M/S. S.S SUGAR ENGINEERS PRIVATE LIMITED,PUNE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1187/PUN/2023 िनधा�रण वष� / Assessment Year: 2015-16 M/s. S. S. Sugar Engineers Vs. ACIT, Central Circle-1(2), Private Limited, Pune. 9-B, Divyakinj Society, Gokhale Road, Pune- 411016. PAN : AACCS6018F Appellant Respondent Assessee by : Miss Ruchi Rathod Revenue by : Shri Sourabh Nayak Date of hearing : 11.06.2024 Date of pronouncement : 22.07.2024 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 13.09.2023 passed by LD CIT(A)-11, Pune [‘ld. CIT(A)’] for the assessment year 2015-16. 2. The appellant has raised the following grounds of appeal :- “1. The Appellant states and submits in the facts and circumstances of the matter that, the additions made by the Ld. Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeals)- 11, Pune is bad in law since the additions have been made ignoring accounting entries and accounting standards. 2. The Appellant states and submits in the facts and circumstances of the matter that, Ld. Assessing Officer erred in making the additions and Ld. Commissioner of Income Tax (Appeals)- 11, Pune erred in

2 ITA No.1187/PUN/2023 confirming the additions which are entries in the regular course of business and erred in making additions hypothetically without considering the voluminous details and documents brought on record. 3. The Appellant states and submits in the facts and circumstances of the matter that, Ld. Assessing Officer erred in making an addition on reversal of sales and the Ld. Commissioner of Income Tax (Appeals)- 11, Pune erred in confirming such addition on reversal of sales pertaining to transactions with M/s Kancheshwar Sugar Limited and M/s Vitthalrao Shinde Sahakari Sakhar Karkhana Limited. 4. The Appellant states and submits in the facts and circumstances of the matter that, the Ld. Assessing Officer erred in making additions and the Ld. Commissioner of Income Tax (Appeals)- 11, Pune erred in confirming additions of Rs. 94,63,000/- against reversal/ cancellation of sales recorded in the books of accounts pertaining to transactions effected with M/s Kancheshwar Sugar Limited. 5. The Appellant states and submits in the facts and circumstances of the matter that, the Ld. Assessing Officer erred in making additions and the Ld. Commissioner of Income Tax (Appeals)- 11, Pune erred in confirming additions of Rs. 22,00,000/- against reversal/ cancellation of sales recorded in the books of accounts pertaining to transactions effects, with M/s Vitthalrao Shinde Sahakari Sakhar Karkhana Limited. 6. The Appellant states and submits in the facts and circumstances of the matter that, the Ld Assessing Officer and Ld. Commissioner of Income Tax (Appeals)- 11, Pune erred in ignoring the facts, detailed documentary evidence including agreements brought on record which were supplied before the Ld. Assessing Officer as well as the Ld. Appellate Authority. 7. The Appellant states and submits in the facts and circumstances of the matter that, the Ld. Assessing Officer erred in denying and Ld. Commissioner of Income Tax (Appeals)- 11. Pune erred in confirming the denial of TDS credit of Rs. 80,000/- which was pertaining to the business of the Appellant. 8. The Appellant craves leave to add, alter, amend, vary or delete any of the aforesaid grounds.” 3. The facts of the case, in brief, are that the assessee is a company registered under the provisions of the Companies Act, 1956. The assessee is engaged in the business of erecting and commissioning of sugar plant machinery & has filed its return of

3 ITA No.1187/PUN/2023 income on 28.09.2015 declaring total taxable income of Rs.1,38,84,770/-. The case was selected for scrutiny under CASS. Accordingly, statutory notices u/s 143(2) & 142(1) of the IT Act were issued, in response to which the AR of the assessee appeared from time to time and filed the details. 3.1 During the course of assessment proceedings, the AO found that there is difference in the turnover disclosed in the books of accounts & in the service tax returns & as appeared in Form 26AS. In reply, the assessee filed submission / explanation along with Profit & Loss Account, Balance Sheet & Audit Report etc. Being unsatisfied with the explanation offered by the assessee, the AO completed the assessment u/s 143(3) of the IT Act on 26.12.2017 determining the total income of the assessee at Rs.2,56,02,370/- by making the following additions :- “(i) Addition of Rs.94,63,000/- on account of sales reversal entry for services rendered to M/s. Kancheshwar Sugar Limited. (ii) Addition of Rs.22,00,000/- on account of sales reversal entry for services rendered to M/s Vitthalrao Shinde Sahakari Sakhar Karkhana Ltd.

