M/S CONTINENTAL TRADERS,,VARANASI vs INCOME TAX OFFICER, WARD - 3(1), VARANASI

Income Tax Appellate Tribunal, CIRCUIT BENCH, VARANASI

Before: SHRI VIJAY PAL RAO & SHRI RAMIT KOCHAR

Hearing: 05.07.2022Pronounced: 07.07.2022

Order

ly Bazar, v. Ward – 3 (1), Varanasi – 221 002, U.P. Varanasi,U.P. PAN AABFC5458K (Appellant) (Respondent) -None- For Assessee : For Revenue : Shri A.K. Singh, Sr. D.R. Date of Hearing : 05.07.2022 Date of Pronouncement : 07.07.2022 ORDER

PER RAMIT KOCHAR, Accountant Member

This appeal filed by assessee in ITA.No.40/Alld./ 2018 for assessment year 2012-13 has arisen from appellate order dated 12.12.2017 passed by learned Commissioner of Income-tax (Appeals) (hereinafter called “the CIT(A)”), Varanasi in Appeal No.10345/CIT(A)/ VNS/2016-17, which in turn has arisen from assessment order dated 24.12.2016 passed by learned Assessing Officer 2 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 (hereinafter called “the AO”) under section 143(3) read with Section 264 of the Income-tax Act, 1961 (hereinafter called “the Act”).

The grounds of appeal raised by assessee in Memorandum of Appeal filed with Income Tax Appellate Tribunal, Varanasi Circuit Bench, Varanasi (hereinafter called “the tribunal”), in ITA No. 40/Alld./2018 for ay: 2012- 13, reads as under :

1. “ Because on the facts and in the circumstances of the case the Ld. Commissioner of Income Tax (Appeals) erred in law as well as on facts while confirming the addition of Rs.22,02,368/-. The appellant prays that the action of the Hon'ble CIT(A) may be treated as bad-in-law and the addition upheld by the CIT(A) may kindly be deleted.

2. Because while confirming the addition of Rs.22,02,368/- the Ld. Commissioner of Income Tax (Appeals) has not assigned any reason for rejecting the submission of the appellant. 3. Because while confirming the addition of Rs.22,02,368/- the Ld. Commissioner of Income Tax (Appeals) has failed to understand the fact that the assessee does not stand to any gain in offsetting 3 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 amount receivable from Army against the amount payable to Creditors as the said accounting entry does not have any impact on Profit and loss account of either current year or next year. 4. Because while confirming the addition of Rs.22,02,368/- the Ld. Commissioner of Income Tax (Appeals) has failed to understand that the wrong accounting entry passed in current year has been rectified in subsequent year. 5. Because the learned CIT(A) erred in not following the decision of Hon'ble Delhi High Court in case of CIT vs. Modipon Ltd. and Bombay High Court in case of CIT vs. Matchwell Electricals (I) Ltd. wherein the courts have view that no addition/disallowance is required where there is no loss to revenue. 6. The assessee craves leave to add/alter any of grounds of appeal before or at the time of hearing.”

3. The brief facts of the case are that the assessee is a partnership firm, engaged in business of supplying of dressed meat to Army base at Bangdobbi and fresh fruits to Army base at Bangalore. The case of the assessee was selected by Revenue for framing scrutiny assessment under the provisions of Section 143(3) read with Section 143(2) of the 1961 Act , which was completed by AO vide assessment 4 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 order dated 28.03.2015 passed u/s 143(3) of the 1961 Act, determining total income of the assessee at Rs.95,57,260/-, as against returned income of Rs.87,920/-. Subsequently, the assessee filed revision petition u/s 264 of the 1961 Act with Learned CIT, Varanasi, who was pleased to pass an revisionary order dated 28.05.2015 under section 264 of the 1961 Act, setting aside assessment order dated 28.03.2015 passed by A.O. u/s 143(3) of the 1961 Act, and restored the issues back to the file of A.O. with a direction to make fresh assessment in accordance with directions given in the revisionary order dated 28.05.2015 passed by ld. CIT under section 264 of the 1961 Act. The AO subsequently passed assessment order dated 24.12.2016 u/s 143(3) read with Section 264 of the 1961 Act, in pursuance to directions of ld. CIT, Varanasi vide revisionary order dated 28.05.2015 passed u/s 264 of the 1961 Act. The solitary issue which has arisen in this appeal is with respect to additions to the income of the assessee on account of non-disclosure of income to the tune of 5% of the bills raised by the assessee for the last fortnight 16.03.2012 5 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 to 31.03.2012 aggregating to Rs. 22,02,368/-, which as per authorities below had not suffered taxation. The assessee firm was supplying dressed meat to Army base at Bangdobbi and fresh fruits to Army base at Bangalore, on contract basis, for which total receipt of Rs.4,40,43,593/- stood credited to P & L A/c for the year under consideration duly supported with the bills given by the Army. The said fact is duly recorded by AO in its assessment order dated 24.12.2016, at para 5(i) /page 2. It is further recorded by AO that the bills received from these stations have already been scanned in the original assessment order dated 28.03.2015 passed u/s 143(3) of the 1961 Act. It is the contention of the A.O. that the assessee has credited income short being 5% of the bills raised during the last fortnight of the year under consideration , wherein the credit to the tune of 95% of the bills raised were offered to taxation, while balance 5% should have been shown as the receivable as at year end, as the said amount is not credited in the bank account, which led to said income having not suffered taxation, which led AO to make additions to income of the 6 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 assessee, to the tune of Rs.34,50,619/-, vide assessment order dated 24.12.2016 passed u/s 143(3) read with Section 264 of the 1961 Act.

