The Deputy Commissioner of Income tax, Circle-4(1), , Visakhapatnam V. Dharmana Motors, , Srikakulam

ITA 469/VIZ/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0881 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-08-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 16-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 133A

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.469 & 470/Viz/2018 (Ǔनधा[रणवष[/ Assessment Years: 2011-12 & 2012-13) Deputy Commissioner of Income Tax, Circle-4(1), Visakhapatnam. Vs. M/s. Dharmana Motors, Srikakulam. PAN: AADFD 4215 B (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) C.O. Nos.26 & 30/Viz/2020 (In आयकरअपीलसं./ I.T.A. No.469 & 470/Viz/2018) (Ǔनधा[रणवष[/ Assessment Years: 2011-12 & 2012-13) M/s. Dharmana Motors, Srikakulam. PAN: AADFD 4215 B: Vs. Deputy Commissioner of Income Tax, Circle-4(1), Visakhapatnam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Appellant by : Sri MV Prasad, CA Ĥ×याथȸकȧओरसे/ Respondent by : Sri MN Murthy Naik, CIT-DR सुनवाईकȧतारȣख/ Date of Hearing : 04/08/2022 घोषणाकȧतारȣख/Date of Pronouncement : 13/10/2022 O R D E R 2 PERS. BALAKRISHNAN, Accountant Member : The captioned appeals are filed by the Revenue against the orders of the Ld. Commissioner of Income Tax (Appeals)-2, Visakhapatnam [Ld. CIT(A)] in appeal No. 10441/2016-17/ITO,W- 3,Skm/2017-18 & 10449/2016-17/ITO,W-3,Skm/2017-18, dated 18/6/2017 arising out of the orders passed U/s. 143(3) r.w.s 147 of the Income Tax Act, 1961 [the Act] for the AYs 2011-12 and 2012-13 respectively. The Cross Objections are filed by the assessee for the AY 2011-12 and 2012-13. Since the issues raised in both the Revenue’s appeals are identical as well as the issues in the Cross Objections are interconnected with the Revenue’s appeals, all these appeals are clubbed, heard together and disposed in this consolidated order. Appeal wise adjudication is given as under. आयकरअपीलसं./ I.T.A. No.469/Viz/2018 (Ǔनधा[रणवष[/ Assessment Years: 2011-12) 2. Brief facts of the case are that the assessee is a firm dealing in Two Wheelers and Spares in the name and style of “Dharmana Motors” at Srikakulam and “Dharmana TVS” at Gajuwaka, Visakhapatnam. The assessee filed its return of income for the 3 AY 2012-13 admitting a taxable income of Rs.4,33,962/-. Subsequently, a survey operation U/s. 133A was carried out on 16/12/2015 in both the business premises. The liabilities claimed by the assessee were examined during the survey operations and the assessee was requested to furnish the complete details of the liabilities appearing in the balance sheet. Consequently, the assessee field a letter on 15/2/2016 claiming the liabilities as customer advances and these advances are shown as sales in the subsequent assessment year. Ld. AO not convinced with the replies of the assessee made addition of unproved liability of Rs. 5,68,36,317/- and unrecorded incentives of Rs. 22,31,200/- to the total income admitted by the assessee. Aggrieved by the order of the Ld. AO, assessee filed an appeal before the Ld. CIT(A), Visakhapatnam. The Ld. CIT(A) after considering the submissions made by the assessee with respect to the advances from customers and with respect to the incentives provided by TVS Motors, partly allowed the appeal. The Ld. CIT(A) considering the difference between the advances from the previous year to the current year as unaccounted salesand computed theincome and at 6% on unaccounted sales. Similarly, the Ld. CIT(A) also accepted the reconciliation of the incentives provided by TVS Motors and unreconciled amount of 4 Rs. 1,34,716/- was directed to be added to the income of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 3. The Revenue has raised the following grounds of appeal: “1. The decision of the Ld. C IT(A) is not acceptable on f acts and in law. 2. The submissions of the assessee that it did not recognize advances received f rom custo mers as sales during the year and treated the transactions as sales in subsequent year are contrary to the revenue recognition method to be f ollowed. 3. As the Assessing Officer af ter verifying voluminous data of more than 1400 individual entries shown as sundry debtors with details f urnished by the assessee during assessment proceedings f ound that none of these entries tallied with the inf ormation provided by the assessee, the assessee f ailed to discharge the onus case on it in substantiating the correctness of such entries. Consequently, the Ld. CIT(A), instead of merely allowing the claim of the assessee that all the transactions are explained, ought to have called f or a remand report to cross check the correctness of assessee’s sub missions that all the transactions are genuine advances. 4. As the assessee f ailed to prove either bef ore the Assessing Officer or bef ore the Ld. CIT(A) that the unproved liabilities were indeed recorded in the books of account as sales during the year, the C IT(A) without any evidence contrary to the above is not correct in deleting the addition of Rs.5,68,36,317/- made towards unproved liabilities. 