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TMI Blog2022 (11) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... ally mentioned S.68, at the same time however, he has not citied the provision of law conferring jurisdiction in absence of which he was not legally justified to make the addition. But otherwise also considering the issue in the light of the provision of S.68, no doubt the law is well settled it is that only initial onus lay upon the assessee, but he is not required to prove to the hilt and the moment such initial onus is discharged the same then gets shifted to the AO. The facts are not disputed that the assessee acted as a dealer of Maruti Suzuki for Ajmer District and as per usual practice, it was in receipt of advances towards booking of various vehicles of Maruti Suzuki. We find the advances so received have been adjusted towards the sale of the vehicle, sometime within the year or sometime in the later year/s. In some cases, it is claimed that the advance was refunded back to the customer. Looking to nature of transaction, thus, it the case of trade creditor but not a case of cash creditors hence, to prove the capacity of the customer is neither practicable nor desirable under law. But otherwise also we are satisfied that the identity, the capacity of the creditor and also th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has raised the following grounds of appeal. ITA NO. 396/JP/2015 - A.Y. 2010-11 ''The ld. CIT(A) has erred in confirming the addition for:- 1. Rs.42,988/- for prior period expenses for interest & telephone as claimed in profit & loss account. 2. Rs.20,28,74,955/- being advance received from customer against sales. 3. Rs.2,16,000/- being alleged excess commission paid and thus disallowed.'' 2.1 First of all, we take up the appeal of the assessee in Ground No.1, wherein the Disallowance of Rs. 42,988/- on account of Prior Period Expenses is under challenge. 2.2 Brief facts of the case are as noted by the AO are that on perusal of statement (I) of 3CD (PB-23), it is seen that Prior Period Expenses of Rs.42,988/- pertaining to A.Y. 2008-09 on account of Interest and Telephone expenses were claimed. When asked, the assessee submitted the details (PB 26) but allegedly did not explain the same and hence the AO disallowed the same. 2.3 In the first appeal the ld. CIT(A) also confirmed the disallowance vide order dated 31.03.2015 in appeal no. 09/2013-14, alleging that there is no evidence showing that such liability crystalized this year. 2.4 The ld. AR of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor nowhere opined that the liability relating to such expenditure was not ascertained or quantified and hence did not crystalized in this year. Thus claim of the assesse directly supported by statutory audit report and in absence of any contrary evidence AO should not have disallowed. 3. Kindly refer 3.1 In the case of Bharat Earth Movers v/s CIT (2000) 162 CTR 325/245 ITR 428 (SC), it was held that "The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.--Metal Box Co. of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) and Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC) : TC 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly expended or paid. Just as actual receipts as well as those accrued due are brought in for income - tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business - Metal Box Co. of India Ltd. v/s Their Workmen (1969) 73 ITR 53 (SC). 3.6 Chambal Fertilisers& Chemicals Ltd. v/s ACIT (2014) 112 DTR 140 (JP) Hence the disallowance kindly be deleted in full. 2.5 On the other hand the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to upheld the addition/disallowance. 2.6 We have carefully considered the facts of the case, finding recorded in the impugned orders, the rival contentions raised by both the parties as also the material placed on record, we have also gone through the judicial pronouncements cited by the parties. There is no dispute that in the accrual basis of accounting the expenditure may pertain to an earlier year but corresponding liability relating thereto has crystallized during the current year, wherein such expenditure can be booked and claimed. However, the evidence supporting the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances were actually received from customers. Assessee has failed to bi-furcate financial year wise advances received. 3.3 In the first appeal the ld. CIT(A) confirmed the action of the AO vide order dated 31.03.2015 in appeal no. 09/2013-14 holding as under: "I have considered the contentions of the appellant as well as assessment order. It is seen that assessee had claimed to have received advances from customers off Rs. 20,28,74,955/- (opening balance being Rs. 245921160/- and closing balance being Rs. 448796115/-) during the year against the sale of cars. This amount has been shown as 'advance from customers'. The AO required the assessee to furnish names, details and addresses of the customers from whom advances were shown to have been received by letter dated 22.10.2012 and 222.02.2013. Further the confirmations as well as the ledger accounts of the said creditors were called for by questionnaire dated 17.03.2013 along with the copy of cash book and bills regarding the sale of vehicles claimed to have been sold against