M/S. PLASTO MECH CORPORATION,HOWRAH vs. ITO, WARD-48(1). KOLKATA, KOLKATA

This appeal filed by the assessee is directed against the order of Ld. CIT(A) – 14, Kolkata dated 29.07.2016 whereby he confirmed two additions of Rs. 6,39,288/- and Rs. 98,836/- made by the A.O. to the total income of the assessee on account of disallowance of discount on purchases and unproved credit liability in the name of M/s. Usha Martin Ltd. respectively.

The assessee in the present case is a partnership firm which is engaged in the business of trading in iron and steel. The return of income for the year under consideration was filed by it declaring a total income of Rs. 88,120/-. In the assessment originally completed under section 143(3) vide an order dated 29.12.2008, the total income as declared by the assessee in the return was accepted by the Assessment Year: 2006-07 M/s. Plasto Mech Corporation A.O. The said assessment, however, was subsequently set aside by the concerned Ld. CIT vide his order dated 29.03.2011 passed under section 263 with the direction to the A.O. to reframe the assessment after conducting appropriate enquiry on the points mentioned by him. As per the direction of the Ld. CIT, the A.O. required the assessee to explain inter alia, the nature of discount received by it. In reply, it was submitted by the assessee that it had got cash discount @ 2.5% and 3% from Usha Martin Ltd. whenever payments were made against purchases immediately instead of credit period of 60 days allowed. This explanation of the assessee was not found acceptable by the A.O. keeping in view the confirmation received directly from M/s. Usha Martin Ltd. wherein the said party had denied of giving any discount on purchases to the assessee. The A.O., therefore, disallowed the claim of the assessee of discount to the extent of Rs. 6,39,288/- and added the said amount to his total income.

In the balance sheet, the assessee had shown a liability of Rs. 98,836/- against the name of M/s. Usha Martin Ltd. In the confirmation received from the said party, no closing balance in the account of the assessee, however, was shown as on 31.03.2006. In this regard, it was explained by the assessee that it had made a purchase of Rs. 98,133/- from Jamshedpur Division of Usha Martin Ltd. but payment made against the said purchases was wrongly entered in Ranchi Division account. It was also explained by the assessee that this mistake was rectified in the accounts for the next year by way of a journal entry. This explanation of the assessee was not found acceptable by the A.O. in the absence of any documentary

Against the order passed by the A.O. under section 143(3) read with section 263, an appeal was preferred by the assessee before the Ld. CIT(A) challenging both the additions of Rs. 6,39,288/- and Rs. 98,836/- made to its total income and since the submissions made by the assessee in support of his case on the issues relating to the said two additions were not found acceptable by him, the Ld. CIT(A) proceeded to confirm both the additions made by the A.O. to the total income of the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.

In ground no 1 to 3, the assessee has challenged the addition of Rs. 6,39,288/- made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance of discount while in ground no 4 and 5, the assessee has challenged the addition of Rs. 98,836/- made by the A.O. and confirmed by the Ld. CIT(A) on account of credit liability appearing against the name of M/s. Usha Martin Ltd. by treating the same as unproved / unexplained

We have heard the arguments of both the sides on the issues involved in this appeal and also perused the relevant material available on record. It is observed that the claim of the assessee of having received a cash discount of Rs. 6,39,288/- from Usha Martin Ltd. was not accepted by the A.O. mainly by placing reliance on the confirmation received from the said party wherein the discount allowed to the assessee was shown as nil. In this regard, the learned counsel for the assessee has invited our attention to the copy of letter dated February 17, 2014 issued by M/s. Usha Martin Ltd. placed at page no 95 of his Paper Book. As pointed out by him, M/s. Usha Martin Ltd. has clarified in the said letter, a copy of which was duly filed by the assessee during the course of appellate proceedings before the Ld. CIT(A), that the information provided to the A.O. vide letter dated 1st October, 2011 regarding nil discount given to the assessee was wrong. It was further clarified by M/s. Usha Martin Ltd. in the said letter that it had actually given discount of Rs. 6,06,321/- to the assessee in the year under consideration relating to Ranchi Division and the discount so given was duly included in the total of the credits during the year. In our opinion, this clarification categorically issued by M/s. Usha Martin Ltd. is sufficient to support and substantiate the claim of the assessee of having received cash discount from M/s. Usha Martin Ltd. and the same was not appreciated by the Ld. CIT(A) in the right perspective while confirming the disallowance made by the A.O. on account of such commission. We, therefore, find that the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance of assessee’s claim for discount received from M/s. Usha Martin Ltd. is Assessment Year: 2006-07 M/s. Plasto Mech Corporation not sustainable and deleting the same, we allow ground no 1 to 3 of the assessee’s appeal.

As regards the other issue involved in this appeal of the assessee relating to addition of Rs. 98,836/- made by the A.O. and confirmed by the Ld. CIT(A) on account of credit balance appearing against the name of M/s. Usha Martin Ltd. by treating the same as unproved as raised in ground no 4 and 5, it is observed that the difference in the balance as shown in the confirmation issued by M/s. Usha Martin Ltd. was explained by the assessee as payment made to Jamshedpur Division of Usha Martin Ltd. which was wrongly entered in Ranchi Division account. This explanation of the assessee however was not found acceptable by the authorities below in the absence of any supporting evidence filed by the assessee. As rightly submitted by the learned counsel for the assessee, no separate evidence was required to support the explanation of the assessee as the position was clear from the relevant ledger accounts appearing in the books of account of the assessee. A copy of such ledger account is placed in the Paper Book of assessee at page 58 to 60 and perusal of the same shows that a cheque issued by the assessee for Rs. 98,133/- against the purchases made from Jamshedpur Division of Usha Martin Ltd. was wrongly entered in Ranchi Division account. As explained by the learned counsel for the assessee, if this mistake is rectified, which the assessee has done in its books of account for the immediately succeeding year by way of journal entry, the difference as pointed out by the A.O. gets reconciled and there remains no justification for addition made on account of such difference. We accordingly delete