5. Assessee’s submissions that only the difference between the previous year’s liability and present year’s liability in respect of customer advances should be added is not correct as it f ailed to prove that the same customers continued as creditors in successive 5 years. Thus, observation of the CIT(A) that as the liability relating to customer advances f or the current year at Rs. 5,68,36,317/- is more than the liability of Rs. 4,04,14,776/- pertaining to earlier year ie AY 2009-10. Only the difference of Rs. 1,64,21,541/- is to be considered is f actually not correct. Consequently, treating such difference as sales of the current year and estimating prof it @ 6% by the CIT(A) is not correct. Even otherwise, the CIT(A), is not correct in considering the liability of AY 2009-10 instead of considering the liability pertaining to the immediately preceding year ie AY 2010-11 which is Rs. 3,32,06,534/- while arriving at the above difference. 6. As the assessee did not establish that the unproved liabilities were indeed considered by it while recognizing revenue either during the current year or in other years, the CIT(A) is not correct in deleting the addition relating to such unproved liabilities. 7. As the assessee, during the Assessment proceedings did not reconcile f ully the incentives received f rom TVS motors with those recorded in its books of account, it f ailed to prove that there is no concealment of income. Thus, on the basis of a reconciliation statement produced by the assessee during the appellate proceedings and hold there is an unreconciled diff erence of Rs. 1,34,716/- only the Ld. CIT(A) instead of calling f or a remand report to verify the correctness of assessee’s submissions, erred in allowing the assessee’s claim and restricting the addition to Rs. 1,34,716/-. 8. Any other ground or grounds that may arise during the appellate proceedings.” 4. The Ld. Departmental Representative [Ld. DR] relied on the order of the Ld. AO and pleaded that the Ld. AO has considered all the aspects in his assessment order and therefore the same may be upheld. 6 Per contra, the Learned Authorized Representative [Ld. AR] submitted that the advance from customers are due to accounting errors by the accountants who have been engaged temporarily by the assessee. However, the Ld. AR pleaded that these advances have been treated as sales in the subsequent assessment years and accordingly the income has been offered to tax in the return of income in subsequent years. The Ld. AR further pointed out that the Ld. CIT(A) has considered the assessee’s submissions and treated the income at 6% of the advances received during the current assessment year. Similarly, the Ld. AR also pleaded that a detailed reconciliation statement has been submitted before the Ld. AO and the Ld. CIT (A) where as the Ld. CIT (A) considered the reconciliation and taxed only the net unreconciled amount of Rs.1,34,176/-. The Ld. AR therefore pleaded that the order of the Ld. CIT(A) be upheld. 5. We have heard both the sides and perused the material available on record and the orders of the Authorities below. We find from the arguments of the Ld. AR that there is an error in the accounting of the customers’ advances in different years which was converted into sales during the subsequent years. Accordingly, it is admitted by the Ld. AR that the tax on income 7 has been deferred to the subsequent assessment years. It is also evident from the orders of the Ld. Revenue Authorities that the assessee has produced details regarding the customer advances before the Ld. AO who has not disputed the same. Further, as explained by the Ld. AR due to change in the incumbent of the accountant, the details furnished during the reassessment proceedings were not matching with the original list filed by the assessee. However, the Ld. AR pleaded that the original list filed by the assessee filed at the time of original assessment for the amount of actual advances received from customers is as per the audited balance sheet of the assessee. 6. We also find merit in the argument of the Ld. AR that the customers advances carried over year after year and it is the consolidated list of advances as on balance sheet date is done in the liabilities side of the balance sheet. The advances may comprise of earlier advances also. Considering the same, the Ld. CIT(A) has rightly calculated the advances for the current year at Rs. 1,64,21,541/- being the difference between the customer advances of AYs 2010-11 and 2011-12. The Ld. CIT (A) in para 5.4 has recorded his findings which reads as follows: “5.4. I have considered the submissions made by the AR and also gone through the AO’s assessment order. The appellant 8 contested the addition of Rs. 5,68,36,317/- by explaining that the amount shown in the customers advances are nothing