4 ITA No.1187/PUN/2023 (iii) Non-recognition of sale of Rs.54,600/- for services rendered to M/s. Babanrao Shinde Sugar & Allied Industries Ltd. (iv) Withdrawal of TDS credit amounting to Rs.80,000/-. 4. Being aggrieved with the above 4 additions made in the assessment order, an appeal was preferred before the ld. CIT(A), who vide impugned order dated 13.09.2023 partly allowed the appeal of the assessee by giving relief of Rs.54,600/- only. However, ld. CIT(A) confirmed the remaining 3 additions with regard to (i) addition of Rs.94,63,000/- on account of reversal/cancellation of sales recorded in books of accounts pertaining to transactions effected with M/s. Kancheshwar Sugar Limited, (ii) addition of Rs.22,00,000/- on account of reversal/cancellation of sales recorded in the books of accounts pertaining to transactions effected with M/s. Vitthalrao Shinde Sahakari Sakhar Karkhana Limited and (iii) confirming the denial of TDS credit of Rs.80,000/-, which was also accepted by the authorised representative of the assessee during the course of assessment proceedings.

5 ITA No.1187/PUN/2023 5. Being aggrieved by the above decision of the ld. CIT(A), the assessee is in appeal before this Tribunal. 6. LD AR submitted before us that the additions made by the AO & confirmed by LD CIT(A) are bad in law. It was submitted that originally 4 bills were issued to M/s Kancheshwar Sugar Ltd. for Rs.1,96,63,000/- but an amount of Rs.94,63,000/- was rejected by the concerned party, therefore, a reverse entry was made in the books of account & sales was reduced with the same amount. Similarly 7 bills were issued to M/s Vitthalrao Shinde Sahakari Sakahr Kharkhana Ltd. for Rs.1,10,56,224/- but an amount of Rs.22,00,000/- was rejected by the concerned party, therefore, a reverse entry was made by the assessee in the books of accounts & sales was reduced with the same amount. It was further submitted by the counsel of the assessee that in service tax returns the above turnover (Rs.94,63,000/- + Rs.22,00,000/-) was disclosed & service tax was also paid but in the audit report prepared u/s 44AB of the IT Act for the period under consideration the impugned turnover (Rs.94,63,000/- + Rs.22,00,000/-) was not included. It was also submitted that M/s Kancheshwar Sugar Ltd. and M/s Vitthalrao Shinde Sahakari Sakahr Kharkhana Ltd. has already accepted the fact of rejection of above bill amounts. Therefore, in

6 ITA No.1187/PUN/2023 the light of above facts counsel of the assessee requested to delete the additions made by the AO & confirmed by LD CIT(A). With regard to the claim of TDS of Rs.80,000/- appearing in Form 26AS & claimed by the assessee, it was submitted that M/s Sharyu Agro Industries Limited has advanced Rs.40,00,000/- to the assessee & deducted Rs.80,000/- as TDS on the above advance. But, the AO denied the said TDS on the ground that no income was shown during the period under considering before him. It was submitted in the light of section 199 of the IT Act that it is not necessary to show relevant income in the year of TDS, therefore denial of TDS of Rs.80,000/- was illegal. The ld. AR of the assessee also filed various decisions of the Tribunal to support his case. 7. LD DR vehemently supported the orders passed by subordinate authorities & requested to confirm the same. 8. We have heard LD counsels from both the sides & perused the material available on the record as well as the case laws relied on by the assessee. As regards to the addition of Rs.94,63,000/-, we find that ld. CIT(A) confirmed the said addition as per the discussion given in paras 9 to 16 of the impugned order. The relevant discussions of the ld. CIT(A) given in paras 9 to 16 of his order are extracted hereunder :-

