A.C.I.T., Circle-2, Gwalior V. M/s Shivhare Road Lines, Gwalior

ITA 45/AGR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9988 (ITAT-AGRA)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK VIJAYWARGIYA C
• Keywords: Rule of consistency; Retrospective amendment; Additional evidence; Bad and doubtful debts
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBE R AND MRS. ANNAPURNA MEHROTRA, ACCOUNT ANT MEMBER ITA NO. 45/AGRA/2013 ASSTT. YEAR : 2009-10 A.C.I.T., CIRCLE 2, VS. M/S. SHIVHARE ROAD LI NES, GWALIOR. ROSHANI GHAR ROAD, GWALIOR. [PAN: AAJFS 3154 L] ITA NO. 39/AGRA/2013 ASSTT. YEAR : 2009-10 M/S. SHIVHARE ROAD LINES, VS. A.C.I.T., CIRCLE 2, ROSHANI GHAR ROAD, GWALIOR. GWALIOR. (APPELLANT) (RESPONDENT) REVENUE BY : SH. WASEEM ARSHAD, SR. DR RESPONDENT BY : SH. RAJENDRA SHARMA, ADVOCATE & SH. ASHOK VIJAYWARGIYA, C.A. DATE OF HEARING : 28.01.2016 DATE OF PRONOUNCEMENT : 03.02.2016 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A), GWALIOR DATED 27.11.2012 FOR THE ASSESSMENT YEAR 20 09-10. ITA NOS.45 & 39/AGRA/2013 2 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. BOTH THE APPEALS ARE DECIDED AS UNDER : DEPARTMENTAL APPEAL: 3. ON GROUND NO. 1, THE REVENUE CHALLENGED THE ORDE R OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.8,41,530/- ON ACCOUNT O F INTEREST PAID WITHOUT TDS, INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF TH E IT ACT. 4. THE AO, ON VERIFICATION OF THE RETURN AND INFORM ATION FILED, NOTED THAT THE ASSESSEE FIRM HAS PAID INTEREST TO TATA MOTORS AND TATA CAPITAL FINANCE FOR PURCHASE OF TRUCKS. THE DETAILS OF THE SAME ARE NOT ED IN THE IMPUGNED ORDER. HOWEVER, THE TDS HAS NOT BEEN MADE ON THE PAYMENT O F INTEREST OF RS.8,41,530/- AS PER PROVISION OF SECTION 194A OF T HE IT ACT, HENCE, THE INTEREST OF RS.8,41,530/- WAS ADDED TO THE TOTAL IN COME OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 5. THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A ) AND WRITTEN SUBMISSIONS OF THE ASSESSEE ARE INCORPORATED IN THE APPELLATE ORDER, IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ITA NOS.45 & 39/AGRA/2013 3 ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE. FUR THER, THIS PROVISION IS APPLICABLE ONLY FOR THE AMOUNTS PAYABLE AND NOT THE AMOUNTS PAID. IN THE CASE OF ASSESSEE, THE INTEREST WAS PAID AND NOTHING REMA INED PAYABLE. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICA BLE. THE DETAILS OF AMOUNTS PAID WERE FILED. THE ASSESSEE ALSO RELIED UPON THE ORDER OF ITAT, VISHAKHAPATNAM, SPECIAL BENCH, IN THE CASE OF MERIL YN SHIPPING & TRANSPORTERS VS. ADDL. CIT, 70DTR 81, IN WHICH IT W AS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO THE AMO UNT OF EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND THE SAME CANNOT BE INVOKED TO DISALLOW THE EXPENDITURE WHICH HAVE BEEN ACTUALLY P AID DURING THE PREVIOUS YEAR WITHOUT DEDUCTION OF TDS. 6. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE AS SESSEE AND BY FOLLOWING THE ABOVE DECISION OF ITAT, VISHAKHAPATNAM SPECIAL BENCH, DELETED THE ADDITION. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD. HONBLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. SI KANDARKHAN N. TUNVAR, 357 ITR 312 HELD THAT WHERE THE AMOUNTS ON WHICH TAX HA S NOT BEEN DEDUCTED AT SOURCE, THE PROVISIONS OF SECTION 40(A)(IA) WOULD C OVER THE AMOUNTS PAYABLE ITA NOS.45 & 39/AGRA/2013 4 AT ANY TIME DURING THE ACCOUNTING YEAR AND THE ORDE R OF ITAT, SPECIAL BENCH, VISHAKHAPATNAM IN THE CASE OF MERILYN SHIPPING & TR ANSPORTERS (SUPRA) WAS OVER-RULED. THE SAME VIEW HAS BEEN TAKEN BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PMS DIESEL, 374 ITR 562. THE L D. COUNSEL FOR THE ASSESSEE ACCEPTED THE ABOVE PROPOSITION THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE TO BOTH THE AMOUNTS PAYABLE AS WELL AS P AID AS PER THE ABOVE JUDGMENTS OF HONBLE GUJRAT HIGH COURT AND PUNJAB & HARYANA HIGH COURT. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A ). 