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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 ..... al year ending 31.03.2005, they sold goods to M/s.Tyco Valves and Controls, L.P. USA. In the invoice, the respondent/assessee/exporter 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Master Circular C-15, on 16.11.2005, i.e, during the financial year 2005-06, whereas the debt has been claimed by the assessee 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 Rs. 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess charged on M/s Tyco Valves and Controls, Stafford, USA and to write off at the appellant's end as per RBI circular. AO has not disputed the contention of the appellant that accounting of sales of Rs. 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 Vallabh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes and reduced the bill amount and correspondingly reduced the debts also. This cannot, in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax (Appeals) and the Income Tax Appellate Tribunal, it is clear that the sum of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequent legal action under the relevant provisions of the Foreign Exchange laws. In this case, the assessee had noticed the error and rectified the same in the balance sheet before the return was filed. It offered to tax the actual income and deleted the income, which is relatable to the erroneous claim under surcharge. Hence, the Tribunal was justified in holding that there is no question of tax on a hypothetical income. We find no error in the order of Tribunal.
11. Accordingly, we find no question of law much less any substantial question of law arises for consideration in this appeal. The order of the Income Tax Appellate Tribunal stands confirmed and this Tax Case (Appeal) stands dismissed. No costs. X X X X Extracts X X X X X X X X Extracts X X X X
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