7 ITA No.1187/PUN/2023 “9. I have considered the facts of the case and the submissions made by the appellant. First argument of the appellant is that the invoices amounting to Rs. 1,96,65,000/- raised by it were in excess to the total contract value of Rs.1,40,00,000/-. Besides this, there were disputes regarding quality of work done/services provided by the appellant to Kancheswar and accordingly, the account was ultimately settled at Rs. 1,00,00,000/- which was received on 10.09.2015. This argument cannot be accepted because the appellant has not filed any documentary evidence suggesting that the customer namely M/s Kancheswar raised any quality issue regarding the work done by the appellant. Neither any communication exchanged between it and Kancheswar for settlement of account at Rs. 1,00,00,000/- has been filed. In fact, opposite to the claim of the appellant, M/s Kancheswar has informed that the last bill could not be accounted by them as it was received late. There is no mention in this letter about any shortcomings in the work done by the appellant. In fact, M/s Kancheswar has informed that the said bill was finally included in its accounts in F.Y. 2017-18. 10. The appellant has stated that the account was finally settled at Rs.1,00,00,000/-. This contention is factually incorrect because as per appellant’s submission, it received an amount of Rs. 1,00,00,000/- on 10th September 2015. Further, as per letter dated 07.08.2017, M/s Kancheswar included the bill of Rs. 84,27,000/- in FY 2017-18 and an amount of Rs. 55,30,400/- was payable by them to the appellant as on 07.08.2017. Thus, the amount agreed by M/s Kancheswar was definitely more than Rs. 1,00,00,000/- as claimed by the appellant. 11. The appellant has filed the copy of ledger account of M/s Kancheswar Sugar Limited in its books only for FY 2014-15 but copies of ledger accounts for subsequent years have not been filed to prove that no amount over and above Rs. 1,00,00,000/- was received by it. The very fact that ultimately M/s Kancheswar has included the Invoice no. 54 in its accounts clearly suggests that the account was never settled at Rs. 1,00,00,000/- as claimed by the appellant. 12. The appellant has argued that as per para 8.1 and 8.2 of AS-4, it was required to make adjustments in its accounts. I have perused the said AS-4. A perusal of para 8.2 provides that adjustment may be made for a loss on a trade receivable account which is confirmed by insolvency of a customer which occurs after the balance sheet date. However, this is not the situation in the present case because neither it is case of insolvency of M/s Kancheswar nor there is any documentary evidence suggesting that the said amount was irrecoverable. 13. As mentioned at page 3 of assessment order, in the Service Tax Returns filed for the year, the appellant has considered this amount of Rs. 94,63,000/- as part of its turnover and paid service tax also. During the appellate proceedings, the appellant has neither denied

8 ITA No.1187/PUN/2023 this fact nor has explained as to why it has taken different turnovers for Income Tax and Service Tax Returns. 14. The appellant has raised the issue of cross examination of the person who signed the letters on behalf of M/s Kancheswar Sugar Limited. A perusal of the assessment order suggests that the copies of letters received by the AO from M/s Kancheswar Sugar Limited were duly provided to the appellant for comments. Therefore, it is not a case where the AO collected some evidence behind the back of the appellant and used it without confronting the same with the appellant. Moreover, it is not a case where any statement of the said person was recorded by the AO in which something adverse against the appellant was stated. Thus, in my considered opinion, it is not a case which requires any cross examination of the person who signed the letters on behalf of M/s Kancheswar Sugar Limited. 15. The appellant has also taken a plea that the said entry should be considered as ‘bad debt written off’ being the amount unrealizable. This argument cannot be accepted because any taxpayer cannot ‘reverse a sale entry’ in its books of accounts on its whims and fancies. In this case, the last invoice of Rs. 84,27,000/- was raised by the appellant on 15.02.2015 and without receiving any communication from M/s Kancheswar, it unilaterally decided to reverse the entry on 31/03/2015. It is not understood as to on what basis the appellant decided that the said amount was ‘unrealisable’ especially when the customer has accepted the invoice in subsequent years. Moreover, M/s Kancheswar Sugar Limited has accounted for invoice of Rs. 84,27,000/- in its books of accounts in subsequent assessment year but the appellant has not filed any document suggesting that the said amount was offered by it for taxation in subsequent years. 16. Considering the totality of facts of the case, I am of the opinion that the appellant has failed to justify the reasons of reversing the sale amounting to Rs. 94,63,000/- and such reversal cannot be accepted as it is without any basis and supporting documents. Accordingly, the addition of Rs. 94,63,000/- made by the AO is upheld. The grounds no. 4 to 6 raised by the appellant are DISMISSED.” 9. From the perusal of above findings given by LD CIT(A) in his order, we find that the order of the ld. CIT(A) is reasoned one on this issue regarding addition of Rs.94,63,000/-. Therefore, we are of the considered opinion that the order of the CIT(A) is fair