the said advances. In response to above queries, assessee has only filed ledger accounts of the customers and sale bills. The AO noted that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Obviously the assessee has not been able to discharge onus which lies on him regarding the advances shown in the books of accounts. The assessee's claim that AO's view is that there is deferment of sales is not correct as AO has added the advances from customers claimed to have been received during the year of Rs. 202874955/- due to the inability of the assessee to prove the source of advances as well as sale of the goods against the said advances as is in the contention that GP rate may be applied in respect of above advances is without any basis. Further the assesee's claim that in the later assessment year i.e. A.Y. 2011- 12, the AO has held that assessee has indulged in deferment of sales and GP has been applied. In this context, it may be mentioned that findings of the later assessment year which is based on enquiries and evidences gathered during that year can not be applied in the case off assessee in the earlier year. The every assessment year is separate unit for taxation purposes and conclusions have to be drawn based on the facts gathered by the AO in the year concerned. The assessee has submitted a chart claiming the deferment of sales. However no such claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts (which was in cash and cheque both). The AO clearly admitted that: "it is noticed that in majority of the cases cash and cheques were received as advance and entry regarding sale of vehicles was also made in the ledger account." Therefore, the fact behind receipt of such advances was self-explanatory. Trade creditor cannot be treated like cash creditors which being loans are separate (schedule 2) (PB-8). 2.2.2 3 S.68 can be applied w.r.t a particular sum. Receipt by cheque could not be covered u/s 68. 2.2.2 On this aspect direct decision and very relevant in the present context was in the case of Smt. Harshila Chordia vs. ITO (2008) 298 ITR 0349 (Raj.) (DPB 1-8). "Apparently when the Tribunal has found as a fact that the assessee was receiving money from the customers in hands against the payment on delivery of the vehicles on receipt from the dealer the question of such amount standing in the books of account of the assessee would not attract s. 68 because the cash deposits become self-explanatory and such amount was received by the assessee from the customers against which the delivery of the vehicle was made to the customers. The question of sustaining the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be considered unexplained for want of their confirmations, cash receipts, cash book, etc. In any case, such a large number of Creditors-Customers (1449 customers) whose credit balance of advances are under consideration, could not be treated as unexplained. The AO even examined the invoices (AO pg. 8 Last). 2.3.2 Pertinently, during the course of the assessment proceeding for AY 2011-12, the assesse submitted the various supporting evidences being the copy of the temporary registration certificate (TRC), copy of insurance etc. with respect to the particular amount of the advance received in AY 2010-11 but booked as a sale in AY 2011-12 and onwards. 3. All advances adjusted in sales: 3.1 Otherwise, the various allegations raised by the authorities below is nothing but a suspicion over the identity of the customers booking the vehicle and providing advance of Rs. 20.28 Cr. and as regards the genuineness of the transaction, the AO and ld. CIT(A) has completely ignored the detailed charts submitted by the assessee, (during assessment proceedings) showing the fact that the advances received in A.Y. 2010-11 were adjusted in sales in 3 different years i.e. A.Y. 2011-12, 2012- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also, were adjusted in sale but in different years then the year of receipt. Even the AO admitted this fact and that is why, he alleged deferment of sale in other years. 4.3 Rule of consistency cannot be violated. Please refer case laws cited in ITAT w/s Pg 24 Pr. 2 of A.Y. 2011-12 in ITA No. 397/JP/15, Kindly refer SardarKehar Singh v/s CIT (1991) 92 CTR 88/(1992) 195 ITR 769 (Raj), and a recent decision in CIT v/s Excel Industries Ltd. (2013) 358 ITR 295 (SC). 5. Though the lower authorities alleged that on making inquiries form the RTO with reference to the subjected advances of the customers, it was found that no sales were registered in the name of such customers (AO Pg. 9-10). However, it was for the simple reason that the assessee as per the consistent policy of recognizing sale, has accounted for / converted the subjected advances of this year in the sale of the subsequent year/s. Notably, the five cases selected on random basis at Pg. 9 when sent to RTO it was replied that they did not find any registration in those cases. Whereas, the appellant had already booked/ adjusted the advance in sales in all the five cases in later years (kindly refer chart PB 114-116). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on were concerned. No new material or reason has been assigned by the AO to take a departure from the settled history in the subjected year. In view of these unrebutted facts such, the credit on account of the advances received, are self-explanatory and no addition u/s 68 of the Act or otherwise, was called for. 8. The AO and CIT(A) both has unwarrantedly stressed upon the point that the cash book and cash receipt were not produced however, they did not deny that the accounts of the company were duly audited not only under the provisions of the Companies Act 1956 as also under Tax Audit u/s 44AB of the Act. Notably, the Statutory Auditor has given a clear certificate and finding that in their opinion proper books of accounts as required by the law were kept by the company and showing True and Fair in the Auditor's Report dated 04.09.2010 (PB-3). There apart, in form 3CB of the Tax Audit Report, the Tax Auditor has examined the Cash Book, Bank Book, etc. as mentioned in clause 9 (PB-14). In any case, the authorities below admitted that in the ledger account, it is found that cash and cheque received were entered as admitted by the AO at pg. 5 pr. 8.1. 9. No adequate and rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 & 9), drawing an adverse inference that the assesse did not account for the sale of the advance amounts received from the customers. The AO also sent 5 bills to RTO on random basis. But neither the terms of the enquiry made u/s 133(6) nor the reply and print shots of the investigation made, were ever confronted to the assessee before passing the impugned assessment order (though it is reproduced in the assessment order now at pg 9 & 10 but was not confronted earlier). Hence it is a case of gross violation of principle of natural justice which has vitiated the assessment proceedings. Consequently, the impugned assessment should be quashed. 9.3. The law is well settled that in a case where there is a violation of Principles of natural justice and a party has been deprived of its valuable rights of being heard effectively yet, an order has been passed containing huge additions, such an action has to be considered as having been done without jurisdiction and vitiating the entire order which, results into as nullity and is not case of mere irregularity. Kindly refer Colonisersvs. ACIT [1992] 41 ITD 57 (Hyderabad) (SB)/[1993] 45 TTJ 114 (Hyderabad) (SB) (DPB 17-30) holding that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set aside as void only in so far as the additions by way of cash credits alone are concerned, which are separable from the other additions in the order that are not challenged and consequently becoming thus non est in the eye of law." 9.4. The A.O proceeded in a great haste and the appellant could not have had the opportunity to properly clarify and makes explanation on the doubts of the AO nor he provided any opportunity of cross examination of the documents though he relied upon for making huge additions totalling to Rs.20.29 Cr. in a few days only. The law clearly prohibits the AO to use of material gathered at the back of assessee. Kindly referVimal Chandra Golecha v/s ITO &Anr. (1982) 134 ITR 119 (Raj.), ITO &Anr. v/s GargidinJwala Prasad Maholi& Ors. (1980) 124 ITR 203 (All). Hence any addition based on the basis of the material collected and not confronted to the appellant, has to be deleted altogether on this short ground alone. Also kindly refer Andaman Timber vs CCE (2015) 281 CTR 241 / 127 DTR 241 (SC) (DPB 12-16), wherein it was held that "Conclusion: Not allowing Assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains unexplained. Rather when the complete amount received and all legal formalities have been full filled, the sale bill issued & advances adjusted. "FOUR WHEELER" is such a product which cannot be sold without bill nor can be retained by customer without registration with RTO and thus it cannot be alleged that the advances are unexplained. When the A.O. has considered complete books of accounts, accounting system acceptable and has also verified the stock register quantity wise, quality wise and no defects there in found. Further against total sales as on 31.03.2009 was Rs. 40.48 Crores and as 31.03.2010 the same has gone upto 58.60 Crores and as 31.03.2011, the sale has touched to Rs. 114.86 crores and no objection, thereon has been raised by A.O. then how these advances can be considered as unexplained. The A.O. has only raised-the issue of "SHORTAGE OF TIME" whereas the first query letter itself was issued in February 2013 for year ended 31.03.2010 and all the queries raised from time to time have been complies. A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by the assessee, that such credit has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he logic & discussion as made by A.O. clears that A.O. is also not sure & justified for considering these advances as unexplained; rather the A.O. is the view that "SALE has been deferred. Even if A.O's view of "DEFERRING THE SALES" is accepted than only on this amount of Rs. 20,28,74,955.00 (Advances presumed to raised during the year as per A.O. the "GROSS MARGIN%" can be applied considering them as sales deferred. on the analysis of Gross Margin for last 3 years if made is as under;- F.Y SALES IN RS. GROSS MARGIN GROSS MARGIN % 2007-08 2008-09 40,48,20,629.00 2,04,269.00 .05% 2009-10 58,60,77,936.00 17,97,028.00 .31% Further since sales bills actually raised in succeeding year & adjusted to these advances than due credit for 'NET PROFIT' in succeeding year is requested." Hence the addition so made kindly be deleted in full." 3.5 On the other hand, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to upheld the addition/disallowance. 