3.1. Aggrieved by aforesaid assessment order passed by A.O, the assessee filed first appeal with Learned CIT(A), who was pleased to grant relief to the assessee to the tune of Rs.12,48,251/-, while additions to the tune of Rs.22,02,368/- stood confirmed by ld. CIT(A). It was observed by Learned CIT(A) that the assessee has claimed to have allegedly set-off receivable on account of 5% of the bills directly against the creditors, but in view of ld. CIT(A) this income must necessarily be reflected in books of accounts, thus, the income to the tune of Rs.22,02,368/- has not suffered taxation, which led to the confirmation of additions to the income of the assessee, to the tune of Rs.22,02,368/- by ld. CIT(A), vide appellate order dated 12.12.2017 passed by ld. CIT(A).

Aggrieved by aforesaid appellate order passed by Learned CIT(A), the assessee is in appeal before the 7 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 tribunal. However, when this appeal was called for hearing before the Division Bench, none appeared on behalf of the assessee nor any adjournment application was filed on behalf of the assessee. This appeal is an old appeal having been filed on 2018, and on last several occasions when this appeal came up for hearing before the Division Bench, the assessee either sought adjournment, which was granted by the Division Bench, or the assessee did not appear before the Bench. We, therefore, proceeded to dispose of the appeal on merits, after hearing Learned Sr. D.R.

Learned Sr. D.R. opened arguments before the Bench and submitted that assessee has short declared income to the tune of Rs.22,02,368/- and hence, authorities below have rightly brought the same to tax. It was submitted by Learned Sr. D.R. that Learned CIT(A) has rightly upheld additions to the tune of Rs. 22,02,368/-. It was also submitted that ld. CIT(A) gave relief to the assessee to the tune of Rs.12,48,251/-, and the Revenue is not in appeal before tribunal against aforesaid relief granted by ld. CIT(A). Thus, the solitary issue before tribunal is concerning 8 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 the addition which is sustained by Learned CIT(A) to the tune of Rs.22,02,368/-. Learned Sr. D.R. took us to the orders passed by A.O. and Learned CIT(A), and submitted that assessee is supplying dressed meat to Army base at Bangdubi and fresh fruits to Army base at Bangalore. It was submitted that assessee has credited 95% of the billed amount of the last fortnight of the year to the income account, while rest 5% of the billed amount for last fortnight of the year was claimed to have been set off against the creditor which ought to have been shown as receivable, and was not credited to the Profit and Loss A/c. Our attention was also drawn to para-5.(i) and 5(ii) of the assessment order and para-6 to 9 of Learned CIT(A) appellate order, and it was submitted that assessee is following mercantile system of accounting and assessee ought to have credited total income to the Profit and Loss A/c, and it is only for the last fortnight that assessee had not credited the entire income to the Profit and Loss A/c as detailed above and, therefore, the Learned CIT(A) has rightly confirmed the addition to the tune of Rs.22,02,368/-.

9 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 6. We have considered submissions of Learned Sr. D.R. and perused the material on record. We have observed that the assessee is a partnership firm and is engaged in business of supply of fresh dressed meat to Army base at Bangdobbi and fresh fruits to Army base at Bangalore . The case of the assessee was selected by Revenue for framing scrutiny assessment under section 143(3) read with Section 143(2) of the 1961 Act, and assessment was completed by AO on 28.03.2015 vide assessment order passed u/s 143(3) of the 1961 Act. The aforesaid assessment order dated 28.03.2015 was set aside by Learned CIT, vide revisionary order dated 28.05.2015 passed u/s 264 of the 1961 Act, with direction to A.O. to make fresh assessment in accordance with directions given in the revisionary order passed under section 264 of the 1961 Act. We have observed that the assessee has supplied dressed meat to Army base at Bangdobbi and fresh fruits to Army base at Bangalore, on contract basis, and receipts to the tune of Rs.4,40,43,593/- has been credited in the P & L A/c of the assessee for the year ending 31.03.2012, and the said sum 10 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 is supported by bills given by Army, which is duly recorded/acknowledged by AO in its assessment order dated 24.12.2016 at para 5(i)/page 2. Now, it is the contention of the Revenue that for last fortnight i.e., for the period from 16.03.2012 to 31.03.2012, the assessee has credited 95% of billed amount to Profit and Loss A/c, and the remaining of 5% of the billed amount for the last fortnight of the financial year, aggregating to Rs.22,02,368/- was never offered for taxation by the assessee, which was rightly brought to tax by authorities below. The assessee on the other hand is claiming that it has offered entire income comprising of total billed amount to Army in its Profit and Loss account, and inadvertently the accountant committed a mistake by setting off receivable against the creditors as at year end, thus, the assessee is claiming that the amount of Rs. 22,02,368/- which was not received by year end and which ought to have been shown under receivable in the Balance Sheet was set off against the creditors erroneously by accountant, which has in any case no impact on the income earned by the assessee 11 ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 during the year under consideration. Thus, in nut-shell, the contention of the Revenue is that income to the tune of Rs.22,02,368/- has not suffered taxation, which has been rightly brought to tax by authorities below, which is vehemently disputed by assessee even in its grounds of appeal specifically ground number 3 raised before the tribunal. The assessee has not appeared before the tribunal when this appeal was called for hearing. However, on perusal of the records, we have prima facie observed that once the assessee has offered/credited total billed amount of Rs.4,40,43,593/- in its Profit and Loss Account (as stated by AO at para 5(i) of the assessment order) and merely receivables as at year end to the tune of Rs.22,02,368/- were set-off against creditors, then obviously instead of showing receivables in Balance Sheet as at year end, the assessee has reduced the creditors which are to be shown in Balance Sheet as at year end, but, prima facie it appears that the income has been fully brought to tax, which A.O. itself has admitted that the total receipt of Rs.4,40,43,593/- has been credited in the P & L A/c. Under these

12. ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 circumstances, we are of the considered view that the matter need to be restored back to the file of A.O. for limited verification as to whether the entire amount of billing has been credited to P & L A/c as income and suffered taxation or not, and in case, if 5% of the amount of receivable is merely set-off against the creditor instead of showing receivable in the balance-sheet, will not have any repercussion on the income chargeable to tax, provided 100% billing amount (including 5% receivable of the last fortnight aggregating to Rs.22,02,368/- ) was offered to tax by the assessee in return of income and due taxes paid. If that be so where merely receivables are set off against creditors although total billed amount is credited to P&L Account and offered for taxation and due taxes paid, we are of the considered view that no prejudice is caused to Revenue although it may be an accounting error. Thus, with these directions, we direct A.O. to verify whether such income to the tune of Rs.22,02,368/- was offered to taxation by assessee or not, or it is purely an accounting error of set- off of receivable against creditor. With these directions, we

13. ITA.No.40/Alld./2018 M/s. Continental Traders, Varanasi. Assessment Year 2012-13 set aside the matter to the file of A.O. for carrying out limited verification as directed by us in this order. Needless to say that the A.O. shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. Accordingly, the appeal of the assessee is allowed for statistical purposes, as indicated above.

In the result, appeal of the assessee in for ay: 2012-13 is allowed for statistical purposes.

Order pronounced in open Court on 07.07.2022 at Varanasi, U.P.

M/S CONTINENTAL TRADERS,,VARANASI vs. INCOME TAX OFFICER, WARD - 3(1), VARANASI