability of Rs.74,668/- as on 01.09.2009 was increased to Rs.2,29,065/- as on 31.03.2015 as shown by the assessee in its balance-sheet. He has also failed to point out any communication received from M/s. Saha Finlease Pvt. Limited during the period of last more than 10 years to show that the loan liability in question sold by Standard Chartered Bank was ever claimed by M/s. Saha Finlease Pvt. Limited from the assessee. The assessee thus has failed to establish the existence of the said liability and having regard to all the facts of the case, I am of the view that the said liability can be treated as ceased to have existed. I, therefore, find no justifiable reason to interfere with the impugned order of the ld. Assessment Year: 2015-2016 PFITOP International CIT(Appeals) on this issue confirming the addition of Rs.1,66,735/- made by the Assessing Officer. Ground No. 1 is accordingly dismissed.

The issue raised in Ground No. 2 relates to the addition of Rs.8,26,139/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of un-reconciled difference in the account of certain sundry creditors and debtors.

As noticed by the Assessing Officer during the course of assessment proceedings from the replies received to the notices issued under section 133(6) of the Act, there was a total difference of Rs.8,26,139/- in the closing balance of the following parties:- (1) M/s. Life Drug House Rs.2,33,954/- Pvt. Limited (2) M/s. Indchemie Health Rs.5,15,230/- Specialities Pvt. Limited (3) M/s. Goutam Rs.39,628/- (4) M/s. Maa Padma Rs.37,327/- Medical Although the assessee filed reconciliation statement explaining the difference in the balance of M/s. Life Drug House Pvt. Limited and M/s. Indchemie Health Specialities Pvt. Limited, the same was not found to be satisfied by the Assessing Officer. He accordingly treated the difference of Rs.8,26,139/- as the income of the assessee and made addition to that extent to the total income of the assessee. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer observing that the assesese-firm following the mercantile system of accounting should have accounted for the concerned cheque payments as well as bills in the year under consideration itself and not in the immediately succeeding year as claimed to have been done while explaining the difference in the balances of the concerned parties.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As pointed out by the ld. Counsel for the assessee, the issue relating to difference in the balance of the concerned four parties was remanded by the ld. CIT(Appeals) to the Assessing Officer for verifying the explanation of the assessee offered while reconciling the said difference and in the remand report submitted to the ld. CIT(Appeals), the following comments were made by the Assessing Officer:- “Difference in closing balance of sundry creditors and debtors: (A) M/s. Life Drug House Pvt. Limited:_ Closing balance difference of Rs.2,33,954/-. On perusal of reconciliation statement and further verification from bank statements, it was found that, the different cheques of the said amount were debited form the assessee account on 04.04.2015 and further dates. It appears that cheques were issued by the assessee in April, 2015, because it takes only one or two days to clear the cheques from the bank, though the party has shown the cheques being received in FY 2014-15. Hence the difference in account have been explained. (B) M/s. Indchemie Health Specialities Pvt. Limited:- Difference of Rs.5,15,230/-. During the remand, assessee submitted reconciliation statement, bills, purchase ledger and bank statement. On perusal of documents, it is clear that though party has raised the purchase bills in FY 2014-15, assessee received the goods in FY 2015-16 along with the bills and accordingly taken into its account in FY 2015-16. Assessee submitted purchase ledger of FY 2014-15 & FY 2015-16 for confirmation. It was also seen from the bank statement that payment were made to the party in FY 2015-16. Hence, the differences in account have been explained. (C) M/s. Maa Padma Medical, M/s. Goutam & Dr. Anil Chandra Das: No documents were produced for explanation”.

A perusal of the comments made by the Assessing Officer as above makes it clear that the difference in the closing balance of M/s. Life Drug House Pvt. Limited and M/s. Indchemie Health Specialities Pvt. Limited was satisfactorily explained by the assessee and the said explanation was duly accepted by the Assessing Officer after verification of the relevant record. Regarding the difference in closing balance of other two parties namely M/s. Goutam and M/s. Maa Padma Medical, the assessee, however, could not offer any satisfactory explanation as clearly stated by the Assessing Officer in his remand report. Keeping in view this categorical findings recorded by the Assessing Officer in his remand report, I am of the view that the difference in the closing balance of the concerned parties to the extent of Rs.7,49,184/- was satisfactorily explained by the assessee and the ld. CIT(Appeals) was not justified in confirming the addition made by the Assessing Officer on this issue to that extent. I, therefore, modify the impugned order of the ld. CIT(Appeals) on this issue and restrict the addition of Rs.8,26,139/- made by the Assessing Officer to Rs.76,955/-. Ground No. 2 of the assessee’s appeal is thus partly allowed.

At the time of hearing before the Tribunal, the ld. Counsel for the assessee has not pressed Ground No. 3 raised by the assessee in this appeal involving the issue of addition of Rs.33,408/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of alleged bogus debtors. The same is accordingly dismissed as not pressed.

As regards the issue involved in Ground No. 4 relating to the assessee’s claim for giving effect to the loss of Rs.44,723/- as certified by the auditors, the ld. Counsel for the assessee has sought a limited relief by way of a direction to the Assessing Officer to allow this claim after necessary verification. I accordingly direct the Assessing Officer to verify the claim of the assessee on this issue and allow the same in accordance Assessment Year: 2015-2016 PFITOP International with law. Ground No. 4 is accordingly treated as allowed for statistical purposes.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on March 13, 2020.