7.1 THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBM ITTED THAT THE MATTER MAY BE REMANDED TO THE AO BECAUSE IN THE CASE OF AS SESSEE THE PAYEES HAD FILED RETURNS OF INCOME AND OFFERED THE SUMS RECEIV ED TO TAX. THEREFORE, NO DISALLOWANCE COULD BE MADE U/S. 40(A)(IA) OF THE AC T. THE LD. COUNSEL RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE O F CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD., 377 ITR 635 IN WHICH THE ORDER OF ITAT, AGRA BENCH HAS BEEN APPROVED IN THE CASE OF RAJEEV KUMAR AGARWAL V S. ADDL. CIT, 34 ITR (TRIB) 479, IN WHICH IT WAS HELD THAT SECOND PROVIS O TO SECTION 40(A)(IA) OF THE ACT IS DECLARATORY AND CURATIVE IN NATURE AND SHOUL D BE GIVEN RETROSPECTIVE EFFECT FROM APRIL 1, 2005. HE HAS SUBMITTED THAT TH E SAME VIEW IS TAKEN BY THE ITAT, AGRA BENCH IN THE CASE OF AREA MANAGER, FOOD CORPORATION OF INDIA VS. ITA NOS.45 & 39/AGRA/2013 5 ITO (TDS) DATED 20.12.2013. CONSIDERING THE ABOVE S UBMISSIONS IN THE LIGHT OF ABOVE DECISION, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. WE ACCORDINGLY SET ASIDE THE O RDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF AO WITH DIRECTION TO RE-DECIDE THIS ISSUE AFTER MAKING NECESSARY ENQUIRIES WITH REGARD TO WHETHER THE PAYEES HAVE FILED THE RETURN AND OFFERED THE SUM RECEIVED TO TAX. THE AO SHALL DECIDE THIS ISSUE AFTER GIVING REASONABLE AND SUFFICIENT O PPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE LIGHT OF DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF ANSAL LAND MARK TOWNSHIP P. LTD. (SUPRA). THIS GROU ND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. ON GROUND NO. 2 & 3, THE REVENUE CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.4,43,81,895/- MADE B Y THE AO TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESSION OF RECEIPTS. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE AO ON C ONSIDERATION OF THE SUNDRY CREDITORS NOTED THAT THE SAME INCLUDES RS.4.43 CROR ES. ON ENQUIRY, IT WAS FOUND THAT SUCH AMOUNT CREDITED TO SUSPENSE ACCOUNT IS, IN FACT, BILLS RAISED AGAINST THE SAME CONTRACTORS DURING THE YEAR ON ACC OUNT OF DELAY IN COMPLETION OF CONTRACT ON THE PART OF THE PARTIES ( CONTRACTEES), FROM WHICH ITA NOS.45 & 39/AGRA/2013 6 CHANCES OF RECOVERY IS POOR. SUCH AMOUNT SHOULD HAV E BEEN CREDITED TO SALE ACCOUNT, BUT THE ASSESSEE FIRM IN PLACE OF CREDITIN G SUCH AMOUNTS TO THE SALE ACCOUNT HAS CREDITED TO SUSPENSE ACCOUNT AND DEBITE D TO THE PARTIES (DEBTORS) ACCOUNT DIRECTLY IN THE BALANCE SHEET. THE ASSESSEE SUBMITTED BEFORE THE AO WITH REFERENCE TO AS-9 FOR ACCOUNTING THE REVENUE W HICH SAYS THAT IN THE CASE OF UNCERTAINTY IN REALIZING OF THE CLAIM, THE REVEN UE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. HOWEVER, IN THE CASE OF ASSESSEE, THE ASSESSEE HAS RAISED THE BILLS AGAINST THE PARTIES F OR BREACH OF CONTRACT ON ACCOUNT OF DELAY IN EXECUTING THE CONTRACT WORK ON THEIR PART, FOR WHICH A LOT OF EXPENDITURES HAD TO BE INCURRED. TO COMPENSATE SUCH EXPENDITURES, THE CLAIM HAS BEEN MADE AGAINST THE PARTIES BY RAISING THE BI LLS. THERE IS NO LITIGATION AT THE TIME OF RAISING SUCH BILLS. THE LITIGATION STAR TED LATER ON AND THE MATTER WENT UNDER LITIGATION FROM THE NEXT YEAR. IN MERCAN TILE SYSTEM OF ACCOUNTING, THE BILLS RAISED DURING THE YEAR IS TO BE ACCOUNTED AS RECEIPT IN THE YEAR IN WHICH BILLS ARE RAISED. IF SUCH BILLS ARE NOT RECO VERABLE, THE SAME SHOULD BE WRITTEN OFF IN THE BOOKS AND SUCH BAD DEBTS SHOULD BE CLAIMED. THE AO THEREFORE, MADE ADDITION OF RS.4.43 CROES. 10. THE ASSESSEE CHALLENGED THE ORDER OF AO BEFORE THE LD. CIT(A). THE WRITTEN SUBMISSIONS OF THE ASSESSEE ARE INCORPORATE D IN THE IMPUGNED ORDER, ITA NOS.45 & 39/AGRA/2013 7 IN WHICH THE ASSESSEE, BRIEFLY, EXPLAINED THAT THE SUM OF RS.4.43 CRORES REPRESENT THE AMOUNT LYING UNDER THE SUSPENSE ACCOU NT, WHICH WAS INCLUDED IN THE SUNDRY CREDITORS AND APPEARING IN THE BALANC E SHEET. THIS AMOUNT COMPRISED OF FIVE CATEGORIES, I.E., IN RESPECT OF P ARTIES (I). M/S. GAMMON INDIA LTD., (II). M/S. CHINA PETROLEUM PIPELINE BUREAU, ( III) M/S. CONTAINER CORPORATION OF INDIA, (IV) M/S. KIRLOSKAR CONSTRUCT ION & ENGINEERS LTD. IT WAS ALSO EXPLAINED THAT IN THEIR CASE, ENTRIES HAVE BEE N REVERSED IN F.Y. 2010-11 AND 2009-10. THE SUNDRY CREDITORS OF SMALL AMOUNT O F RS.1,16,594/- WAS ENTRY TRANSFERRED TO PROFIT & LOSS ACCOUNT AND SHOW N AS INCOME OF F.Y. 2010- 11. IT WAS EXPLAINED THAT THE AMOUNT CLAIMED WERE N OT AUTHORIZED BY THE CONTRACT AGREEMENT. THE SUMMARY OF ACCOUNT AND PART YS ACCOUNT AND SUSPENSE ACCOUNT WERE FILED TO EXPLAIN THIS POSITIO N. IT WAS SUBMITTED THAT THE ADDITION IS NOT JUSTIFIED BECAUSE THE AO HAS NOT CO NSIDERED THE CONCEPT OF ACCRUAL OF INCOME AND DID NOT CONSIDER THE ACCOUNTI NG STANDARD AS-9, WHICH SHOWS THAT THE INCOME COULD BE RECOGNIZED WHICH ARI SES IN THE COURSE OF ORDINARY ACTIVITIES OF THE ENTERPRISE FOR SALE OF G OODS OR FOR RENDERING SERVICES. THE COPIES OF THE CONTRACT WERE FILED WITH THESE PA RTIES WHERE THE ASSESSEE TOOK SUB-CONTRACT ON TRANSPORTATION OF PIPES ON BEH ALF OF THESE PARTIES. SUB- CONTRACTS WERE AWARDED TO THE ASSESSEE AND THE ASSE SSEE WAS ELIGIBLE TO RAISE BILLS FOR THE WORK PERFORMED AS PER TERMS OF THE AG REEMENT, I.E., TRANSPORTATION ITA NOS.45 & 39/AGRA/2013 8 OF PIPES. THE ASSESSEE WAS NOT AUTHORIZED TO ANY FU RTHER CLAIM FOR ANY OTHER WORK/SERVICES/DAMAGES/COMPENSATION. THE ASSESSEE EX PLAINED THE WORK DONE WITH THESE FOUR PARTIES AND BILLS RAISED TO TH EM, THE DETAILS OF THE SAME HAVE BEEN INCORPORATED IN THE APPELLATE ORDER. THE ASSESSEE ALSO RELIED UPON SEVERAL DECISIONS IN SUPPORT OF THE CLAIM THAT NO I NCOME ACCRUED OR AROSE TO THE ASSESSEE. THEREFORE, THE ADDITION IS WHOLLY UNJ USTIFIED. 