MADRAS SECURITY PRINTERS PVT LTD.,,CHENNAI vs. DCIT, CHENNAI

Brief facts of the case are that the assessee is engaged in the manufacturing and exporting of security forms, computer forms, postal envelopes, labels plastic smart cards, etc. and filed its return of income on 30.09.2012 admitting total income of ₹.22,06,88,121/-. The case of the assessee was selected for scrutiny. The assessee filed all details against the statutory notices. On examination of the details of the assessee, the Assessing Officer noticed from the sundry creditors outstanding as on 31.03.2012 that there is a credit balances in the name of Infrastructure Leasing and Financial Services Limited [ILFS] of ₹.10,28,10,216/-. The said money was received during the year 2008 towards a project to be undertaken by the assessee over a period of time. It was the submission of the assessee that the project is still in progress and the raw material procured in this context is still lying with the assessee as inventory. Since the assessee failed to provide any letter of confirmation of the outstanding credit balance against ILFS and the assessee failed to prove the credit balance outstanding for 4 years, the Assessing Officer treated the same as income of the assessee and brought to tax.

The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee and facts of the case, the ld. CIT(A) confirmed the addition.

On being aggrieved, the assessee is in appeal before the Tribunal. By relying on the grounds appeal, the ld. Counsel for the assessee vehemently argued that the ld. CIT(A) went in wrong to rely the decision in the case of TVS & Sons Ltd. in 222 ITR 344 (SC) in conforming the addition. It was also submitted that the Assessing Officer has not made any extensive enquiry with regard to the trade advance with ILFS and simply presumed that it is income of the assessee. Further, it was the submission that the authorities below failed to note that the advance was utilized for procuring raw materials and the project is in progress. The trade advance received by the assessee was for the purpose of supply of smart cards and the contract still subsists and part performance was made. Hence, the ld. Counsel prayed for deleting the addition.

On the other hand, the ld. DR strongly supported the orders of authorities below.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. In the sundry creditors outstanding as on 31.03.2012, there is a credit balance in the name of ILFS. The Assessing Officer called for confirmation of ILFS from the assessee. The Assessing Officer also called for confirmation from ILFS. Against the letter from the Assessing Officer, ILFS asked the assessee to execute an undertaking for payment of the outstanding amounts to ILFS. However, the assessee has not executed any undertaking with regard to the outstanding amounts to be paid to ILFS. In this case, the assessee is not ready to execute an undertaking towards payment of outstanding amounts to ILFS and at the same time not ready to accept the same as income of the assessee. Before the ld. CIT(A), the assessee claimed that the contract between the assessee and ILFS is for 10 years and the contract is still valid. However, the terms and conditions of the contract were not brought on record. Further, we find that the status of the above said outstanding amount in the books of ILFS was also not called for. Until and unless the books of accounts of the ILFS is carefully examined, the exact facts will not come out since supply of smart cards by the assessee stands suspended due to change of Government in the State of Rajasthan as stated by the assessee before the ld. CIT(A). We are of the considered opinion that if the credit balance of ₹.10,28,10,216/- is lying outstanding in the accounts of ILFS, then there was not requirement for executing an undertaking by the assessee for the payment of the outstanding amounts to ILFS. In the appellate order, the ld. CIT(A) observed that the amount due to ILFS is barred by limitation as per Limitation Act, 1963 since the period of limitation of three years has already lapsed. If it is so, the status of the outstanding amount in the accounts of ILFS was not brought on record. Accordingly, we remit the matter back to the file of the ld. CIT(A) to carefully examine the entire facts including the agreement of contract, books of accounts of ILFS of relevant assessment years and decide the issue afresh in accordance with law after allowing sufficient opportunities of being heard to both the parties. Accordingly, the ground raised by the assessee is allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 27th February, 2018 at Chennai.