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TMI Blog1986 (4) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... ,35,445. The assessee gave the following working to the ITO: Gross receipts from clearing operations Rs. 5,36,95,950 Deductions : Gross expenses in clearing operations Rs. 5,16,60,495 Net receipts from clearing operations 20,35,455 The ITO further insisted the assessee to give break-up of the gross expenditure of Rs. 5,16,60,495. The assessee-company furnished the following break up of the expenditure: Main customs paid Rs. 3,56,53,012 Air cargo completed 1,21,29,506 Ground handling charges 5,35,441 Harbour deposits 26,02,937 Other deposits 14,680 Suspense account 7,23,495 . 5,16,60,495 The ITO also requested the assessee to explain the nature of expenditure of Rs. 7,23,910 included under the head 'suspense account'. The assessee was unable to explain the nature of this expenditure at any stage before the ITO completed the draft assessment order under s. 144B(1). The assessee only wrote a letter dt. 26th Sept., 1983 stating that it filed a settlement petition before the settlement commission for the earlier yrs. 1975 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting the cash expenditure from the cash receipts and showing the balance as its own income. The ld. CIT(A) also pointed out that though the assessee was making payments on behalf of its clients and though the assessee was collecting from its clients on behalf of the department, the assessee was deducting the gross outgoings from the gross receipts and disclosing the balance as its own cash income year after year. For the asst. yr. 1981-82 the assessee did not file any settlement petition even though such settlement petitions were filed before the Settlement Commission for the asst. yrs. 1975-76 to 1980-81. 4. Before the CIT(A) the assessee claimed that it had changed its method of accounting from the cash system to mercantile system of accounting from the next asst. yr. 1982-83 onwards. The CIT(A) has pointed out that the assessee tried to argue that the cash system did not disclose the true profits for the present assessment year. The CIT(a) also pointed that in order to arrive at the tune profits, the assessee thought fit to deduct the sum of Rs. 7,23,910 from its income arrived at on cash basis. However, the CIT(A) was of the view that the sum of Rs. 7,23,910 cannot be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has pointed out that it is not at all clear how the assessee can acknowledge service charges receivable by the assessee itself as an 'expenditure' while filing its own return of income. On a query by the CIT(A), the assessee stated that though the sum of Rs. 1,16,498 represented the assessee's own income, it already suffered tax in the earlier assessment years but according to the CIT(A) this is only an ipse dixit for which there is no evidence. The CIT(A) has pointed out that the explanation contradicts the earlier explanation. Another argument by the assessee before the CIT(A) was that it always received advances in excess of what was strictly necessary from the clients and such advances fully suffered tax on cash basis. The CIT(A) has stated that this statement cannot be verified. The CIT(A) has also pointed out that the assessee itself admitted that the entire claim of Rs. 7,23,910 represented expenditure incurred in earlier accounting years. Another explanation offered by the assessee before the CIT(A) was that this sum of Rs. 7,23,910 really represents the amount which the assessee should refund to its clients eventually and instead of refunding the amounts to its clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . vs. CIT (1980) 16 CTR (Cal) 80 : (1981) 132 ITR 814 (Cal) and the decision of the Allahabad High Court in the case of CIT vs. Cosmopolitan Trading Co. 1978 CTR (All) 71 : (1979) 116 ITR 728 (All) on this point. Therefore, the CIT(A) held that what the ITO had done was strictly in accordance with the provisions of s. 145(1) of the IT Act, and in this view the assessee's attempt to set-off the sum of Rs. 7,23,910 against the current year's net profit was arbitrary and unjustifiable and accordingly confirmed the addition made by the ITO. 5. So far as the customs draw back received by the assessee is concerned, the CIT(A) deleted addition made of Rs. 22,451 by the ITO. In that view of the matter the appeal filed by the assessee was allowed in part. As against this order of the CIT(A), the assessee is in appeal before us. 6. Before us, the ld. counsel appearing for the assessee submitted that the nature of work to be done, the areas on which the services of the assessee clearing agent is taken, the percentage of commission receivable by the assessee, when the assessee clearing agent can present its bill and receive its commission are all normally reduced in writing in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not and cannot claim on account its commission in the credit side of its account and make debit entry from the advances in the respective customer's account. Till such time the services are over and the bill was raised, the expenditure and the payment so made on behalf of the customer from out of the advances made by the customers towards port duties, transport charges, insurance survey charges and the commission receivable as per the terms of the contract and other miscellaneous expenditure incurred on behalf of the customer although are known and quantified are kept in a separate account called C.D. Suspense Account. From out of the total advance received by the assessee, the assessee deducts the payments made by the assessee on behalf of its customers including the amount kept in the suspense account in respect of which bills were not yet passed or raised and thus arrives at its commission received actually by the assessee. This was the income that the assessee out of its clearing operations, according to the ld. counsel. 7. For the asst. yr. 1981-82 the assessee received by way of advance for the clearing operations of the various customers, a sum of Rs. 5,36,95,950. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the advance received by the assessee was no income and that assessee was entitled to commission only when the bills were passed. It was therefore, pleaded that only the commission received alone should be considered as income in the assessment year under consideration and not the entire account received towards liability. On the other hand, the ld. Departmental Representative supported the order passed by the CIT (A). 8. We have heard the rival submissions mad by the parties. We have already set out the facts in detail. The authorities below asked the assessee to explain the nature of the amount shown under the head suspense account of Rs. 7,23,910. The ITO pointed out that the assessee was unable to explain the nature of expenditure at any stage before the ITO completed the draft order under s.144B. The IAC also asked the assessee to explain the nature of the suspense account. The assessee gave an explanation. The ITO as well as the IAC were not satisfied with the genuineness of the claim. The details of the expenditure cannot be found either in the day book or the ledger maintained by the assessee for the relevant accounting year. Before the CIT (A), the assessee gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the assessee collected under its bye-laws, in addition to commission and dharmada, brokerage at a certain rate and this brokerage was payable to the concerned brokers. Receipts and disbursements for brokerage were entered in a brokerage account. Any brokerage not paid out by the assessee in any year was carried over as a liability. On these facts, the Allahabad High Court held as under: "That the taxability of such unclaimed balances would depend on the nature and character of the initial receipts. If the amounts initially received partake of the character of a trading receipt, the unclaimed accumulations of such receipt would necessarily be taxable as such if, however, the amounts are initially the trading liability of the assessee, the unclaimed balances cannot be taxed despite the magnitude of the accumulation and deposit its appropriation by the assessee to his own credit. In the present case, the amounts initially received by the assessee were its trading liabilities and, therefore, the amount in question is not liable to be assessed as the income of the assessee." Similarly according to the facts appearing in the case of CIT vs. M/s Shoorji Vallabhdas Co. (1962) 46 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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