11. THE LEARNED CIT(A) CONSIDERING THE SUB-CONTRACT IN QUESTION, ACCOUNTING STANDARD RECOGNIZED BY THE INSTITUTE AND MATERIAL O N RECORD, DELETED THE ENTIRE ADDITION. HIS FINDINGS IN PARA 6.3 IS REPROD UCED AS UNDER : 6.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, WRI TTEN SUBMISSION, ARGUMENT ADVANCED, RELEVANT LEGAL PROVISION OF SECT ION 5, CONCEPT OF ACCRUAL OF INCOME FOLLOWING MERCANTILE METHOD OF ACCOUNTING AN D DECISIONS RELIED UPON BY THE APPELLANT. THE JOINT COMMISSIONER OF INCOME TAX M ADE THE ADDITION OF RS 4,43,81,895/- WHICH INCLUDES RS. 4,42,65 ,301/- FOR BILLS RAISED AND RS. 1,16,594/- FOR SUNDRY CREDITORS RAISED DURING COURS E OF BUSINESS, FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT NOT ACCOUNTED A S REVENUE RECEIPTS DURING COURSE OF BUSINESS BUT ACCOUNTED UNDER HEAD SUSPENS E ACCOUNT INCLUDED IN SUNDRY CREDITORS OF RS. 7,28,61,300.36. THE LD. AR O F THE APPELLANT STRONGLY OBJECTED THE ADDITION AND EMPHASIZED UPON TWO ISSUE S, NAMELY: (I) RECOGNITION OF INCOME FOR THE PURPOSE OF ACCOUNTING AS PER AS 9 I.E. AND ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA. (II) RECOGNITION OF INCOME FOR THE PURPOSE OF INCOME TAX FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. I HAVE GONE THROUGH AND PERUSED THE AS 9 I.E. AN AC COUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WH ICH DEALS WITH THE BASES FOR RECOGNITION OF REVENUE IN THE STATEMENT OF PROFIT A ND LOSS OF AN ENTERPRISE. THE ITA NOS.45 & 39/AGRA/2013 9 STANDARD IS CONCERNED WITH THE RECOGNITION OF REVEN UE ARISING IN THE COURSE OF ORDINARY ACTIVITIES OF THE ENTERPRISE FROM THE SALE OF GOODS, THE RENDERING OF SERVICES AND THE USE BY OTHERS OF ENTERPRISE RESOUR CES YIELDING INTEREST, ROYALTIES AND DIVIDENDS. IN THE CASE OF THE APPELLANT, THE TR ANSPORTATION ACTIVITIES WERE UNDER TAKEN. THE APPELLANT TOOK SUB-CONTRACT FROM VA RIOUS CONTRACTORS. BUT THE ISSUE INVOLVED IS RELATED TO CONTRACT OF TRANSPORTA TION WITH M/S GAMMON INDIA LTD., M/S CHINA PETROLEUM PIPELINE BUREAU, M/S CONT AINER CORPORATION OF INDIA M/S KIRLOSKAR CONSTRUCTION & ENGINEERS LTD. THE APPE LLANT ENTERED INTO AN AGREEMENT WITH EACH OF THE CONTRACTOR. COPY OF AGRE EMENT WITH EACH CONTRACTOR HAS BEEN FURNISHED ALONG WITH THE WRITTEN SUBMISSIO N AT ANNEXURE P-44-60, 61- 100, 101-158 AND 159-162 RESPECTIVELY. DURING COURS E OF BUSINESS ACTIVITIES, THE APPELLANT RAISED VARIOUS BILLS AS PER WORK PERFORME D, WHICH WERE RECOGNIZED AS INCOME FOR THE PURPOSE OF ACCOUNTING AS WELL AS INC OME TAX. APART FROM THIS, THE APPELLANT RAISED VARIOUS BILLS OF CLAIM OF RS. 4,42 ,65,301/- FOR IDLE STANDING OF TRAILERS/VEHICLES, SHORT SUPPLY OF DIESEL, DELAY IN EXECUTION OF WORK ON THE PART OF CONTRACTOR ETC. ALTHOUGH SUCH TYPE OF CLAIMS WERE N OT AUTHORIZED BY THE TERMS AND CONDITIONS STIPULATED IN THE CONTRACT AGREEMENT . SINCE, SUCH TYPE OF CLAIMS WERE NOT AUTHORIZED BY THE CONTRACT AGREEMENT, HENC E SUCH CLAIMS WERE NOT CONSIDERED AS PER AGREEMENT. BUT, TO KEEP ALIVE THE CLAIM AND ISSUE INTACT, THE APPELLANT RAISED SUCH BILLS. SINCE, THEY WERE NOT A UTHORIZED AS PER AGREEMENT, HENCE NOT RECOGNIZED AS INCOME FOR THE PURPOSE OF ACCOUNTING AS PER EXPLANATION GIVEN IN PARA 5 TO PARA 4.1 OF AS 9 ISS UED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. EXPLANATION TO PARA 4.1 OF AS 9 EXPLAINS THE TIMING OF RECOGNITION OF REVENUE. ACCORDINGLY, THE AMOUNT OF REVENUE RECOGNIZED AS REVENUE ARISING ON A TRANSACTION IS DETERMINED B Y AGREEMENT BETWEEN THE PARTIES INVOLVED IN THE TRANSACTION. IN THE CASE OF THE APPELLANT, THE AGREEMENT DID NOT AUTHORIZE THE SUB-CONTRACTOR I.E. APPELLANT TO RAISE CLAIMS BY ISSUING BILLS FOR IDLE STANDING OF TRAILERS / VEHICLES, SHORT SUP PLY OF DIESEL, DELAY IN EXECUTION OF WORK ON THE PART OF CONTRACTOR ETC. OTHER AMOUNT OF RS. 1,16,594/- PERTAINS TO SUNDRY CREDITORS FOR EXPENSES WHICH WERE ALSO SETTL ED IN SUBSEQUENT YEAR. ACCORDINGLY, THE