Jay Gopal Poddar, Bhadrak V. ITO, Bhadrak

ITA 158/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4448 (ITAT-CUTTACK)
• Duration Of Justice: 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Court: TRIBUNAL
• Department Lawyers: M R
• Assessee Lawyers: D K SETHM SETH ARS

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 158/CTK/2011 / ASSESSMENT YEAR 2007 - 08 JAY GOPAL PODDAR, PROP.JAY PHARMACEUTICALS, TAXI STAND, TAHASIL ROAD, BHADRAK 756 100 PAN : ADIPP 9976 D - - - VERSUS - INCOME - TAX OF FICER, BHADRAK WARD, BHADRAK. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI D.K.SETH/M.SETH, ARS / FOR THE RESPONDENT: / SHRI M.R.PANIGARHI, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION OF 49,10,054 ASSESSED BY THE ASSESSING OFFICER AS UNVERIFIABLE CREDIT BALANCE IN CUSTOMERS ACCOUNT. THE ASSESSEE ALSO AGITATES THE CONFIRMATION OF DISALLOWANCE OF 2,25,242 AS CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD DISCOUNT ALLOWED TO CUSTOMERS. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A WHOLE SALE DIS TRIBUTOR OF PHARMACEUTICALS WHO FILED ITS RETURN OF INCOME OF 2,15,680 FOR THE IMPUGNED ASSESSMENT YEAR. THE CASE WAS SELECTED FOR SCRUTINY UNDER COMPULSORY SCRUTINY GUIDELINES ISSUED BY THE CBDT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED A SSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DISCLOSED IN ITS AUDITED P & L ACCOUNT AND BALANCE SHEET , UNDER CURRENT LIABILITY A SUM OF 60,00,489 WHICH INCLUDED CREDIT BALANCE OF THE CUSTOMERS AMOUNTING TO 49,10,054.HE REQUIRED THE I.T.A.NO. 158/CTK/2011 2 ASSESSEE TO EXPLAIN THE NATURE OF THESE ADVANCES FROM CUSTOMERS AS HE NOTED THAT THE CUSTOMERS WERE NOT OBLIGED TO GIVE ADVANCE FOR A PROPOSED SALES TO BE ADJUST ED FROM THE ADVANCE IN A SUBSEQUENT YEAR. HE HELD THIS AS A FICTITIOUS LIABILITY FIT FOR ADDIT IO N. HE ALSO OBSERV ED THAT THE ASSESSEE HAD CLAIMED EXPENSES UNDER THE HEAD CARRIAGE INWARD ,TRAVELLING OF THE FIELD STAFF AND PROMOTIONAL EXPENSES. HE AD HOC DISALLOWED 25% THEREOF BY HOLDING THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM AS INCORPORAT ED IN ITS BOOKS OF ACCOUNT. THE DISCOUNT GIVEN TO CUSTOMERS WAS DISALLOWED AT 25% AMOUNTING TO 2,25,242. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY, WHO DISMISSED THE ASSESSEES APPEAL BY CONFIRMING THE ADDITIONS SO COMPUTED BY T HE ASSESSING OFFICER BY GIVING HIS OPINION ON THE MAINTENANCE OF BOOKS OF ACCOUNT AND THE NATURE OF ENTRIES WHICH SHOULD NEITHER BE CONSIDERED AS LIABILI TY NOR AS DEBTORS PEN DING SALES TO BE CREDITED FOR BILLS RAISED AGAINST THEM. HE ALSO CONFIRMED THE DIS ALLOWANCE OF THE DISCOUNT CLAIM AMOUNTING TO 2,25,242 ON THE BASIS OF OBTAINING A REMAND REPORT FROM THE ASSESSING OFFICER THAT THE PARTIES HAD NOT BEEN GIVEN ANY DISCOUNT IN THE IMPUGNED ASSESSMENT YEAR. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCOUNTS AND THE FIN ANCIAL STATEMENT HAV E BEEN MISCONSTRUED OR MISINTERPRETED BY THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ACCOUNTS ARE BASICALLY NOTINGS OF THE TRANSACTIONS WHICH INDICATE THE NATURE OF BUSINESS CONDUCTED OVER A PERIOD OF 365 DAYS ON DAY TO DAY BASIS. THE ASSESSEE IS GUIDED BY MAINTAINING THE ACCOUNT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING THEREFORE ONLY CONTROLS ITS RECEIPTS AND PAYMENTS WHEN A DEBTOR AFTER PAYING THE AMOUNT SHOWN AGAINST IT HAS SQUARED UP AGAINST SALES . AS PER THE REQUIREMENT OF ACCOUNT ING STANDARD A DEBTOR CANNOT BECOME A CREDITOR AND HAS TO BE SHOWN AS A DEBTOR I.T.A.NO. 158/CTK/2011 3 HAVING PAID I N ADVANCE FOR A PURCHASE TO BE MADE BY HIM WHEN THE PARTICULAR REQUI SITION OF MEDICINE OF THE PARTICULAR MANUFACTURER HAS TO BE NOTED AND PAID FOR BY THE ASSESSEE TO THE MANUFACTURER FOR ONWARD TRANSMISSION TO THE CUSTOMERS. IT MAY TAKE A FEW DAYS OR A FEW MONTHS WHICH HAS BEEN NOTED ADVERSELY AGAINST THE ASSESSEE INDICATING THAT NO TRANSACTION TOOK PLACE IN THE IMPUGNED ASSESSMENT YEAR. IN SUPPORT OF HIS CONTENTION HE HAS SUBMITTED THE CLOSING BALANCE S OF THE PARTIES FOR THREE YEARS , ONE YEAR PRIOR TO THE IMPUGNED ASSESSMENT YEAR AND THE LATER YEAR , WHICH BALANCES CLEARLY INDICATE THAT THERE HAS BEEN TRANSACTIONS WHICH INDICATE MOVEMENT OF GOODS AGAINST BILLS AND SQ UARING UP OF THE CREDIT BALANCE AGAINST THE DEBIT BALANCE. HE SUBMITTED THAT THE AUTHORITIES BELOW IDENTIFIED ONE JAY PHARMACEUTICAL WHO WAS A DEBTOR AS WELL AS CREDIT OR WAS SEPARATELY MAINTAINED FOR THE PURPOSE OF IDENTIFYING THAT MONEY HAD BEEN RECEIVED ON LOAN FROM THE SAME PERSON WAS SQUARED UP WHEN THE LOAN COULD NOT ADJUSTED AGAINST ANY BILLS RAISED ON IT . OTHER PARTIES BALANCES CLEARLY INDICATE THAT THEY HAD ADVANCED THE MONEY FOR PURCHASE WAS ADJUSTED DURING THE IMPUGNED ASSESSMENT YEAR WHICH ULTIM ATELY RESULTED IN MAKING A SALE TO THEM IN THE ASSESSMENT YEAR 2008 - 09 I.E., IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. THE ASSESSEE HAS RETURNED A SALE OF 1.27 CRORES IN THE IMPUGNED ASSESSMENT YEAR AND IS HOLDING STOCK OF 5 LAKHS ONLY. THIS CLEARLY INDICATES THAT THE CUSTOMERS WHO ARE PREPARED TO PAY ADVANCE AS ACCEPTED BY THE ASSESSEE AGAINST SALES TO BE MADE AS AND WHEN GOODS ARE RECEIVED SPECIFICALLY F OR THEM WHEN THE QUALITY AND QUANTITY OF THE GOODS BEING MEDICINES ARE NOT KEPT ON THE S H ELVES TO MEET THE EXPIRY DATE. THE AUTHORITIES BELOW THEREFORE FAILED TO APPRECIATE THE SPECIFIC REQUIREMENT TO CONTROL THE BUSINESS OF THE ASSESSEE WHICH DOE S NOT CO NFLICT THE RENDERING OF INCOME ON SUCH SALES AND THE ASSESSING OFFICER HAS ACCEPTED THE GROSS MARGIN RETURNED BY THE ASSESSEE AT ABOUT 33%. THE I.T.A.NO. 158/CTK/2011 4 CREDITORS FOR THE GOODS HAVE BEEN SEPARATELY INDICATED IN THE BALANCE SHEET AGAINST THE PURCHASERS WHICH IS AGA IN INCLUDED THE MARGIN OF PROFIT VIS - - VIS THE COST OF CLOSING STOCK AND IS CORRECTLY DISCLOSED IN THE PROFIT & LOSS ACCOUNT. HE SUBMITTED THAT THE LEARNED CIT(A) THEREFORE TRIED TO INDICATE A FAULT IN THE ACCOUNTING WAS BASICALLY A MISINTERPRET ATION OF T HE ACCOUNTING IN THE LINE OF CHEMISTS WHICH REQUIRE RECEIPT OF MONEY IN ADVANCE FOR A PARTICULAR MEDICINE TO BE PURCHASED WHICH SHOULD NOT EXPIRE AND MEET A DEAD END L YING IN THE S H ELVES OF THE ASSESSEE ITSELF BUT SHOULD BE NECESSARILY PURCHASED BY THE CU STOMERS WHO HA VE PAID IN ADVANCE. 4. ON THE NEXT ISSUE REGARDING THE DISCOUNT CLAIM BUT 25% DISALLOWED, HE POINTED OUT THAT IT WAS NEVER THE CASE OF THE ASSESSEE TO CLAIM THE AMOUNTS AS BAD DEBT BUT WAS ONLY TO ESTABLISH THE FACT THAT THE CUSTOMERS WHO HA D NOT PAID THE AMOUNTS AT THE END OF THE FINANCIAL YEAR COULD BE WRITTEN OFF AS BAD DEBT U/S.36(1)(VII). A BAD DEBT HAS TO BE SPECIFICALLY ALLOWED AS CLAIM WAS NOTED BY THE AUTHORITIES BELOW AS PARTIES NOT RESPONDING OR NO ENTRIES PASSED DURING THE COURSE OF THE IMPUGNED ASSESSMENT YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED TH AT OBVIOUSLY THE CUSTOMERS WHO ARE NOT RESPONDING HAVE TURNED BAD AND THEREFORE PETTY BALANCE STANDING AGAINST THEIR NAMES COULD ONLY BE CLAIMED AS DISCOUNT ALLOWED T O THEM IN VIEW OF THE FACT THAT THE ASSESSEE HAD ALREADY PAID TAX O N THE PROFIT MARGIN WHEN THE SALE WAS MADE AGAINST THE ADVANCES RECEIVED. THE DEBTORS WERE TO PAY FURTHER WHICH THEY DID NOT AND THEREFORE, COULD NOT BE PARTLY ALLOWED AND PARTLY DISALLOWED AS HAS BEEN NOTED BY THE ASSESSING OFFICER ON THE BASIS OF AD HOC DISALLOWANCE OF CARRIAGE INWARDS, TRAVELLING OF FIELD STAFF AND CARRIAGE EXPENSES. THE LEARNED CIT(A) ONLY CONFIRMED THE FINDING OF THE ASSESSING OFFICER WITHOUT ASSIGNING ANY REASON I.T.A.NO. 158/CTK/2011 5 AS TO HOW A BAD DEBT OR DISCOUNT COULD BE SEGREGATED ON THE FACTS AND CIRCUMSTANCES AS NARRATED ABOVE. 5. THE LEARNED DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE AS TO WHY THE AMOUNTS WERE RECEIVED FROM SUCH PARTIES WITHOUT ANY OCCASION IN THE IMPUGNED ASSESSMENT YEAR. THE LEARNED COUNSEL FOR THE ASSESSEES SUBMISSION THAT THE PARTIES PAID FOR PURCHASE IN ORDER TO OBTAIN THEIR REQUIRED QUANTITY OF THE MEDICINES FROM THE SELVES BEFORE EXPIRY WAS NOT VERIFI ED EITHER BY THE ASSESSING OFFICER OR BY THE LEARNED CIT(A). HE PROPOSED THAT THE MATTER MAY BE REMANDED TO THE ASSESSING OFFICER FOR CONSIDERATION IN THE LIGHT OF WHAT HAS BEEN STATED ABOVE. SIMILARLY AS THERE WAS NO TRANSACTIONS INDICATING THE CUSTOMERS PAID , WHICH WAS ONLY THE PREROGATIVE OF THE ASSESSEE TO NAME IT AS DISCOUNT ALSO REQUIRES VERIFICATION BY THE ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACT S, WE ARE INCLINED TO HOLD THAT THE MATTER HAS BEEN STRETCHED FAR BEYOND ANY COMPREHENSION TO BE CONSIDER ED FROM THE NOTINGS OF A BUSINESS TRANSACTIONS FROM THE BUSINESSMAN POINT OF VIEW SPECIALLY CONTROLLING THE DEALING OF PHARMACEUTICAL WHEN MEDICINES AND LIFE SAVING DRUGS HAVE EXPIRY DATE PRINTED ON THEM BY THE MANUFACTURER. WE HAVE BEEN TOLD THAT THE PRICES OF VARIOUS MEDICINES CURING THE SAME DISEASE VARY WIDELY COMING FROM A PARTICULAR MANUFACTURER. THE ASSESSEE THEREFORE, REQUIRED THE FUNDS FROM TH E CUSTOMERS IN ADVANCE IN ORDER TO MAKE THE REQUISITION FROM THE MANUFACTURERS WHO ON THE BASIS OF THE ASSESSEE BEING A DISTRIBUTOR HAD COMPLIED DURING THE COURSE OF ITS BUSINESS ACTIVITIES IN THE FINANCIAL YEAR WHEN THE BILLS ARE RAISED ON THE CUSTOMERS A GAINST THE ADVANCE HAS BEEN MISCONSTRUED ON THE BASIS OF ACCOUNTING AS I.T.A.NO. 158/CTK/2011 6 FAULTED BY THE LEARNED CIT(A) WE HAVE PERUSED IN HIS ORDER. THE ASSESSING OFFICER HOLDING A VIEW THAT THEY ARE FICTITIOUS LIABILITY INSOFAR AS HE VERIFIED THAT THE ASSESSEE WAS N OT A BA NK FOR INVITING DEPOSITS, A BUSINESS TRANSACTION IS COMMENTED UPON WHEN A PURCHASE AND SALE IS MADE WAS NOTED AS L ACKING IN THE CASE OF THE ASSESSEE . THIS HAS BEEN EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE CLOSING BALANCES OF THE PARTIES FO R THE THREE AYS AS HAVE BEEN BROUGHT O N RECORD. THERE IS MOVEMENT EITHER WAY IN THESE PARTIES ACCOUNTS WHICH CAN ONLY BE CONTROLLED FOR AS ADVANCE RECEIVED FROM CUSTOMERS OR BY REDUCING THE ACTUAL BALANCE OWED BY THE CUSTOMERS TO BE REDUCED AGAINST SALES . AS THE ASSESSEE IS HOLDING ACCOUNT IN PERSONAL NAMES THEREFORE CANNOT BE CONSIDERED FOR DISALLOWANCE AS HAS ALSO BEEN DONE BY THE ASSESSING OFFICER WHEN THE DISCOUNT TO THEM CLAIMED HAS BEEN DISALLOWED @25% HOLDING A VIEW THAT 2,52, 242 CAN BE IDENTIFIED TO A PARTICULAR CUSTOMER TURN IN G BAD. IN OTHER WORDS BOTH THE AUTHORITIES HAVE MISINTERPRETED THE ACTUAL FINDINGS AS DISCLOSED IN THE FINANCIAL STATEMENT DULY AUDITED AND CERTIFIED BY THE C.A. U/S.44AB. A DISCLOSURE OF DEBTORS A ND CREDITORS HAS BEEN IN ACCORDANCE WITH THE ACCOUNTING STANDARD WHICH HAS NOT BEEN CONTROVERTED BY THE LEARNED DR AS OF NOW BEFORE US. THE LEARNED CIT(A) HAD ALREADY OBTAINED A REMAND REPORT THEREFORE DOES NOT REQUIRE FURTHER VERIFICATION AS SUGGESTED BY HIM. THE GROSS MARGIN DECLARED BY THE ASSESSEE CLEARLY INDICATES THAT THE FUNDS AVAILABLE TO THE ASSESSEE WERE NOT FROM FICTITIOUS LIABILITY THEREFORE CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THE CUSTOMERS WHO HAD PAID THE ADVANCE WERE TO BE B ILL ED AS AND WHEN THE MEDICINES WERE RECEIVED AND SOLD IN THE SUBSEQUENT ASSESSMENT YEAR WHEN THE TOTAL BALANCE STOOD REDUCED TO 3,30,248.SIMILARLY THE DISCOUNT ALLOWED WAS ON THE BASIS OF CUSTOMERS NOT PAYING PETTY RESIDUAL AMOUNT S OWED BY THEM WHICH HAD AL READY SUFFERED TAX IN THE EARLIER YEAR WAS TERMED AS I.T.A.NO. 158/CTK/2011 7 DISCOUNT BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS BEEN MISINTERPRETED BY BOTH THE AUTHORITIES AS CLAIMED . ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE 25% OF THE TOTAL CLAIM DISALLOWED SUFF ERS FROM INFIRMITY AND IS WITHOUT ANY BASIS . 7. IN VIEW OF THE ABOVE, THE ADDITIONS OF 49,10,054 AND 2,25,242 IS DIRECTED TO BE DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST APRIL, 2011 SD/ - SD/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 21 ST APRIL, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : JAY GOPAL PODDAR, PROP.JAY PHARMACEUTICALS, TAXI STAND, TA HASIL ROAD, BHADRAK 756 100 2 / THE RESPONDENT: INCOME - TAX OFFICER, BHADRAK WARD, BHADRAK. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.