2015 (10) TMI 2181 - AT - Income Tax

Advances received from customers who booked vehicle for purchase and consequently the advances were also adjusted against sale of vehicle - system of accounting - Held that - There is no change of system of accounting followed by the assessee. Allowing the department to adopt a different approach altogether in this assessment year in question would create an anomalous situation as far as the assessee is concerned. The issue that the dealer receiving advance money from customers where the item is in demand and there is scarcity of supply, it many a times happen that seller receives advance money from the purchaser and as and when supply is made the advance is adjusted against sale price. This is being done by the present assessee before us also. The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee. From the details filed before us, Ld. DR could not point out the discrepancy in the same because these advances were adjusted against sales. When this was pointed out to Ld. Sr. DR, he stated that the assessee is unable to produce the PANs, names and addresses of the parties. He was specifically shown a tax/retail invoice wherein complete details were given except the PAN/Voter I. Card. In our view, PAN/Voter Identity Card is a KYC norm, which does not apply to the sale of goods under the Sale of Goods Act. In view of the above, we are of the view that the AO and CIT(A) both have erred in making and confirming this addition and accordingly, we delete the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 3,99,54,051/- as advances received from customers.
2. Application of Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 3,99,54,051/- as Advances Received from Customers:
The assessee, a dealer in Hero Honda motorcycles, received advances from customers for booking motorcycles. The Assessing Officer (AO) added these advances as income, citing the assessee's failure to provide detailed customer information. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, leading to the present appeal. The assessee argued that these advances were genuine and adjusted against the sale price upon delivery. The Tribunal noted that the assessee followed a consistent accounting practice where advances were recorded under "advance from customers account" and adjusted upon delivery. The Tribunal found that the assessee provided substantial documentation, including money receipts, party-wise details, and invoices, supporting the genuineness of these advances. The Tribunal concluded that the AO's demand for PAN and voter ID details was akin to KYC norms, which are not applicable under the Sale of Goods Act. Therefore, the Tribunal ruled in favor of the assessee, deleting the addition.

2. Application of Section 68 of the Income-tax Act, 1961:
The AO applied Section 68, which deals with unexplained cash credits, to the advances received by the assessee. The CIT(A) upheld this application, stating that the identity, creditworthiness, and genuineness of the transactions were unproved. The Tribunal, however, found that the assessee provided adequate evidence, including detailed invoices and customer information, proving the genuineness of the advances. The Tribunal emphasized that the assessee's accounting practice was consistent and had been accepted by the department in previous and subsequent years. The Tribunal rejected the AO's and CIT(A)'s stance, noting that the requirement for PAN and voter ID was unreasonable for sales transactions. Consequently, the Tribunal held that the application of Section 68 was incorrect and deleted the addition.

Conclusion:
The Tribunal allowed the assessee's appeal, ruling that the advances received from customers were genuine and properly accounted for. The Tribunal found that the AO and CIT(A) erred in applying Section 68 and demanding KYC-like details for sales transactions. The Tribunal's decision emphasized the consistency and transparency of the assessee's accounting practices, leading to the deletion of the Rs. 3,99,54,051/- addition. The order was pronounced in the open court on 5.10.2015.