APPELLANT DID NOT RECOGNIZE THEM A S INCOME AND ACCOUNTED FOR UNDER HEAD SUSPENSE ACCOUNT INCLUDED IN SUNDRY CRED ITORS. AFTER CONSIDERING THE AS 9, AN ACCOUNTING STANDARD ISSUED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA AND COPY OF CONTRACT AGREEMENT EXECUTED BETWE EN CONTRACTOR, AND SUB- CONTRACTOR I.E. THE APPELLANT, I AM OF THE CONSIDER ED OPINION THAT THE ACCOUNTING UNDER HEAD SUSPENSE IS CORRECT ACCOUNTING. BUT, SO FAR THE TAXABILITY AS PER INCOME TAX ACT, IS CONCERNED, ACCOUNTING ENTRIES ARE NOT DECISIVE AS HELD BY THE HONBLE SUPREME COU RT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LTD. VS. COMMISSIONER OF INCOME TAX, (1971) 82 ITA NOS.45 & 39/AGRA/2013 10 ITR 363 (SC). IN THE CASE OF KEDARNATH JUTE MANUFACT URING COMPANY , THE ASSESSEE COMPANY FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING AND INCURRED A LIABILITY OF RS. 1,49,776/- ON ACCOUNT OF SALES TAX DETERMINED TO BE PAYABLE BY THE SALES TAX AUTHORITIES ON THE SALES MADE BY IT B UT SUCH LIABILITY WAS NEITHER ACCOUNTED FOR NOR CLAIMED IN THE BOOKS OF ACCOUNT. THE INCOME TAX OFFICER REJECTED THE CLAIM FOR DEDUCTION OF THAT AMOUNT ON THE GROUND (I) THAT THE ASSESSEE HAD CONTESTED THE SALES TAX LIABILITY IN AP PEALS, AND (II) THAT IT HAD MADE NO PROVISION IN ITS BOOK WITH REGARD TO THE PA YMENT OF THAT AMOUNT. THE HONBLE SUPREME COURT HELD THAT THE ASSESSEE, WHICH FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING, WAS ENTITLED TO DEDUCT FROM T HE PROFITS AND GAINS OF ITS BUSINESS LIABILITY TO SALES TAX WHICH AROSE ON SALE S MADE BY IT DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE WAS ENTITLED TO THE DEDU CTION OF THE SUM OF RS. 1,49,776/- BEING THE AMOUNT OF SALES TAX WHICH IT WAS LIABLE UNDER THE LAW TO PAY DURING THE RELEVANT ACCOUNTING YEAR. THAT LIABIL ITY DID NOT CEASE TO BE A LIABILITY BECAUSE THE ASSESSEE HAD TAKEN PROCEEDING S BEFORE HIGHER AUTHORITIES FOR GETTING IT REDUCED OR WIPED OUT SO LONG AS THE CONTENTION OF THE ASSESSEE DID NOT PREVAIL. WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DE DUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON TH E VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS, NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LTD. SUPRA, TH E RECOGNITION OF INCOME FOR THE PURPOSE OF INCOME TAX FOLLOWING THE MERCANTI LE SYSTEM OF ACCOUNTING HAS TO BE MADE AS PER THE PROVISION OF LAW RELATING THE RETO. ACCORDINGLY, THE SCOPE OF TOTAL INCOME OF PERSON IS EMBODIED IN PROVISION OF SECTION 5 OF THE INCOME TAX ACT. AS PER PROVISION OF CLAUSE (B) OF SUB-SECTION (1) OF SECTION 5, ANY INCOME ACCRUES OR ARISES OR IS DEEMED TO ACCRUES OR ARISE TO HIM IN INDIA DURING SUCH YEAR WILL BE CONSIDERED FOR THE PURPOSE OF INCLUSIO N IN TOTAL INCOME UNDER THE INCOME TAX ACT. THE ACCRUAL OF INCOME COMPRISING, TO WHOM DOES THE INCOME ACCRUES, WHEN DOES IT ACCRUES, WHERE DOES IT ACCRUE AND OUT OF WHICH DOES IT ACCRUE. OUT OF THESE, THE ISSUE INVOLVED IN THE CAS E OF THE APPELLANT IS WHEN DOES IT ACCRUE. THE HONBLE SUPREME COURT IN THE CASES OF CIT VS. A. GAJAPATHY NAIDU (1964) 53 ITR 114 AND GODHRA ELECTRICITY COMPANY LTD. VS. CIT ( 1997) 225 ITR 746 HAS HELD THAT THE INCOME TAX IS A LEVY ON INCOME. NO DOU BT, THE INCOME TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABIL ITY TO TAX IS ATTRACTED, VIZ. THE ITA NOS.45 & 39/AGRA/2013 11 ACCRUAL OF THE INCOME OR ITS RECEIPT, BUT THE SUBST ANCE OF THE MATTER IS THE INCOME. IF THE INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THROUGH IN BOOK KEEPING; AN ENTRY IS MADE ABOUT A HYPOTHETI CAL INCOME, WHICH DOES NOT MATERIALIZE. IN THE CASE OF THE APPELLANT, THE BILLS WERE ISSUED FOR ADDITIONAL CLAIMS NOT AUTHORIZED BY THE AGREEMENT EXECUTED BETWEEN THE AP PELLANT I.E. SUB-CONTRACTOR AND THE CONTRACTOR. THE APPELLANT HAS MADE THE ENTRI ES IN THE BOOKS OF ACCOUNT BY CREDITING THE AMOUNT IN SUSPENSE ACCOUNT AND DEB ITING THE RESPECTIVE PARTIES. THE APPELLANT MADE THE ENTRIES IN THE BOOKS MERELY A S UNILATERAL TRANSACTION AND NOT AS BILATERAL TRANSACTION BECAUSE SUCH TYPE OF TRANSACTIONS I.E. ISSUE OF BILLS RAISING ADDITIONAL CLAIMS OF RS. 4,42,65,301/ - WERE NOT AUTHORIZED BY THE CONTRACTOR. DURING COURSE OF APPEAL PROCEEDINGS THE LD. AR OF APPELLANT HAS MENTIONED THAT THE ACCOUNTING ENTRIES BASED ON UNIL ATERAL TRANSACTION DOES NOT GIVE RIGHT TO RECEIVE THE INCOME AND ACCORDINGLY TH E INCOME WAS NOT ACCRUED TO THE APPELLANT BY RAISING THE BILLS OF CLAIMS. HE FU RTHER ARGUED THAT THE QUESTION OF CLAIMING BAD DEBTS ARISES