9 ITA No.1187/PUN/2023 and reasonable and it does not call for any interference from our side. We also find that an application for admission of additional evidence was filed by the assessee on 30.05.2024. After perusing the said additional evidence which is a copy of an email dated 25.10.2023 sent to the assessee by Kancheshwar Sugar Ltd, after hearing of first appeal, we find that it is only another version of Kancheshwar Sugar Ltd. which is simply an afterthought and nothing else. In the written submission it was submitted before the bench that the assessee has not received this amount in any of the further assessment years, but before the AO it was contended by M/s Kancheswar Sugar Ltd. through email that they have accounted for bill no.54 in the assessment year 2017-18. We therefore find that there is no consistency either in the statements of the assessee or in the statements of M/s Kancheswar Sugar Ltd, regarding reversal of Rs.94,63,000/-. We also find that the statements of both the parties are contradictory. In the last but not the least, it was the finding of the AO that in this case the assessee has reversed the sale amount, without reversing the corresponding expenses which have been already debited in the P & L Account, without treating them as work in progress, therefore the assessee has not followed the standard accounting principles/ procedure. It

10 ITA No.1187/PUN/2023 is also observed that the assessee has disclosed this turnover in its service tax returns for the period under consideration, which proves that the work has been finished in this period itself & the expenses related to this work must have been debited in the profit & loss account of this year, but the assessee is taking double benefit, at one hand it has debited the relevant expenses in the P & Loss Account & at the same time the receipt is also reduced by reversing the bill of Rs.94,63,000/-, this practice cannot be approved. As per the standard accounting principles, the assessee should have had treated all the expenses related to the work of Rs.94,63,000/- as work in progress & then only he could reverse the invoice amount, but he has not done so, therefore in our considered opinion LD CIT(A) has not committed any mistake in confirming the addition made by the AO. Even before us the assessee could not produce any concrete material in support of its contentions. Therefore, we do not find any infirmity in the impugned order of the ld. CIT(A) on this issue. Hence, grounds no.1 to 4 raised by the assessee regarding deletion of addition of Rs.94,63,000/- are dismissed. 10. As regards to the addition of Rs.22,00,000/-, we find that ld. CIT(A) confirmed the said addition as per the discussion given in

11 ITA No.1187/PUN/2023 paras 19 to 20 of the impugned order. The relevant discussions of the ld. CIT(A) given in paras 19 to 20 of his order are extracted hereunder :- “19. I have considered the facts of the case and submissions made by the appellant. The appellant has claimed that the customer did not recognise the services/goods sold by it which may be for various reasons such as quality of work done, work not as per specifications, etc. However, since the amount of Rs. 22,00,000/- was unrealisable, it reversed the ‘sale entry’ to the extent of Rs. 22,00,000/-. The contentions raised by the appellant cannot be accepted because of following reasons: 19.1 The appellant has not filed any documentary evidence suggesting that the customer namely M/s Vitthalrao Shinde SSK raised any quality issue regarding the work done by the appellant. Neither any communication exchanged between it and Vitthalrao Shinde SSK regarding reversal of sale amounting to Rs. 22,00,000/- has been filed. 19.2 The AO tried to verify the appellant’s claim directly from the said customer but the said customer did not reply. The appellant filed a copy of letter from the said customer but the accounts are not matching as discussed in the assessment order. No effort has been made by the appellant to file a reconciliation statement. 19.3 The appellant has argued that as per AS-9, the sale can be considered complete only when the goods are transferred to buyer and since the customer has not recognised the bills, sale cannot be said as complete. This argument cannot be accepted because the Assessing Officer has given a specific finding that there is no dispute regarding the erecting and commissioning of the project work and it is confirmed that the work is complete. The appellant has not disputed this finding of the Assessing Officer. Therefore, the appellant’s reliance on AS-9 is misplaced. 19.4 As mentioned at page 8 of assessment order, in the Service Tax Returns filed for the year, the appellant has considered this amount of Rs. 22,00,000/- as part of its turnover and paid service tax also. During the appellate proceedings, the appellant has neither denied this fact nor has explained as to why it has taken different turnovers for Income Tax and Service Tax Returns. 19.5 The appellant has also taken a plea that the said entry should be considered as ‘bad debt written off’ being the amount unrealizable. This argument cannot be accepted because any taxpayer cannot

