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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
This appeal preferred by the assessee is against the order of the Ld. CIT(A)-Durgapur dated 18.01.2017 for AY 2012-13.
The sole ground of appeal of assessee is against the action of the Ld. CIT(A) in confirming the ad hoc addition of Rs.60,00,000/- u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) out of customer’s Advances received against booking of motor cycles.
Brief facts of the case are that the assessee is a dealer in motor cycle of M/s. Hero Motor Corp Ltd. and also trading in spare parts and resale of two wheelers. The assessee during the course of assessment proceedings produced complete books of account and other supporting vouchers including sale and purchase bills and evidence regarding expenses. The AO examined the books of account and on perusal of audited Balance Sheet observed
M/s. Dutta Automobiles Pvt. Ltd., AY 2012-13 that the assessee had declared the liability of Rs.3,69,74,806/- being ‘advances from customers’. The AO required the assessee to file the details of customers from whom advances were shown to have been received. On being asked to substantiate the aforesaid the assessee produced the following: (i) details of customers showing name, address, amount of advance, invoice no. and date and mode of receipt.(ii) adjustment of advance with subsequent period sale; which were examined by the AO with reference to books of account and other available assessment records and documents collected by him u/s. 133(6) of the Act. According to AO, verification notices u/s. 133(6) of the Act was issued to different parties to verify the veracity of the advances from customers. The AO acknowledges that replies from some of the parties have been received however, according to AO some of the letters dispatched by speed post returned back un-served. The assessee was asked to explain the reasons as to why the verification letters could not be served in address given by the assessee. According to AO, the assessee failed to furnish satisfactory reply. So, AO did not accept the contention of the assessee that the advances from customers are genuine and are being adjusted with the subsequent sale. According to AO, substantial amount of advance supposed to have been received by the assessee from customers as ‘advance’ could not be verified. In view of the above, Rs. 60,00,000/- out of Rs.3,69,74,806/- under the head ‘advance from customers’ was disallowed by AO and added u/s. 68 of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who confirmed the addition as made by AO. Aggrieved, assessee is in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that assessee is a dealer in motor cycle of M/s Hero Motor Corp Ltd. and also trade in spare parts and resale of two wheelers. The AO disallowed Rs. 60,00,000/- out of Rs.3,69,74,806/- claimed by the assessee as liability under the head ‘advance from customers’ u/s. 68 of the Act. On appeal, the Ld. CIT(A) confirmed the action of AO. At the time of hearing before us, the Ld. AR of the assessee brought to our notice that the books of account duly audited by assessee has not been rejected by the AO and the AO has made the ad hoc disallowance u/s. 68 of the Act, which is arbitrary exercise of power and has to be deleted. Moreover, it has been brought to our notice that in assessee’s own case
M/s. Dutta Automobiles Pvt. Ltd., AY 2012-13 the Tribunal’s order for AY 2010-11 dated 05.10.2015 wherein the AO made similar addition u/s. 68 of the Act and the said addition was deleted by the Tribunal by observing as under: “We find that the assessee is following mercantile system of accounting, wherein it is receiving advance deposits from customers on account of sale of motor cycle being a dealer in automobile. Whenever the sale is taken place, within one to two months, these deposits are adjusted against sale price of the motor cycle. This fact is admitted by both the sides. The issue is whether the assessee is consistently following certain system of accounting which had been accepted by the department from the very beginning and even in future years. There is no change of system of accounting followed by the assessee. Allowing the department to adopt a different approach altogether in this assessment year in question would create an anomalous situation as far as the assessee is concerned. The issue that the dealer receiving advance money from customers where the item is in demand and there is scarcity of supply, it many a times happen that seller receives advance money from the purchaser and as and when supply is made the advance is adjusted against sale price. This is being done by the present assessee before us also. The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee. From the details filed before us, Ld. DR could not point out the discrepancy in the same because these advances were adjusted against sales. When this was pointed out to Ld. Sr. DR, he stated that the assessee is unable to produce the PANs, names and addresses of the parties. He was specifically shown a tax/retail invoice wherein complete details were given except the PAN/Voter I Card. In our view, PAN/Voter Identity Card is a KYC norm, which does not apply to the sale of goods under the Sale of Goods Act. In view of the above, we are of the view that the AO and CIT(A) both have erred in making and confirming this addition and accordingly, we delete the same. The sole issue of assessee's appeal is allowed.”