ONLY AFTER ACCRUAL OF INCOME. BUT, SINCE THE INCOME WAS NOT ACCRUED TO THE APPELLANT, HENCE THE QUESTIO N OF CLAIMING BAD DEBTS DOES NOT ARISE. IN SUPPORT OF HIS CONTENTION, HE REFERRE D VARIOUS DECISIONS OF THE SUPREME COURTS, HIGH COURTS AND APPELLATE TRIBUNALS. SO FAR THE ACCRUAL OF INCOME AND BAD DEBTS IS CONCERNED, THE HONBLE TRIBU NAL HAS DECIDED THE ISSUE IN THE CASE OF IAC VS. DREDGING CORPORATION OF INDIA L TD. (1987) 23 ITD 49 (HYD.). THE HONBLE TRIBUNAL HAS HELD THAT AN INCOME ACCRUES OR ARISES WHEN THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE SAME WH EN DOES THE RIGHT TO RECEIVE AN AMOUNT UNDER A CONTRACT ACCRUE OR ARISE TO THE A SSESSEE I.E. COME INTO EXISTENCE, THAT DEPENDS UPON THE TERMS OF A PARTICU LAR CONTRACT. IN THE CASE OF DREDGING CORPORATION OF INDIA LTD., THE ASSESSEE AD OPTED THE MERCANTILE SYSTEM OF ACCOUNTING. IN THE EARLIER YEARS, IT HAD OFFERED AS INCOME THE BILLS RAISED BY IT ON ITS CUSTOMERS. SUBSEQUENTLY, WHEN SUCH BILLS WER E NOT ACCEPTED BY THE CUSTOMERS, THE ASSESSEE USED TO MAKE A CLAIM OR BAD DEBTS FOR THE UNREALIZED PORTION. IN THIS YEAR, IT IS THE ASSESSEES CONTENT ION THAT THERE WERE CERTAIN DISPUTES BETWEEN THE ASSESSEE AND THE CUSTOMERS IN RESPECT OF IDLE TIME, QUANTITY OF WORK DONE, ESCALATION IN PRICES, ETC., AND, THER EFORE, THE ASSESSEE DID NOT INCLUDE THESE AMOUNTS AS PART OF ITS INCOME AS IT C ONSIDERED THE REALIZATION OF THESE AMOUNTS TO BE EXTREMELY DOUBTFUL. THE IAC (ASS ESSMENT) WAS OF THE VIEW THAT A MAJOR PART OF THESE AMOUNTS WAS RECOVERED LA TER ON AND THE ASSESSEE IN THIS YEAR HAD DEPARTED FROM ITS METHOD OF ACCOUNTIN G AND, THEREFORE, HE BROUGHT TO TAX THE ENTIRE AMOUNT. THE COMMISSIONER (APPEALS) WENT THROUGH THE NATURE OF THE DISPUTE IN ALL THESE CASES AND ADOPTED THE R EASONING THAT UNILATERAL CLAIMS DID NOT GIVE RISE TO INCOME AND IT IS ONLY WHEN THE AMOUNT WAS QUANTIFIED EITHER ITA NOS.45 & 39/AGRA/2013 12 BY ARBITRATION OR SETTLEMENT OR BY MUTUAL AGREEMENT THAT THE INCOME ACCRUED TO THE ASSESSEE AND DELETED THE ADDITION. THE HONBLE TR IBUNAL HAD ALSO UPHELD THE DELETION OF ADDITION FOR THE REASON THAT UNILATERAL CLAIMS DO NOT GIVE RISE TO ACCRUAL OR RECEIPT OR INCOME IN ALL CASES OF CONTRA CTS. SINCE, THE APPELLANT HAD RAISED THE CLAIMS BY ISSUI NG THE BILLS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT THEY WERE NOT S UPPORTED WITH CONTRACT AGREEMENT, HENCE, THEY WERE NOT RECOGNIZED AS INCOM E BUT ACCOUNTED FOR UNDER HEAD SUSPENSE ACCOUNT DURING FINANCIAL YEAR 2008-09 RELEVANT TO ASSESSMENT YEAR 2009-10 I.E. THE YEAR UNDER APPEAL. COPY OF SU SPENSE ACCOUNT IS SUBMITTED AT ANNEXURE P-19-21 OF WRITTEN SUBMISSION DURING AP PEAL PROCEEDINGS, WHICH HAS BEEN PLACED ON RECORD. THE APPELLANT DID NOT REC EIVE THE AMOUNT OF SUCH CLAIMS EVEN IN SUBSEQUENT YEAR. THEREFORE, THE APPEL LANT REVERSE THE ACCOUNTING ENTRIES OF RS. 4,42,65,301/- IN SUBSEQUENT YEAR BY DEBITING THE SUSPENSE ACCOUNT AND CREDITING THE ACCOUNT OF RESPECTIVE COMPANIES I .E CONTRACTOR BECAUSE THE AGREEMENT WAS NOT OPERATIVE AND ENFORCEABLE TO THE EXTENT OF THE AMOUNT OF SUCH CLAIMS. SINCE, AGREEMENT WAS NOT OPERATIVE, HE NCE, THE APPELLANT REVERSE THE ENTRIES AND ACCORDINGLY APPELLANT DID NOT RECEI VE ANY REAL INCOME. IN SUPPORT OF REVERSAL ENTRIES, THE APPELLANT HAS FILED COPY O F SUSPENSE ACCOUNT AT ANNEXURE P-22-23 ALONG WITH COPY OF ACCOUNT OF RELEVANT PART IES AT ANNEXURE P-25, P-27, P-30, P-32 OF WRITTEN SUBMISSION. THE REMAINING AMOU NT OF RS. 1,16,594/- RELATED TO SUNDRY CREDITORS, WHICH WERE SETTLED IN SUBSEQUENT FINANCIAL YEAR 2010-11 RELEVANT TO ASSESSMENT YEAR 2011-12 AND ACC ORDINGLY INCLUDED IN THE TOTAL INCOME BY TRANSFERRING FROM SUSPENSE ACCOUNT TO INCOME ACCOUNT. THE COPY OF SUSPENSE ACCOUNT FOR THE YEAR UNDER APPEAL AND S UBSEQUENT YEAR HAS BEEN SUBMITTED ALONG WITH WRITTEN SUBMISSION AT ANNEXURE P-19-21 AND P-23 SUPRA RESPECTIVELY. SINCE, THE APPELLANT HAS ALREADY INCL UDED IT IN TOTAL INCOME FOR FINANCIAL YEAR 2010-11 RELEVANT TO ASSESSMENT YEAR 2011-12, HENCE, THE ADDITION IN THE YEAR UNDER APPEAL IS NOT SUSTAINABLE, OTHERW ISE, IT WOULD BE CASE OF TAXING THE SAME AMOUNT TWICE. FOR THIS, HE PLACED RELIANCE ON DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (1999 ) 236 ITR 315. THE HONBLE SUPREME COURT HELD THAT WITH REGARD TO THE INCOME A CCRUED TO THE ASSESSEE, THE ENTRY WHICH WAS INITIALLY MADE AS INTEREST WAS REVE RSED IN THE NEXT YEAR BECAUSE IN FACT THE NATURE OF THE TRANSACTION WAS CHANGED. THE ASSESSEE DID NOT RECEIVE ANY REAL INCOME. AFTER