RANISATI PHARMACEUTICALS ,KOLKATA vs. ITO, WARD - 22(2), KOLKATA , KOLKATA

This is an appeal preferred by the assessee against the order of Ld. CIT(A)-6, Kolkata dated 21-05-2019 for the assessment year 2013-14.

3. Briefly stated facts are that the AO while going through the assessee’s books in respect of M/s. Reliance Life Science Pvt. Ltd. noted that the outstanding liability was to the tune of Rs.2,55,000/- , so the AO in order to verify the veracity of the same issued notice u/s. 133(6) of the Act to this company, and they in-turn replied that outstanding amount as per their books in respect of assessee is Rs. NIL. When the AO confronted the assessee with this fact, the assessee replied that it had issued cheque of Rs.2,55,000/- to M/s. Reliance Life Science Pvt. Ltd. on 28.03.2013, but the same was not recorded in its books of accounts since assessee instructed them to deposit the cheque on 03.04.2013 which they did and got the amount cleared from the bank. But they (M/s. Reliance Life Science Pvt. Ltd.) reconciled this fact of receiving cheque of Rs.2,55,000/- in their books as on 30.03.2013 itself and, therefore, the confusion arose and this fact will in no way impact the profit and loss of the assessee. However, this explanation of assessee was not acceptable to Ranisati Pharmaceuticals AY- 2013-14 the AO. According to AO, the explanation was not in consonance with the bank reconciliation statement submitted by the assessee. So, according to him, since the payment to M/s. Reliance Life Science Pvt. Ltd. was not recorded in the books of the assessee gave rise to a distorted figure in the balance sheet. Therefore, in the light of the above fact, AO was of the opinion that difference of the liability side of the balance sheet represents income and as such the AO added the sum of Rs.2,55,000/- to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO by observing as under: “I have examined the issues at length. When the appellant is following a mercantile system of accounting, the cheques once issued have to be entered, whether cleared or not. The appellant admits to have issued the cheque on 28.03.2013 but did not reflect it in its account. Before the AO the appellant filed a bank reconciliation statement that did not reflect this amount for FY 2012-13 even though it maintains its accounts on mercantile basis. Such violation of principles of accounting cannot be accepted. Accordingly, addition to the extent of Rs.2,55,000/- is confirmed u/s. 145 of the Act.” Aggrieved, assessee is before us.

4. Heard both the parties and gone through the facts and circumstances of the case. At the outset, it has been brought to our notice that though the cheque was issued by the assessee dated 28.03.2013 to the creditor M/s. Reliance Life Science Pvt. Ltd. they had been instructed to deposit the cheque for clearance only on 03.04.2013 and they (M/s. Reliance Life Science Pvt. Ltd. ) duly deposited the cheque and cleared the amount. Since the assessee instructed M/s. Reliance Life Science Pvt. Ltd. to deposit the cheque only on 03.04.2013, the assessee did not reflect the same in its books as on 31.03.2013. However, M/s. Reliance Life Science Pvt. Ltd had shown the cheque in its books on 30.03.2013 itself and got the amount from the bank on 03.04.2013, therefore, M/s. Reliance Life Science Pvt. Ltd pursuant to the notice u/s. 133(6) of the AO replied that there is no outstanding in respect of assessee in their books. I note that the whole controversy is because the entry in respect of payment of Rs.2.25 lacs has not been entered by the assessee in respect of M/s. Reliance Life Science Pvt. Ltd. in its books before 30.03.2013 though the assessee had issued cheque of Rs. 2.25 lacs dated 28.03.2013 to M/s. Reliance Life Science Pvt. Ltd. . Since the payment has been cleared by the bank on 03.04.2013, which fact has not been disputed by the authorities below, the addition was not warranted since had this cheque been recorded in assessee’s books before 31.03.2013, creditors and bank balance would have gone down by this amount and, therefore, it does not at all affect the profit figure. Thus the Ranisati Pharmaceuticals AY- 2013-14 addition of Rs.2,55,000/- for the year under consideration does not make any revenue impact since the payment has been received by the creditor on 03.04.2013 and has been entered in the assessee’s book about that fact [FY 2013-14]. So, there is no revenue impact, what so ever, and therefore, the addition of Rs.2.25 lakh is directed to be deleted. And before parting it is observed that the addition confirmed by Ld CIT(A) invoking section 145 of the Act is illegal and ex facie erroneous. We order accordingly.

Sd/- (Aby. T. Varkey) Judicial Member Jd.(Sr.P.S.)

Dated :3rd January, 2020 Copy of the order forwarded to: Appellant – M/s. Ranisati Pharmaceuticals,1st floor, 85, Bentinck Street, 1. Kolkata-700 001. Respondent – Income-tax Officer, Ward-22(2), Kolkata. 2 3. CIT(A)-6, Kolkata (sent through e-mail)