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Facts
The Assessing Officer (AO) made an addition of Rs. 5,92,830/- to the assessee's income, citing a difference between duty drawback information received from the customs department (SFT information) and the amount declared by the assessee in its P&L account. The SFT information reflected sanctioned amounts, while the assessee maintained its accounts on a cash basis, declaring amounts as received.
Held
The Tribunal found that the assessee consistently followed a cash basis of accounting for export incentives, a policy previously accepted by the department. The discrepancy arose due to the difference between duty drawback sanctioned (accrual) and duty drawback received (cash basis) within the assessment year. Given the consistent accounting policy, the Tribunal ruled that it would be unfair to tax this difference in the current assessment year.
Key Issues
Whether an addition made by the AO for a difference in duty drawback amounts, based on SFT information (accrual) versus the assessee's declared income (cash basis), is justified when the assessee consistently followed a cash basis accounting method accepted by the department.
Sections Cited
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Dr. B. R. R. KumarMs. Astha Chandra
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi dated 25.03.2023.
Following grounds have been raised by the assessee:
“1. That the ld. CIT(A) is erred under the law while partly confirming the impugned order passed by the ld. AO. 2. That having regard to the facts and circumstances of the case, the ld. CIT(A) is erred under the law while confirming the action of the AO of making addition of Rs.5,92,830/- on the basis of SFT information available with regard to the duty drawback sanctioned by the custom department.”
2 Shilu Kumar 3. During the course of assessment proceedings, the Assessing Officer observed that as per SFT information shared by Custom Department, the assessee was sanctioned a duty drawback of Rs. 45,86,864/-. However, in the P&L account submitted by the assessee, the assessee has declared a duty drawback of Rs. 39,94,034/- only. Hence, the difference amount of Rs. 5,92,830/- was disallowed and added back to the income of the assessee.
Aggrieved, the assessee filed appeal before the ld. CIT(A) who affirmed the order of the Assessing Officer.
Aggrieved, the assessee filed appeal before the Tribunal.
Heard the arguments of both the parties and perused the material available on record.
The Assessing Officer had totally relied on the SFT information received from the customs department whereas he had not considered the reply and supporting documents submitted by the assessee. During the assessment proceedings, the assessee had submitted copy of ledger account of duty drawback and relevant extract of the bank statements reflecting the date wise duty drawback received during the Assessment Year.
It has been on record that the assessee has been consistently following the policy of maintaining accounts on cash basis. This accounting policy had clearly been mentioned in the Notes to Accounts of the Audited Financial Statements of the assessee. Therefore, all the incentives such as duty
3 Shilu Kumar drawback, FPS, MEIS, etc. were also accounted for on cash basis as per the accounting policy. The assessee had accounted for an amount of Rs. 39,94,034/- as income from Duty Drawback on receipt basis. The amount of Rs. 4.12 Lakhs which pertains to duty drawback sanctioned during the year relevant to the Assessment Year 2016-2017 but did not receive in that year were declared as income on receipt basis during the Assessment Year 2017-2018. Further, the amount of Rs. 9.67 Lakhs sanctioned during the year relevant to the Assessment Year 2017-2018 but received during subsequent years has also been accounted for as income in those years on cash basis.
The statement of duty drawback received and accounted is as under:
Particulars Amount Duty Drawback of FY 2015-16 received & Rs. 4.12 Lakhs declared as income during the year 2016-17 Duty Drawback of FY 2016-17 received & Rs. 36.19 Lakhs declared as income during the year 2016-17 Less : Duty Drawback returned to department Rs. 0.38 Lakhs Total received & declared as income during Rs. 39.94 Lakhs the year FY 2016-17 Particulars Amount Total sanctioned Duty Drawback during the FY Rs. 45.86 Lakhs 2016-17 Duty Drawback of FY 2016-17 received & Rs. 36.19 Lakhs declared as income during the year 2016-17 Duty Drawback of FY 2016-17 received & Rs. 9.67 Lakhs declared as income in the subsequent years
This accounting policy of the assessee regarding Export Incentives had been accepted for past many years by the 4 Shilu Kumar department as well. Since, the assessee had accounted for Duty Drawback sanctioned by the customs department on receipt basis as per the consistent accounting policy in two different years, it would be unfair to tax the difference in this Assessment Year. Therefore, the additions on account of difference amount of Rs.5,92,830/- is liable to be deleted.