This action of the Tribunal has been upheld by the Hon’ble jurisdictional High Court in GA No.1116 of 2016 in ITAT 142 of 2016 by order dated 17.05.2016. The question of law that was raised before the Hon’ble High Court by the revenue against the action of the Tribunal is noted from page 58 of the paper book, which reads as under: “Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in not deciding the merits of the case and the applicability of Section 68 of the Income Tax Act and arrived at a finding which is contrary to the evidence on record thus giving rise to perversity.”
Wherein the Hon’ble High Court took note of the facts that “It appears that nearly a sum of Rs. 4 crores was found credited to the books of accounts of the assessee allegedly on account of advance received from the buyers of motor cycles. The Assessing Officer was of the opinion that a bogus liability was created and he, therefore, added the amount to the income of the assessee.”
M/s. Dutta Automobiles Pvt. Ltd., AY 2012-13
After hearing both the sides the Hon’ble High Court has held as under: “Mr. Khaitan, learned senior advocate appearing for the respondent, on 6th May, 2016 when matter was taken up for hearing submitted that he would like to produce the paper book used before the learned Tribunal in order to show that all particulars were duly produced before the learned Tribunal as also before the Assessing Officer and the CIT(A). The Assessing Officer and the CIT(A) chose to draw an inference unfavourable to the assessee because they insisted upon records which are not legally required. It was not required by law that before taking advance from the customers of motor cycles, the assessee should have obtained their PAN Card number. The assessee has taken advance against proper receipt and the amount taken by way of advance has been adjusted at the time of giving delivery of the motor cycles as regards which full particulars were furnished. Mrs. Das De, learned advocate appearing for the appellant/revenue, took time to go through the paper book filed by Mr. Khaitan. Thereafter when the matter was taken up, she drew our attention to the deposition of one of the directors of the assessee and consequent opinion formed by the Assessing Officer which inter alia is as follows:- "But one of the Directors in his deposition stated that they did not maintain detailed record of the customers but at the time of delivery of two wheelers they issue invoice to the customers and take back the money receipts of advance payments and adjust the advance against sale price of two wheelers." The assessee may not have maintained detailed record of the customers. But question is whether the receipt has satisfactorily been established to be on account ·of advance payment. That question has been answered by the learned Tribunal in the affirmative by holding as follows: "The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee." The aforesaid finding was, recorded by the learned Tribunal on the basis of evidence disclosed before them which is also found in the paper book filed before us by Mr. Khaitan. It cannot, therefore, be said that the view taken by the Tribunal is perverse. The question essentially is a question of fact and the learned Tribunal on the basis of evidence was satisfied that the money had in fact been received by way of advance and therefore, no question of any bogus liability being created was there as held by the Assessing Officer. In that view of the matter, we are of the opinion that the finding arrived at by the learned Tribunal is not perverse. Section 68 in the facts of the case had no applicability. The question is, thus, answered in favour of the assessee.”
7. In the light of the aforesaid order of the Hon’ble High Court confirming the order of the Tribunal in the case of the assessee itself on similar facts and circumstances of the case, the action of the Ld. CIT(A) cannot be sustained. We also note that in this case, the claim of the assessee is Rs.3,69,74,806/- whereas the AO has disbelieved Rs.60,00,000/- which is M/s. Dutta Automobiles Pvt. Ltd., AY 2012-13 an ad hoc disallowance without rejecting the audited books of account which is an arbitrary exercise of power which action of the AO/Ld. CIT(A) cannot be countenanced. Therefore, in the facts and circumstances of the case, and for reasons stated in AY 2010-11 in assessee’s own case for the same issue and moreover taking note of ad hoc disallowance of the claim, we direct deletion of the addition made. Therefore, we set aside the orders of the lower authorities and allow this ground of appeal of assessee.
In the result, appeal of assessee is allowed.
Order is pronounced in the open court on 12/10/2018 Sd/- Sd/- (M. Balaganesh) (A. T. Varkey) Accountant Member Judicial Member
Dated: 12th October, 2018 Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant – M/s. Dutta Automobiles Pvt. Ltd., C/o V. N. Purohit & Co., Chartered Accountants, Diamond Chambers, Unit-III, 4th floor, Suit No. 4G, 4, Chowringhee Lane, Kolkata-700 016, 2 Respondent – ACIT, Circle-1, Durgapur 3 CIT(A)-Durgapur. (sent through e-mail) CIT , Durgapur 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5