CONSIDERING ALL THE FACTS AND LEGAL POSITION, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT CORRECTLY MADE ACCOUNTING UNDER HEAD SUSPENSE ACCOUNT FOR THE AMOUNT INVOLVED IN ADDITIONAL CLAIMS BY ISSUING BILLS, WHICH WERE NOT AUTHORIZED BY THE AGREEMENT. THE AMOUNT WHICH WAS NO T AUTHORIZED AS PER ITA NOS.45 & 39/AGRA/2013 13 AGREEMENT CANNOT BE RECOGNIZED AS REVENUE AS PER EX PLANATION IN PARA 5 TO PARA 4.1 OF THE AS 9 I.E. THE ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ACCRUAL OF INCOME AS PER P ROVISION OF SECTION 5 HAS TO BE SUPPORTED WITH RIGHT TO RECEIVE THE INCOME. IN T HIS CASE, THE APPELLANT COULD NOT GET THE RIGHT TO RECEIVE THE INCOME INVOLVED IN THE BILLS ISSUED BECAUSE THEY WERE NOT ISSUED IN TERMS OF THE AGREEMENT. THE BILL S WERE ISSUED BASED ON MERELY UNILATERAL TRANSACTION AND NOT BASED ON BILA TERAL TRANSACTION. THE ACCOUNTING OF UNILATERAL TRANSACTION DOES NOT GIVE RIGHT TO RECEIVE THE INCOME. UNLESS THE APPELLANT GETS THE RIGHT TO RECEIVE THE INCOME, THE INCOME CANNOT BE SAID TO ACCRUE TO THE PERSON CONCERNED. THE CLAIM OF THE APPELLANT WAS NOT ENFORCEABLE AS PER TERMS OF THE AGREEMENT, THE ACCO UNTING OF WHICH WAS SUBSEQUENTLY REVERSED IN SUBSEQUENT YEARS. THEREFORE , IN VIEW OF ALL THESE, THE ADDITION OF RS. 4,43,81,895/- (4,42,65,301 + 1,16,5 94) IS NOT SUSTAINABLE, AND, ACCORDINGLY, IS HEREBY, DELETED. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LD. DR RELIED UPON THE ORDER OF THE AO AND HAS NOT BEEN ABLE TO POINT OUT ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO T HE SPECIMEN COPY OF AGREEMENT TO SHOW THAT THE AGREEMENT WOULD NOT AUTH ORIZE TO ASSESSEE TO RAISE ANY CLAIM, WHICH WAS ENTERED INTO THE SUSPENS E ACCOUNT AND THAT IN SUBSEQUENT YEAR, THE ASSESSEE HAS REVERSED THE ENTR IES. THE LD. CIT(A) CONSIDERED THE ACCOUNTING SYSTEM ISSUED BY THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH RECOGNIZED OF REVENUE AR ISING IN THE COURSE OF ORDINARY ACTIVITIES OF ENTERPRISES FOR SALE OF GOOD S OR RENDERING THE SERVICES. THE ASSESSEE TOOK SUB-CONTRACT FROM VARIOUS PARTIES , AS MENTIONED ABOVE AND ITA NOS.45 & 39/AGRA/2013 14 THE ASSESSEE RAISED THE CLAIM THROUGH BILLS IN RESP ECT OF IDLE STANDING OF TRAILERS/VEHICLES, SHORT SUPPLY OF DIESEL, DELAY IN EXECUTION OF WORK ON THE PART OF CONTRACTOR ETC. THESE TYPES OF CLAIMS WERE NOT A UTHORIZED BY THE TERMS AND CONDITIONS STIPULATED IN THE AGREEMENTS. THE ASSESS EE WAS NOT AUTHORIZED TO RECEIVE ANY AMOUNT AS ALLEGED IN THE BILLS SO RAISE D. THEREFORE, INCOME SHALL HAVE TO BE DETERMINED WITH REFERENCE TO AGREEMENT E XECUTED BETWEEN THE PARTIES AND THE LD. CIT(A) ON PROPER APPRECIATION O F AGREEMENT IN QUESTION RIGHTLY CAME TO THE CONCLUSION THAT THE AMOUNT KEPT IN THIS SUSPENSE ACCOUNT WAS NOT INCOME ACCRUED OR ARISES TO THE ASSESSEE. S INCE THE ASSESSEE IS NOT AUTHORIZED TO RAISE ANY BILLS FOR ADDITIONAL AMOUNT AND IT WAS MERE ENTRY IN THE BOOKS OF ACCOUNT UNILATERALLY MADE BY THE ASSES SEE WITHOUT ANY CLAIM ACCEPTED BY OTHER PARTIES WOULD CLEARLY SUPPORT THE FINDING OF THE CIT(A) THAT NO INCOME ACCRUED OUT OF THESE TRANSACTIONS AND IT IS NOT OUT OF PLACE TO NOTE THAT THE BILLS RAISED BY THE ASSESSEE AGAINST THESE FOUR PARTIES HAVE NOT BEEN ACCEPTED BY THEM. THEREFORE, THE ACCOUNTING OF UNIL ATERAL TRANSACTION WOULD NOT GIVE ANY RIGHT TO THE ASSESSEE TO RECEIVE ANY I NCOME. UNLESS THE ASSESSEE GETS RIGHT TO RECEIVE INCOME, THE INCOME CANNOT BE SAID TO ACCRUE OR ARISES TO THE ASSESSEE. IT APPEARS THAT IT WAS MERELY A THEOR ETICAL ENTRY MADE BY THE ASSESSEE IN THE SUSPENSE ACCOUNT WITHOUT HAVING ANY RIGHT OR INTEREST THEREIN WHICH HAVE BEEN ADMITTEDLY REVERSED IN THE SUBSEQUE NT YEARS. IT IS WELL ITA NOS.45 & 39/AGRA/2013 15 SETTLED LAW THAT INCOME COULD NOT BE DETERMINED MER ELY ON THE BASIS OF ENTRIES MADE IN THE BOOKS OF ACCOUNTS. THE NATURE AND CHARA CTER OF THE AMOUNT SHALL HAVE TO BE CONSIDERED. WE RELY UPON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF NATIONAL HANDLOOM DEVELOPMENT CORPORATI ON LTD., 266 ITR 647 AND DECISION OF SUPREME COURT IN THE CASE OF SWADES HI COTTON AND FLOUR MILLS PVT. LTD., 53 ITR 134. THE LD. CIT(A) ON PROPER AP PRECIATION OF FACTS AND MATERIAL ON RECORD, RIGHTLY CAME TO THE CONCLUSION THAT NO INCOME ACCRUED OR ARISES TO THE ASSESSEE. THEREFORE, THE ADDITION WAS RIGHTLY DELETED BY THE LD. CIT(A). WE DO NOT FIND ANY ERROR IN THE ORDER OF TH E LD. CIT(A) IN DELETING THIS ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS, ACCORDINGLY, DISMISSED. AS A RESULT, THE DEPARTMENTAL APPEAL IS PARTLY ALLOWED. ASSESSEES APPEAL: 13. IN THE APPEAL OF THE ASSESSEE, THE ASSESSEE CHA LLENGED THE ADDITION OF RS.98,72,638/- ON ACCOUNT OF FREIGHT PAYABLE AND NO T CONSIDERING THE EVIDENCES. THE AO DISCUSSED THIS ISSUE IN THE ASSES SMENT ORDER AND NOTED THAT IN THE BALANCE SHEET, RS.7.28 CRORES IS SHOWN UNDER SUNDRY CREDITORS AND LIABILITIES. IN THE ANNEXURE 8 TO ITS REPLY, THE BA LANCE FREIGHT PAYABLE IS SHOWN AT RS.98,72,638/-. THE ASSESSEE FURNISHED THE DETAI LS OF FREIGHT PAYABLE WHICH SHOWS VEHICLE NUMBER AND AMOUNTS PAYABLE FOR SUCH V EHICLES. THE AO SHOW ITA NOS.45 & 39/AGRA/2013 16 CAUSED THE ASSESSEE TO PROVE THE IDENTITY AND GENUI NENESS OF THE PARTIES AS PER THE LIST. THE ASSESSEE REPLIED BEFORE THE AO TH AT IT HAS TRIED TO COLLECT BALANCE CONFIRMATIONS FROM THE PARTIES TO WHOM THE FREIGHT IS PAYABLE. THE BALANCE CONFIRMATIONS RECEIVED ARE ENCLOSED FOR CON SIDERATION OF THE AO. THE AO, HOWEVER, NOTED THAT THE ASSESSEE HAS NOT PROVED THE CREDITORS. HE WAS REQUESTED TO PRODUCE ALL THE CREDITORS FOR VERIFICA TION, BUT HE HAS NOT FILED NAMES AND ADDRESS OF THE TRUCK OWNERS. ACCORDINGLY, ADDITION OF RS.98,72,638/- WAS MADE ON ACCOUNT OF UNEXPLAINED C REDIT. 14. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT THE ASSESSEE HAD FURNISHED NECESSARY DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SHOWN F REIGHT PAYABLE IN THE BALANCE SHEET WHICH IS INCLUDED IN THE SUNDRY CREDI TORS AND LIABILITIES OF RS.7.28 CRORES. THE DETAILS OF FREIGHT PAYABLE AS P ER VEHICLE NUMBER AND THE AMOUNT PAYABLE FOR SUCH VEHICLES WERE EXPLAINED. TH E ASSESSEE HAS TRIED TO COLLECT BALANCE CONFIRMATIONS FROM THE PARTIES TO W HOM THE FREIGHT IS PAYABLE AND WERE FILED BEFORE THE LD. CIT(A). IT WAS SUBMIT TED THAT IN THE LINE OF TRANSPORTATION, THE DETAILS OF FREIGHT EXPENSES IS MAINTAINED WITH REFERENCE TO VEHICLES AND NOT THE VEHICLE OWNERS. THE ASSESSEE M AINTAINED THE DETAILS OF VEHICLE NUMBERS, DESCRIPTION OF TRANSPORTATION, DES TINATION, FREIGHT CHARGES ITA NOS.45 & 39/AGRA/2013 17 PAYABLE FOR THE TRANSPORTATION. COMPLETE LIST WAS P ROVIDED TO THE AO. AFTER THE WORK IS COMPLETED, THE ASSESSEE NEVER REMAINS IN RE GULAR CONTACT WITH THE TRUCK OWNERS OR DRIVERS. IT WAS NOT POSSIBLE TO COL LECT ALL CONFIRMATIONS, BUT SOME OF THE CONFIRMATIONS WERE FILED GIVING THE DET AILS OF TRUCK NUMBER & AMOUNT. LARGE NUMBER OF CONFIRMATION WERE OBTAINED WHICH WERE SUBMITTED BEFORE THE LD. CIT(A) FROM SL. NO. 1 TO 612. IT WAS FURTHER SUBMITTED THAT THE ENTRIES IN FREIGHT PAYABLE ACCOUNT RELATES TO TRANS PORTATION OF PIPES AND THE ASSESSEE HAS DECLARED CORRESPONDING INCOME DURING T HE YEAR UNDER CONSIDERATION, WHICH HAS BEEN ACCEPTED BY THE AO WH ILE COMPLETING THE ASSESSMENT. ONCE THE INCOME HAS BEEN ACCEPTED THEN THE CORRESPONDING EXPENDITURE AND LIABILITY THEREOF SHOULD ALSO HAVE BEEN ACCEPTED BY THE AO. IN THIS LINE OF BUSINESS, THE PRACTICE IS TO MAINTAIN RECORD OF FREIGHT WITH TRUCK NUMBERS. THE LD. CIT(A), HOWEVER, DID NOT CONSIDER THE ADDITIONAL EVIDENCES AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE . 15. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS IN THE BUSINESS OF TRANSPORTATION OF GOODS. THE FREIGHT PAYABLE RELATE S TO TRANSPORTATION OF PIPES. THE ASSESSEE DECLARED INCOME FROM RECEIPT OF FREIGH T ON ACCOUNT OF TRANSPORTATION AND IN THE SAME PROCESS USED TO HIRE THE TRUCKS/VEHICLES AND ITA NOS.45 & 39/AGRA/2013 18 PAY THEM THE FREIGHT. SOME OF THE FREIGHTS REMAINED PAYABLE AT THE END OF THE YEAR. ACCORDING TO THE ASSESSEE, IN THE LINE OF BUS INESS OF ASSESSEE, THE USUAL PRACTICE IS TO MAINTAIN THE RECORD OF THE FREIGHT W ITH TRUCK NUMBER. THE ASSESSEE FILED COMPLETE DETAILS BEFORE THE AO GIVIN G THE TRUCK NUMBER AND THE AMOUNT PAYABLE WITH DESCRIPTION OF DESTINATION OF T HE GOODS SUPPLIED. THE AO, HOWEVER, ASKED FOR THE CONFIRMATION OF THE PARTIES, SOME OF THEM WERE FURNISHED BEFORE THE AO AND LARGE NUMBER OF CONFIRM ATIONS WERE FILED BEFORE THE LD. CIT(A). HOWEVER, THE SAME HAVE NOT BEEN CON SIDERED BY THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT I N ASSESSMENT ORDER UNDER APPEAL, THE LIST OF FREIGHT PAYABLE WERE FILED WITH THE LIST OF CREDITORS WHICH IS VEHICLE-WISE. THE ASSESSEE ALSO PLACED ON RECORD TH E ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 U/S. 143(3) DATED 30.12.200 8 ALONG WITH THE BALANCE SHEET AND LIST OF FREIGHT PAYABLE FOR THIS YEAR WHICH SHOWS THAT IN ASSESSMENT YEAR 2006-07 ON THE SIMILAR LINE OF PRAC TICE, THE ASSESSEE HAS SHOWN FREIGHT PAYABLE IN THE BALANCE