2015 (9) TMI 1302 - AT - Income Tax

Disallowance of difference in the account of sundry creditor - assessee s pleaded that though credit notes had been issued by ITC aggregating to ₹ 21,99,867/-, but in its books of a/c it did not account for the same because assessee had lodged the claim for ₹ 26,32,303/-, which the assessee continued to show in its stock register as a separate item - Held that - The assessee, admittedly, was distributor of M/s ITC Ltd., and, therefore, had regular dealings with M/s ITC Ltd. Considering the nature of assessee s business, the explanation given by assessee cannot be faulted, because the greeting cards are always year specific and the old stock become obsolete and cannot be used. This practice, therefore, is commercially prevalent in this line of business. Further, as regards the credit entries being not accounted for in assessee s books of account, keeping in view the commercial practice, it cannot be denied that the assessee had to account for the credit notes because it is not that only ITC was required to confirm the balance, but even assessee could also be called upon by the AO to confirm the balance relating to ITC Ltd. in assessment proceedings of ITC. Therefore, it cannot be concluded that assessee was deliberately not accounting for the credit notes. Under such circumstances, normal commercial practice assumes significance and that has to be given due credence. In the stock register, maintained by assessee, the stock lying with ITC has separately been mentioned. Under such circumstance, we are of the opinion that the assessee s explanation was quite reasonable, considering the business practice and, therefore, should have been accepted. In view of above, the addition made on this count is deleted. As regards the assessee s explanation in respect of difference of ₹ 3,03,393/-, that the cheques issued were not presented by ITC, we restore this issue to the file of AO for verification of assessee s claim with reference to the bank account, which has been filed in the paper book before us. Ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of the difference in the account of sundry creditor M/s ITC Ltd.
2. Disallowance of 1/5th of telephone and car expenses.
3. Treatment of various other disallowances made by the Assessing Officer (AO).

Detailed Analysis:

Issue 1: Disallowance of the Difference in the Account of Sundry Creditor M/s ITC Ltd.
The AO observed a discrepancy between the balance shown by the assessee and the confirmation received from M/s ITC Ltd., resulting in an excess credit of Rs. 25,91,620/- in the assessee's books. The assessee provided a reconciliation statement, attributing the difference to amounts debited by ITC but not credited by the assessee, cheques issued but not presented, and differences in opening balances. However, the AO concluded that the assessee had shown excess purchases by Rs. 21,99,867/- and further inflated purchases by Rs. 3,91,753/-, leading to an addition of Rs. 25,91,620/- to the declared income.

The Tribunal noted that the difference of Rs. 1,24,282/- pertained to an earlier year and should not be added in the current assessment year. The addition of Rs. 35,921/- was also incorrect and should be reduced by the AO. Regarding the main addition of Rs. 21,99,867/-, the Tribunal accepted the assessee's explanation that the credit notes were not accounted for due to a dispute over the returned goods, which were still shown as stock in the assessee's books. The Tribunal found this explanation reasonable given the nature of the business and deleted the addition. The issue of Rs. 3,03,393/- related to cheques issued but not presented was remanded to the AO for verification.

Issue 2: Disallowance of 1/5th of Telephone and Car Expenses
The AO disallowed 1/5th of the expenses incurred on telephone and car expenses, attributing it to personal use. The Tribunal found the disallowance reasonable and confirmed the same.

Issue 3: Treatment of Various Other Disallowances
The Tribunal addressed other disallowances made by the AO, which were confirmed by the CIT(A) on the grounds of personal use. The Tribunal upheld these disallowances, finding them reasonable.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes. The addition of Rs. 21,99,867/- was deleted, and the issue of Rs. 3,03,393/- was remanded for verification. Disallowances related to personal use of telephone and car expenses were confirmed. The appeal was thus partly successful, with specific instructions for further verification by the AO.