2018 (3) TMI 379 - AT - Income Tax

Revision u/s 263 - Addition on account of freight and forwarding charges - Held that - The assessee absorbed the freight and forwarding charges as its expenditure by debiting to profit and loss account by giving corresponding credit to the customers account as the assessee had to reimburse the freight and forwarding charges to the customers. This fact is also evident from the statement of sales furnished by the assessee before the lower authorities. We also find from the profit and loss account of the assessee that a sum of ₹ 1,25,34,106.76 is credited towards gross sales before deduction of freight and forwarding charges. We also find that the total freight and forwarding charges were paid for goods consigned through transporters to various parties and these charges were paid by the customers on behalf of the assessee as consignment notes are on To pay basis and for which, the assessee had credited the customers account accordingly. Hence we do not find any infirmity in the accounting treatment given by the assessee and the claim of deduction of freight and forwarding charges in the sum of ₹ 6,33,344/- is in order. The assessee had not made any double deduction claim towards freight and forwarding charges as wrongly suspected by the CIT in his section 263 order and by the ld AO in the giving effect proceedings. The ld DR prayed for setting aside of this appeal to the file of CIT-A for adjudication of the issue on merits. We do not deem it fit and necessary as the facts and the treatment of gross sales before freight and forwarding charges credited in the manufacturing account and the statement of sales submitted before the lower authorities, are staring on us. Absolutely there is no scope for taking a different view in the impugned issue. Assessee had pleaded the same before the CIT in section 263 proceedings ; before the AO and before the CIT-A by way of written submissions together with evidences in support of its submissions, which has not appreciated by the authorities below. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) was justified in holding that the assessee is not entitled to agitate the issue before him.
2. Whether the addition of ?6,33,344/- on account of freight and forwarding charges was justified.

Issue-wise Detailed Analysis:

1. Justification of CIT(A)'s Decision on the Assessee's Right to Agitate the Issue:
The assessee, a partnership firm engaged in the manufacturing and sale of homeopathic medicines, filed its return for the Assessment Year 2007-08. The initial assessment was completed under section 143(3) of the Income Tax Act, determining a total income of ?11,09,145/-. Subsequently, the CIT revised this assessment under section 263, citing an erroneous double deduction claim of ?6,33,344/- for freight and forwarding charges. The CIT directed a de novo assessment, instructing the AO to grant the assessee a reasonable opportunity to present its case. The AO, following the CIT's directions, disallowed the freight and forwarding charges in the re-assessment. The CIT(A) held that the AO was bound by the CIT's directions and dismissed the assessee's appeal, stating that the assessee should have appealed against the CIT's order under section 263. The Tribunal, however, concluded that the CIT's order under section 263 did not explicitly direct the AO to disallow the freight and forwarding charges but rather to conduct a fresh assessment. Thus, the assessee retained the right to appeal against the disallowance made in the re-assessment.

2. Justification of Addition of ?6,33,344/- on Account of Freight and Forwarding Charges:
The assessee argued that the freight and forwarding charges were paid by customers on its behalf and were appropriately debited to the profit and loss account, with corresponding credits to the customers' accounts. The CIT had initially suspected a double deduction claim, but the Tribunal found that the gross sales were credited before deducting freight and forwarding charges. The assessee's accounting treatment was consistent with the sales and consignment notes, showing no double deduction. The Tribunal noted that the freight and forwarding charges were correctly debited to the profit and loss account, and there was no evidence of double deduction. The Tribunal concluded that the CIT's suspicion of double deduction was unfounded, and the AO's disallowance in the re-assessment was not justified. Consequently, the Tribunal allowed the assessee's appeal, deleting the addition of ?6,33,344/-.

Conclusion:
The Tribunal held that the CIT(A) erred in dismissing the assessee's appeal and found that the addition of ?6,33,344/- on account of freight and forwarding charges was unjustified. The appeal of the assessee was allowed, and the disallowance was deleted.