but sales and only the prof it at 6% has to be worked out f or levying tax. I have examined the details and explanations f iled by the appellant and f ound that the explanation of the appellant is acceptable and theref ore, the addition of Rs. 5,68,36,317/- is hereby deleted. However, the prof it at 6% on such advances have to be added to the income declared which worked out to Rs. 9,85,292/-. This esti mation of 6% was on the amount of Rs. 1,64,21,541/- representing the diff erence between B/f customers advances of the AY 2009-10 and customer advances of this year 2011- 12 (Rs. 5,68,36,318 – Rs. 4,04,44,776). Hence, this prof it of Rs. 9,85,292/- shall be considered in place of unproved liabilities of Rs. 5,68,36,317/-. The excess amount taken by the AO is hereby deleted.” 7. We therefore find that the Ld. CIT(A) has rightly considered the current year advances and estimated the profit @ 6% based on the declared profits by the assessee, which were not disputed by the Ld. AO in the earlier years. We therefore find no interference is required in the order of the Ld. CIT(A) on this ground and accordingly, this ground raised by the Revenue is dismissed. 8. On the ground pertaining to taxing of unrecorded incentives of Rs. 22,31,200/-, the Ld. AR argued that the TVS company has paid incentives, reimbursement of expenses, interest and other promotional benefits to the dealer / assessee for the AY 2011-12. The Ld. AO observed that the assessee has admitted only 10,33,397/- out of total incentives of Rs. 32,64,597/-. The Ld. 9 AR further pleaded that the incentives have been reconciled and the reconciliation entries have been provided to the Ld. AO. However, the Ld. AO not convinced and decided to tax Rs. 22,31,200/- as unexplained income during the impugned assessment year. The Ld. AR pleaded that the order of the Ld. CIT (A) be upheld. The Ld. DR relied on the of the Ld. AO. 9. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. We find from the submissions made by the Ld. AR that a reconciliation statement has been provided before the Ld. Revenue Authorities. However, the Ld. AO was not being convinced with the reconciliation and rejected the claim of the assessee and proceeded to tax the difference amount of Rs. 22,31,200/- as unexplained income. We also find from the submissions made by the Ld. AR that an amount of Rs. 13,23,961/- represents income / incentives of the assessee. Therefore, the net income of the assessee should be shown at Rs. 10,65,576/- against which the assessee has admitted Rs. 9,30,860/-. Therefore, there is an unreconciled difference of Rs. 1,34,716/- which the assessee failed to reconcile but agreed for the addition to the total income of the assessee. The Ld. CIT(A) 10 in his findings in para 6.4 of the order has observed the above facts and rightly directed the Ld. AO to delete Rs. 22,31,200/- and add Rs. 1,34,716/- to the total income of the assessee. We therefore find no interference is required in the order of the Ld. CIT(A) on this ground and dismiss the appeal of the Revenue. 10. In the result, appeal filed by the Revenue is dismissed. आयकरअपीलसं./ I.T.A. No.470/Viz/2018 (Ǔनधा[रणवष[/ Assessment Years: 2012-13) 11. In this appeal the Revenue has raised the identical grounds to that of the grounds raised in its appeal for the AY: 2011-12. Therefore, our decision given on the issues raised in the appeal ITA No. 469/Viz/20218, applies mutatis mutandis to the issues raised in the instant appeal also. Accordingly, the grounds raised by the Revenue are dismissed. 12. In the result, appeal filed by the Revenue is dismissed. C.O. Nos.26 & 30/Viz/2020 (In आयकरअपीलसं./ I.T.A. No.469 & 470/Viz/2018) (Ǔनधा[रणवष[/ Assessment Years: 2011-12 & 2012-13) 13. The Cross Objections raised by the assessee are in support of the decision taken by the Ld. CIT(A). While adjudicating the 11 Revenue’s appeals on merits, we find no interference is required in the order of the Ld. CIT(A). Accordingly, there is no need to adjudicate the grounds raised by the assessee in its cross objections. Thus, the adjudication of the Cross Objections become infructuous, and they are dismissed as such. 14. In the result, Cross Objections raised by the assessee are dismissed as infructuous. 15. Ex-consequenti, two appeals filed by the Revenue and two Cross Objections filed by the assessee are dismissed. Pronounced in the open Court on the 13 th October, 2022. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 13/10/2022 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–M/s. Dharmana Motors, D.No. 1-7-1-1, Day and Nigh Junction, Near New Bridge Road, Srikakulam. 2. राजèव/The Revenue –Asst. Commissioner of Income Tax, circle-4(1), 3 rd Floor, Direct Taxes Building, MVP Colony, Visakhapatnam. 3. The Chief Commissioner of Income Tax, Visakhapatnam. 12 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax (Appeals)-2, Visakhapatnam. 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam