Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs New Card Board Industries on 20 September, 1991
Equivalent citations: [1992]40ITD50(KOL)
ORDER
N. Pachuau, Accountant Member
1. These cross-appeals are filed by the revenue and the assessee. The relevant assessment year involved is 1982-83. They are disposed of by a common order for the sake of convenience. As regards appeal filed by the revenue, the first objection is against the deletion of Rs. 25,000 on account of a debit note issued by the assessee. The brief facts of the case are that the assessee had income from business of supply of paper and paper boards. It also had transport business during the year. On an examination of the books of account the Assessing Officer has found that the assessee did not account for a debit note of Rs. 25,000 raised on 26-10-1981 relating to its claim for rain water damage of orient craft paper supplied by M/s. Bengal Trading Co. The claim for the damage was raised as per assessee's letter No. CBA 15073 dated 21-7-1981 and the amount of damage was settled at a lump sum of Rs. 25,000. It was submitted on behalf of the assessee that the aforesaid amount was not accounted for in the present assessment year, i.e., 1982-83 as it was settled subsequently and the same was duly accounted for in the year of settlement. The Assessing Officer did not accept the aforesaid explanation on the ground that the debit note was raised by the assessee in this year. By not accounting for the aforesaid amount, it resulted in an under-statement of profit from business. The amount of Rs. 25,000 was accordingly added to the trading account of the assessee.
2. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). It was submitted that although the assessee raised to debit note of Rs. 25,000 on 21-7-1981 against the supplier the dispute was settled in the subsequent assessment year when the supplier accepted the debit note and paid Rs. 25,000 to the assessee. The assessee had duly accounted for the aforesaid amount as its income in the year of receipt. The Ld. CIT(A) has accepted the assessee's contention. He has taken a view that though the assessee sent a debt note to the supplier, the right to receive the amount did not accrue till the latter accepted the debit note. The supplier in the subsequent assessment year had accepted the debit note and agreed to pay the amount to the assessee who had duly accounted for the same as its income for that assessment year. He, accordingly, held that there was no justification to treat the aforesaid amount as the assessee's income in the impugned assessment year. The addition was deleted.
3. Shri S.C. Sen, Ld. departmental representative while objecting to the order of the Ld. CIT(A), has supported the order of the Assessing Officer. The Ld. departmental representative has submitted that the method of accounting followed by the assessee was mercantile system and the previous year relevant to the assessment year 1982-83 expired on 27-10-1981. Since the debit note was raised on 21-7-1981 which is within the previous year relevant to the present assessment year and the supply of goods was also made during the previous year, the debit note amount has rightly been added to the total income of the assessee. Since the debit note amount was not reflected in the books of account of the assessee nor in the sundry debtors' list furnished by the assessee, the Ld. CIT(A) is not justified in deleting the addition. On the other hand, Shri S. Bagchi, Ld. counsel of the assessee has strongly supported the order of the Ld. CIT(A). In support of his submission, the Ld. counsel of the assessee has filed a paper book containing pages 1 to 28 and argued that the debit note originally raised by the assessee as per its letter dated 21-7-1981 was not accepted by the supplier, namely, M/s. Bengal Paper Trading Co. The assessee has requested the supplier to carry out an on the spot inspection of the goods damaged by rain water. Subsequently, after being satisfied with the assessee's claim, the supplier company settled the issue by agreeing to pay Rs. 25,000 to the assessee. The aforesaid amount was duly accounted for by the assessee-company in its profit and loss account for the assessment year 1984-85 and the same was offered for taxation. There is, therefore, no infirmity in the order of the Ld. CIT(A) which deserves to be sustained.
4. On a careful consideration of the facts of the case and the arguments advanced by both sides, we do not find any infirmity in the order of the Ld. CIT(A). It is not disputed that the assessee had raised a debit note amounting to Rs. 25,000 on account of damage of paper supplied by M/s. Bengal Paper Trading Co., as per letter No. CBA 15073 dated 21-7-1981 which was not originally accepted by the supplier company as per letter No. BPTC/81-82 dated 1-12-1981, a copy of which was placed at page 21 of the paper book. The assessee also had requested the aforesaid company inviting them to have inspection of the damaged goods to ascertain the condition etc., vide letter dated 18-1-1982. As per pages 27 and 28 of the paper book M/s. Bengal Paper Trading Co. was duly debited by the assessee for Rs. 25,000 on 15-11-1982. The aforesaid amount was also duly accounted for by the assessee in its profit and loss account for the period from 16-11-1982 to 4-11-1983 relevant to the assessment year 1984-85. From, the above facts it is clear that the claim of the assessee was not accepted by the supplier company within the accounting year relevant to the assessment year 1982-83 and it cannot be said that the debit note amount was due and accrued to the assessee during the previous year relevant to the assessment year 1982-83. We, therefore, find that the Ld. CIT(A) is perfectly justified in deleting the addition. The appeal by the revenue on this point is without any merit. It is, accordingly, rejected.
5. The next objection raised by the revenue is against the deletion of addition of Rs. 12,720 under Section 69C of the Income-tax Act, 1961. The brief facts of the case are that on scrutiny of the cash book and the vouchers relating to freight and forwarding account, the Assessing Officer has found that various expenses incurred in the months of July to September 1981, were not recorded in the cash book on the dates when the expenses were incurred but recorded sometimes later, as per details given in the assessment order. The Assessing Officer has taken a view that no cash came out from the cashier of the assessee to meet the expenditure when the amounts were incurred. He has, therefore, taken a view that unaccounted money of the assessee was utilised to meet the expenses and the amounts were recorded in the cash book subsequently to regularise the transactions. He has, therefore, taken Rs. 12,720 being the peak amount (incurred on 21-8-1981 and 30-8-1981 but recorded in the cash book on 31-8-1981) as income of the assess.ee from some undisclosed sources. The amount was added to the total income under Section 69C of the IT Act.
6. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT (Appeals). The Ld. CIT (Appeals) after considering the explanation furnished by the assessee to the Assessing Officer has taken a view that the assessee itself recorded in the vouchers and the cash book the actual date of incurring the expenditure and the dates on which the expenses were recorded in a consolidated form in the cash book. The expenditure actually incurred came out of the assessee's cash balance on each date and the assessee had enough cash balance on those dates when the expenses were actually incurred though they were subsequently recorded in the cash book. The Ld. CIT(A) has further taken a view that unless it is proved that the assessee had no actual cash balance on the date of actual incurring of the expenditure no case can be made to assess the said sums as assessee's income under Section 69C of the Income-tax Act. The Ld. CIT(A) has also taken a view considering the volume of the assessee's business, the expenses incurred were small and in the nature of assessee's business, it was required to pay cash in advance to the employees to make payments on the spot towards the freight and forwarding charges and after making the payments and on the basis of accounts submitted by the employees, cash transactions were recorded in the books of account. He, therefore, deleted the addition as he did not find any justification on the part of the Assessing Officer to assess the amount as income from undisclosed sources.
7. Shri S.C. Sen, Ld. departmental representative while objecting to the order of the Ld. CIT(A) has reiterated that facts of the case and the reasons recorded by the Assessing Officer. He has argued that no evidence whatsoever was produced before the Ld. CIT(A). The arguments and submissions made by the assessee were not verified along with supporting documents, if any. The Ld. CIT(A) has no evidence and basis to justify the deletion of the addition made by the Assessing Officer. On the other hand, Shri S. Bagchi, Ld. counsel of the assessed has argued that the explanation furnished by the assessee before the Assessing Officer and the nature and business practice of the assessee were properly considered by the Ld. CIT(A). He is perfectly justified in deleting the addition made by the Assessing Officer.
8. The order of the Ld. CIT(A) deserves to be sustained. The Ld. counsel of the assessee has also filed a paper book in support of his argument to the effect that the assessee had sufficient cash balances on the dates when various expenses pointed out by the Assessing Officer were incurred.
9. On careful consideration of the facts of the case and the arguments advanced by both sides, we are of the opinion that the appeal by the revenue cannot be allowed. We find that the Ld. CIT(A) has considered the issue properly in his appellate order. He has also considered the nature of the assessee's business and the practice followed in making payment towards freight and forwarding charges. He has also, made a clear finding that the assessee recorded the expenditure in the vouchers and in the cash book on the actual dates when it was incurred which was subsequently recorded in a consolidated form in the cash book. He also found that the expenditure incurred came out of the assessee's cash balance on each date and the assessee had enough cash balance on those dates when the expenses were incurred though they were subsequently recorded in the cash book. This finding was not controverted by the revenue. The Ld. CIT(A) also had considered the volume of the assessee's business and the practice followed as regards the payment of cash in advance to the employees for the purpose of making payments towards freight and forwarding charges and the subsequent submission of accounts by the employees which were recorded in the books of account. In view of above we find that the CIT(A) is perfectly justified in deleting the addition of Rs. 12,720. The order of the Ld. CIT(A) is, accordingly, upheld.
10. As regards the appeals filed by the assessee the only ground taken is that the Ld. CIT(A) is not justified in confirming the addition of Rs. 21,431 under Section 40A(3) of the Act for payments made on account of freight charges.
11. The brief facts of the case are that on examination of the books of account and the relevant vouchers the Assessing Officer found that the payments exceeding Rs. 2,500 in each case were made in cash by the assessee to M/s. Shibnath Pd. Singh on various dates in the months of July and August 1981 totalling to Rs. 52,307 and also to Meenakshi Roadways at Rs. 10,676. The total amount, therefore, comes to Rs. 62,983. The aforesaid amount was disallowed under Section 40A(3) of the Income-tax Act and added to the total income of the assessee.