3.6 We have carefully considered the facts of the case, finding recorded in the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. But otherwise also we are satisfied that the identity, the capacity of the creditor and also the genuineness of the transactions in the facts of the present case, are fully established and evident from the material available on record in as much as copies of the ledger accounts and sales bill raised against the customer, were submitted in more than 1400 cases. The provisions of Motor Vehicle Act essentially require registration by the registering authority in the name of the customer, further mandating insurance which are not possible without establishing identity of the owner. Moreover, in 80% cases such advances were coming from the preceding year AY 2009-10 hence there was no question to raise doubt in this year. A categorical finding has been recorded by the AO somewhere in the Assessment Order that in majority of the cases cash and cheques were received as advance and entry regarding sale of vehicles was also made in the ledger account. During the course of the hearing the ld. AR drew our attention to a detailed chart showing summary of advances received from customer's vis a vis the accounting treatment given in different years, available at the assessee's Paper Book at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order with regard to whom inquiries were made from the registering authority who replied that they did not find any registration of those vehicles. However, the ld. AR strongly opposed the reply and submitted that in all those 5 case, where advance was received, invoices were raised the amount were adjusted towards the sale, as we also noticed from pages 114-116 of the Paper Book. We find that the fact of filing such chart and details before the CIT(A) are admitted by him but his objection that the quantification made in the charts was without any supporting evidences is not justified for such finding is found incorrect from the facts available on record. To take an example a vehicle M-Alto Lxi (M) was sold to Capt. Dr. P.S. Virdi for Rs. 2,58,275/- vide invoice no. 384 dated 15.05.2010 (which is a part of the Assessment Order), a perusal of chart at assessee's PB page 114 shows chesis no. 1469042 and Engine no. 3726466 Alto Lxi and other details of the invoice which duly reconcile with the ledger account of this customer placed at assessee's PB page 77 and a perusal of which shows the payment of registration charges to the RTO (Rs. 12,700/) and insurance (Rs. 9,303/-) through che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that no addition of the entire customer advances was made in this manner. Thus, interestingly, the assessing officer himself was not sure of this approach of disbelieving the amount of the customer advances in other years. However, the ld. DR could not dispute the fact. It is also noticed that the authorities below on one hand have disbelieved the genuineness of the advances but at the same time also alleged deferment of the sale, which is self-contradictory. The very contention of the revenue of deferment of sale implicitly admits that sales were not suppressed but merely deferred. We also find that there is no merit in the allegation of deferring the sale of the current year to the later years for the reasons that though such allegation has been made by the AO in all the three years however, the figures were arrived at in other two years only. Such working could not be considered as full proof or beyond reasonable doubts, because mostly such working has been done merely on estimate basis and the assessee was never confronted of estimations made of the figures towards deferment of sale. Therefore, the conclusion that the sales of the current year were deferred in later year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reply dated 21.03.2013, wherein the commission was shown at Rs.1,04,000/- only. Therefore, the AO alleged that the assessee claimed excess commission of Rs.2,16,000/- (Rs.3,20,000/- less Rs.1,04,000/-) and accordingly, disallowed the same. 4.3 In the first appeal the ld. CIT(A) confirmed the action of the AO vide order dated 31.03.2015 in appeal no. 09/2013-14 holding as under: "I have considered the contentions of the appellant as well as assessment order. It is seen that the assessee has not filed any affidavit of Smt. Kamlesh Devi or details of vehicles sold by her on commission basis. As regarding the payments, the only payment of Rs.82,800/- and Rs.10,800/- is by cheque and rest payments have been claimed on cash basis. As such the commission payment of Rs.2,16,000/- as well as the services rendered by the above person for earning above commission are not proved. Accordingly, the disallowance made by the AO from the commission expenses of Rs.2,16,000/- is confirmed. " 4.4 During the course of hearing, the ld. AR placed following submissions "Firstly, we strongly rely upon the submissions filed before the CIT(A) and those reproduced at Pg. 22 & 23 of CIT(A) order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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