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TMI Blog2014 (11) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... d debt - the assessee found that it had billed the purchaser incorrectly and therefore issued credit notes and reduced the bill amount and correspondingly revised the debts as well - the Tribunal was correct in holding that it is not a case of writing off a bad debt - The buyer was not legally or lawfully bound to pay the surcharge amount to the assessee and the assessee was not legally entitled to recover the same from the buyer - it cannot be said that there is an of element of bad debt, which has to be written off. The assessee had complied with the requirement of the RBI Master circular C-15 for regularising the transaction, which is an export sale - The excess amount on account of surcharge which is not lawfully recoverable has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orter erroneously applied surcharge for Ferry Moly in respect of certain exports, though the component did not contain Ferry Moly. In respect of other goods, higher rate of surcharge was applied erroneously. The discrepancy, on account of the erroneous levy of surcharge, amounted to ₹ 1.68 crores, which was noticed by the assessee at the time of finalisation of audit for the financial year 2004-05. On noticing the discrepancy, the assessee rectified the mistake by issue of credit notes, which resulted in reinstatement of the sales and also the debtors. The error was noticed by the assessee somewhere in May, 2005 during the time of audit for the purpose of filing the returns and the correction was made in the return filed on 26.10.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the financial year 2004-05 by netting the bad debts from the sale proceeds, which according to the Assessing Officer is not in order. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who on considering the above fact and the plea of the assessee that the higher rate charged in the invoice on account of surcharge applied erroneously, which resulted in higher claim of ₹ 1.68 crores, which was not lawfully due to the assessee and having realised the same at the time of accounting for the purpose of filing the return, they have rectified the mistake by issue of credit notes in respect of the sale invoice. According to the assessee, it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as per RBI circular. AO has not disputed the contention of the appellant that accounting of sales of ₹ 1.68 crores to M/s.Tyco Valves Controls, USA is on account of error. It is well settled that what is to be taxed is the real income unless the purpose of the transaction is to defeat the fundamental principal of the Act (State Bank of Travancore Vs. CIT 158 ITR 102 (SC), which in my opinion is not the case given the facts of the case of the appellant. It does not result at all, there cannot be tax, even though in book-keeping an entry is made about a 'hypothetical income' which does not materialize [CIT Vs. Shoorji Vallabhdas Co. 461 ITR 144 (SC)]. In the case of the appellant, the book-keeping entry is due to error of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our opinion, be equated with a bad debt write -off. The customers were not legally and lawfully bound to pay such excess amount to the assessee and when there is no legal right vested on the assessee to recover the amount from the customers, there cannot be any debtors at all. When the assessee itself had recognized the mistake, it passed reversal entries. Just because assessee had come to know of the error only after the end of year will not mean that it should be taxed on amounts which were never its income. As noted by the ld. CIT(Appeals), endeavour of the Revenue should be to tax real income and not hypothetical income. We are of the opinion that ld. CIT(Appeals) was well justified in deleting the addition. No interference is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1.68 crores, on the excess billing by the assessee on account of the wrong application of surcharge of Ferry Moly and Nickel, which were used in the manufacture of products supplied to the customer, cannot partake the character of the bad debt. When admittedly the liability to surcharge did not accrue with the sale of the goods during the financial year ending 31.3.2005 and the error in the bill came to be noticed by the assessee at the time of audit at the end of the financial year, which occasioned the correction of the error in the billing, it cannot be equated to that of writing off bad debt, which calls for totally a different nature of transaction. If goods have been actually sold and the sale proceeds are not realised, then the q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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