12. Before the Ld. CIT(A) it was contended that in respect of most of the payments, the provision of Section 40A(3) of the Act was not attracted. The Ld. CIT(A) has found that out of the 14 payments mentioned by the Assessing Officer in his assessment order, 13 were paid through S.P. Singh, one of clearing and forwarding agents, as per bills issued by him. The assessee also stated that although the ITO had mentioned consolidated figure of payments showing each payment to be exceeding Rs. 2,500, actually each payment consisted of separate payments made towards the lorry hire, octroi, loading and unloading as well as delivery charges. On an analysis of the details furnished by the assessee, the Ld. CIT(A) found that the provisions of Section 40A(3) of the Act are not applicable in respect of the payments mentioned by the ITO at serials 1, 2, 4, 5, 6, 7, 12 and 13 in the assessment order. As regards the remaining five payments the Ld. CIT(A) as per details given at page 3 of his appellate order has found that only payments on account of freight charges amounting to Rs. 21,431 exceeding Rs. 2,500 in each case would attract the provisions of Section 40A(3) of the Act. The balance amount on account of octroi, loading and unloading and delivery charges being below Rs. 2,500 in each case do not attract the provisions of the aforesaid section. The Ld. CIT(A), has, therefore, deleted Rs. 62,983 and sustained Rs. 21,431.
13. Shri S. Bagchi, Ld. counsel of the assessee while objecting to the order of the CIT(A) has reiterated the facts of the case, nature of business of the assessee and also the arguments advanced before the Ld. CIT(A). The Ld. counsel of the assessee has also argued that the assessee's case is covered by Circular of the CBDT being Circular No. 220 issued on 31-5-1977. It is submitted that Clauses (iv) and (v) cover the assessee's case as the Clearing and Forwarding Agent refused to accept the payments by way of crossed cheque/draft since the Agent was required to pay in cash in turn to persons to whom payments have to be made. The Ld. counsel of the assessee has further filed an affidavit at page 1 of the paper book sworn by P.B. Ajmera, a partner of the assessee-firm to the effect that the Clearing and Forwarding Agent did not undertake as a rule any job except on payment of their bills in cash as the expenses that they have to incur by way of railway freight and other freights, loading and unloading charges require ready cash. The assessee's counsel has further filed at page 2 of the paper book a letter from Shiv Nath Pd. Singh, Clearing and Forwarding Agent, 67/D Belgachia, Calcutta to the effect that it was not possible in their line of business of forwarding and clearing to undertake any work except on payment of charges by cash in view of the peculiar nature of the job and cash payment was, therefore, insisted by them as a matter of practice. The Ld. counsel of the assessee has also relied on the decision of the Hon'ble Calcutta High Court in the case of Giridharilal Goenka v. CIT [1989] 179 ITR 122 for the proposition that where the assessee has satisfied the Assessing Officer as to the genuineness of the payments and the identity of the payees, the issue is covered by Rule 6DD(j) of the Income-tax Rules and the deduction of the expenditure which is otherwise allowable cannot be denied. On the other hand, the Ld. departmental representative while supporting the order of the CIT(A) has argued that the Ld. CIT(A) has properly considered the issue in detail and for the detailed reasons stated in his appellate order, the appeal by the assessee is without any merit. The Ld. departmental representative has further submitted that the assessee has produced fresh evidence in the form of an affidavit and the certificate from Shivnath Pd. Singh placed at pages 1 and 2 of the paper book which were not produced before the Assessing Officer and the Ld. CIT(A), who had no opportunity to consider the same while passing their orders. The Ld. departmental representative further submitted that the aforesaid two evidences were prepared on 26-7-1991, i.e., long after the orders were passed both by the Assessing Officer and the Ld. CIT(A). The aforesaid documents were only an after-thought having no evidentiary value, according to the Ld. departmental representative, and therefore, should not be admitted at this late stage.
14. We have considered the issue after hearing the arguments advanced by both sides. We have also perused the paper book filed by the assessee's counsel. We find that the arguments advanced by the Ld. departmental representative that the assessee's counsel has produced fresh evidence in the form of an affidavit sworn by one of the partners of the assessee-company and in the form of a certificate from M/s. Shivnath Pd. Singh which were not produced before the lower authorities who had no opportunity to evaluate the documents, has considerable force. At the same time we find that the CBDT's Circular cited by the assessee's counsel and the decision of the Hon'ble Calcutta High Court relied on by him are relevant to the issue and support the arguments advanced by the assessee's counsel as well as for admission of fresh evidence by us. Hence it is considered necessary that the documents being an affidavit and a certificate as stated above produced and filed before us, not being produced before the Assessing Officer and the Learned CIT(A) need proper scrutiny and evaluation by the Assessing Officer. For the above purpose the order of the Ld. CIT(A) is set aside and the issue is restored to the file of the Assessing Officer with a direction to examine the aforesaid documents by giving an opportunity of being heard to the assessee and to pass a fresh order in accordance with law.
15. In the result, the appeal by the revenue is dismissed and the appeal by the assessee may be treated as partly allowed for statistical purposes.