1986 (4) TMI 149 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of Rs. 7,23,910 under 'customs duty suspense account'
2. Addition of Rs. 22,451 under 'custom refunds payable'

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 7,23,910 under 'customs duty suspense account':

The assessee, a registered firm acting as clearing and forwarding agents, declared a net business income of Rs. 3,80,354 for the assessment year 1981-82. The Income Tax Officer (ITO) adjusted this income to Rs. 10,46,715 by adding Rs. 7,23,910 under 'customs duty suspense account'. The assessee failed to explain the nature of this expenditure adequately. The ITO noted that the amount was not reflected in the day book or ledger for the relevant accounting year and was not actually paid or incurred during the year ended 31st March 1981. Consequently, the ITO disallowed the sum and added it to the returned income.

The assessee argued that it maintained accounts on a cash basis and that the sum of Rs. 7,23,910 was an aggregate of customs duty, harbour dues, service charges, and other expenses incurred on behalf of various customers from earlier periods, pending adjustment. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the ITO's decision, emphasizing that the sum could not be allowed as an expenditure for the assessment year 1981-82 under either the cash or mercantile system of accounting. The CIT(A) pointed out that the assessee did not provide a genuine profit and loss account and failed to substantiate the nature of the expenditure covered by the sum of Rs. 7,23,910.

The assessee contended that the amount represented advances received from clients for statutory and non-statutory payments, which were not yet billed due to incomplete services or pending supporting vouchers. The assessee argued that the commission could only be credited after the bills were passed by the clients, and until then, the amount was kept in a 'C.D. Suspense Account'. The assessee relied on various judicial precedents to support its claim that such advances did not constitute income until the commission was actually received.

The Tribunal noted that the assessee had not provided a consistent explanation before the authorities below. It emphasized the need to verify the contractual agreements between the assessee and its clients to ascertain the nature of the initial receipts. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the ITO to verify the nature of the receipts and their relation to the assessment year under consideration.

2. Addition of Rs. 22,451 under 'custom refunds payable':

The CIT(A) deleted the addition of Rs. 22,451 made by the ITO under 'custom refunds payable'. The assessee's appeal was allowed in part concerning this issue.

Conclusion:

The Tribunal remitted the issue of the disallowance of Rs. 7,23,910 under the 'customs duty suspense account' back to the ITO for further verification based on the contractual agreements between the assessee and its clients. The addition of Rs. 22,451 under 'custom refunds payable' was deleted by the CIT(A), and this part of the appeal was allowed. The appeal filed by the assessee was treated as allowed for statistical purposes.