SHEET, WHICH W AS MAINTAINED AS WAS MAINTAINED IN ASSESSMENT YEAR UNDER APPEAL AND THE AO HAS NOT TAKEN ANY ADVERSE VIEW AGAINST THE ASSESSEE. THE ASSESSEE ALS O FURNISHED COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2007-08 U/ S. 143(3) DATED 30.12.2009 ALONG WITH BALANCE SHEET AND LIST OF SUN DRY CREDITORS, WHICH INCLUDES FREIGHT PAYABLE AND THE AO IN THE SCRUTINY ASSESSMENT DID NOT MAKE ITA NOS.45 & 39/AGRA/2013 19 ANY ADVERSE COMMENTS AGAINST THE ASSESSEE. THE ASSE SSEE ALSO PLACED ON RECORD THE DETAILS OF FREIGHT PAYABLE IN ASSESSMENT YEAR UNDER APPEAL AS NOTED ABOVE, WHICH IS MAINTAINED VEHICLE-WISE AND AMOUNT AND ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE SUBSTANTIAL AMOUNT WA S PAID IN SUBSEQUENT ASSESSMENT YEAR 2010-11. THE DETAILS OF THE FREIGHT PAID IN SUBSEQUENT ASSESSMENT YEAR IS ALSO PLACED ON RECORD. COPY OF A SSESSMENT ORDER FOR SUBSEQUENT ASSESSMENT YEAR 2010-11 DATED 22.03.2013 U/S. 143(3) HAS BEEN PLACED ON RECORD ALONG WITH THE BALANCE SHEET AND T HE DETAILS OF FREIGHT PAYABLE AND CARRIED FORWARD TO THE NEXT YEAR AND SU BSTANTIAL AMOUNT PAID IN ASSESSMENT YEAR 20.10.2011 WHICH PERTAIN TO ASSESSM ENT YEAR UNDER APPEAL. THE AO DID NOT MAKE ANY ADVERSE COMMENT AGAINST THE ASSESSEE IN SCRUTINY ASSESSMENT OF SUBSEQUENT YEAR. THE ABOVE DETAILS FU RNISHED ON RECORD CLEARLY SHOW THAT IN THE LINE OF BUSINESS OF ASSESSEE, I.E. , TRANSPORTATION OF PIPES, THE FREIGHT USED TO REMAIN PAYABLE AT THE END OF THE YE AR IN PRECEDING ASSESSMENT YEARS AS WELL AS IN SUBSEQUENT ASSESSMENT YEAR. THE DETAILS ARE SHOWN IN THE BOOKS OF ACCOUNT AND THE AMOUNTS ARE PAID IN SUBSEQ UENT ASSESSMENT YEARS AND DEPARTMENT DID NOT TAKE ANY ADVERSE VIEW AGAINS T THE ASSESSEE AND CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED THAT GENUINE FREI GHT AMOUNT WAS PAYABLE. WHEN THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT ON TH E SAME BASIS FOR THE ASSESSMENT YEAR UNDER APPEAL AND THE FREIGHT PAYABL E DETAILS ARE MAINTAINED ITA NOS.45 & 39/AGRA/2013 20 VEHICLE-WISE, THE DESTINATION AND THE AMOUNT, THE I NCOME-TAX AUTHORITIES SHOULD FOLLOW THE RULE OF CONSISTENCY AND SHOULD NO T HAVE TAKEN ANY ADVERSE VIEW AGAINST THE ASSESSEE. THE LD. CIT(A) SHOULD HA VE CONSIDERED THE NATURE OF BUSINESS OF ASSESSEE, I.E., TRANSPORTATION OF GOODS AND BUSINESS PRACTICE BEFORE CONFIRMING THE ADDITION IN THE MATTER. IN THE CASE OF TRANSPORTATION OF GOODS, PAYMENTS ARE USUALLY MADE TO THE TRUCK DRIVERS VEHI CLE-WISE WHICH PRACTICE IS ADOPTED BY THE ASSESSEE IN PRECEDING ASSESSMENT YEA R AS WELL S SUBSEQUENT ASSESSMENT YEARS. THE OWNERS OF THE VEHICLES ARE NO T GENERALLY CONTACTED BY THE PARTIES. THEREFORE, THESE DETAILS WERE SUFFICIE NT TO HOLD THAT THE ASSESSEE HAS GENUINELY RECORDED THE ENTRIES OF FREIGHT IN TH E BOOKS AND NO DISALLOWANCE IS LIABLE TO BE MADE AGAINST THE ASSESSEE. IT MAY B E NOTED HERE THAT WHEN THE ASSESSEE HAS DECLARED CORRESPONDING INCOME IN ASSES SMENT YEAR UNDER APPEAL ON ACCOUNT OF TRANSPORTATION OF GOODS, WHICH IS ACC EPTED BY THE AO, THE AO SHOULD ALSO ALLOW EXPENDITURE INCURRED BY THE ASSES SEE ON ACCOUNT OF TRANSPORTATION OF GOODS/PIPES TO DIFFERENT DESTINAT IONS. WITHOUT INCURRING EXPENDITURE, THE ASSESSEE WOULD NOT HAVE EARNED ANY INCOME. ON THE ONE HAND, THE AO ACCEPTED THE INCOME DECLARED BY THE AS SESSEE BUT CONSIDERED THE EXPENDITURE TO BE NON-GENUINE. IF THE EXPENDITURES ARE CONSIDERED RELATING TO BUSINESS ACTIVITIES OF THE ASSESSEE, THE FREIGHT PA YABLE COULD NOT BE ADDED U/S. 68 OF THE IT ACT. THE LD. CIT(A), THEREFORE, SHOULD HAVE CONSIDERED THE ITA NOS.45 & 39/AGRA/2013 21 EVIDENCES PLACED BEFORE HIM, EVEN ADDITIONAL IN NAT URE. IT IS WELL SETTLED LAW THAT INCOME-TAX AUTHORITIES SHALL HAVE TO JUDGE THE EVIDENCE BEFORE THEM BY APPLYING THE TEST OF HUMAN PROBABILITIES. WE RELY O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD M ORE, 82 ITR 540 AND SUMATI DAYAL VS. CIT, 240 ITR 801. CONSIDERING THE ABOVE PRINCIPLE IN MIND AND NATURE OF BUSINESS OF ASSESSEE AND BUSINESS PRA CTICE FOLLOWED BY THE ASSESSEE IN PRECEDING AND SUBSEQUENT ASSESSMENT YEA RS WHICH IS ACCEPTED BY THE INCOME-TAX AUTHORITIES, WOULD CLEARLY REVEAL TH AT THE ASSESSEE HAS GENUINELY RECORDED THE FREIGHT PAYABLE IN THE BOOKS OF ACCOUNT. THEREFORE, NO ADDITION U/S. 68 WAS CALLED FOR IN THE MATTER. WE A CCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION OF RS.98,72,638/-. THIS GROUND OF APPEAL OF THE ASSESSEE IS ACCORDINGLY ALL OWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD FEBRUARY, 2015 *AKS/-