12 ITA No.1187/PUN/2023 ‘reverse a sale entry’ in its books of accounts on its whims and fancies. In this case, the last 2 invoices were raised by the appellant on 15.02.2015 and without receiving any communication from the customer, it unilaterally decided to reverse the entry on 31/03/2015. It is not understood as to on what basis the appellant decided that the said amount was ‘unrealisable’. 20. Considering the totality of facts of the case, I am of the opinion that the appellant has failed to justify the reasons of reversing the sale amounting to Rs. 22,00,000/- and such reversal cannot be accepted as it is without any basis and supporting documents. Accordingly, the addition of Rs. 22,00,000/- made by the AO is upheld. The ground no. 7 to 9 raised by the appellant are DISMISSED.” 11. From the perusal of above findings given by LD CIT(A) in his order, we find that the order of the ld. CIT(A) is reasoned one on this issue regarding addition of Rs.22,00,000/-. It was also observed by the AO that this particular work was fully completed during the relevant year only, therefore, the expenses related to this work must have also been debited by the assessee during this year only. It was the finding of the AO that in this case the assessee has reversed the sale amount, without reversing the corresponding expenses which have been already debited in the P & L Account, without treating them as work in progress. As the facts of this ground i.e. addition of Rs.22,00,000/- are similar to the above addition of Rs.94,63,000/- which we have already decided and confirmed the addition in the foregoing paragraphs, therefore, we are of the considered opinion that the order of the CIT(A) is fair

13 ITA No.1187/PUN/2023 and reasonable on this issue and it does not call for any interference from our side. Hence, grounds no.5 & 6 raised by the assessee regarding deletion of addition of Rs.22,00,000/- are also dismissed. 12. Ground regarding denial of TDS credit amounting to Rs.80,000/-. Since the income corresponding to TDS of Rs.80,000/- has not been shown in the Profit & Loss Account, the AO denied the benefit of TDS of Rs.80,000/- to the assessee. As per assessment order it was accepted by the AR of the assessee that this claim was made due to oversight. But now the assessee has challenged this ground before LD CIT(A) as well as before us. Ld. CIT(A) referred Rule 37BA(3)(i) in his order and as per the said Rule the credit for tax deducted at source shall be given for the assessment year for which such income is offered to tax. Since the income corresponding to TDS of Rs.80,000/- has not been shown in the Profit & Loss Account, ld. CIT(A) has not given any relief on this issue. In this regard, we find that one M/s Sharyu Agro Industries Ltd paid Rs.40,00,000/- as an advance to the assessee for some work & deducted Rs.80,000/- as TDS. We also find that the assessee has claimed before the AO, that corresponding income was offered to tax in subsequent year & for this reason alone the

14 ITA No.1187/PUN/2023 AO denied the benefit of TDS of Rs.80,000/- in this year. It is observed that the assessee could not show any income on receipt of advance, but during hearing before the AO, assessee produced the copy of account of subsequent year, where the income was offered to tax. We find that there is no loss to revenue if the relevant advance was adjusted against invoices raised in subsequent year & resultantly the income was offered to tax in subsequent year. We observe that one should not be deprived of tax which was deposited on his behalf by other person after deducting the same from his income. We find that the assessee could not show any income with regard to the receipt on which TDS was made, due to the fact, that it was merely an advance & no invoice was raised against that advance, during the period under consideration, because the work was completed in subsequent year. We are agree with the contention of the counsel of the assessee that it will be genuine hardship if the benefit of TDS is not allowed to the assessee in this year itself, because now the assessee cannot claim the benefit of TDS in any assessment year except this year. We therefore direct the AO to allow the benefit of TDS of Rs.80,000/- to the assessee in this year only, after verifying the fact of

15 ITA No.1187/PUN/2023 disclosure of relevant income in subsequent year. Accordingly, the ground no.7 stands allowed in above terms. 13. In the result, the appeal of the assessee stands partly allowed as the term indicated above. Order pronounced in the open Court on 22nd July, 2024. Sd/- Sd/- (R. K. PANDA) (VINAY BHAMORE) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 22nd July, 2024. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-11, Pune. 4. The Pr. CIT/CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.