Addition for creditors balance difference in fish trading business restricted for perishable nature

Addition for creditors balance difference in fish trading business. 100% accounts reconciliation impossible considering perishable nature of business

ABCAUS Case Law Citation:
ABCAUS 3183 (2019) (10) ITAT

Additions for creditors balance difference in fish trading business 

The appellant assessee was an individual and was trading in fish. The case of the assessee was selected scrutiny assessment. Notice under section 143(2) of the Act was issued and served upon the assessee.

During the assessment proceedings, contra accounts of the sundry creditors were called and on verification of the assessee, the Assessing Officer (AO) noticed certain discrepancies in the accounts balances of five sundry creditors with four creditors showing less sales and one creditors showing excess sales.

The AO sought explanation from the assessee about these variations in sale of fish to dealers. The assessee explained that assessee purchases fishes in large quantity from sea bank and directly from fishermen, and sell the same to wholesale dealers. While transporting the fishes there bound to be a loss on account weight loss and natural spoilage.

It was also explained that to preserve fishes certain degree of deep temperature has to be maintained, for that dealers debit the expenditure to their respective purchases. Therefore, there would be variations in the amount of sales to the various dealers.

The explanation of the assessee was accepted by the AO except in one case i.e. in the case of creditor where as per the books of accounts of the assessee, the sale made to them was lesser than as per the books of the said creditor.

The AO treated the difference as out of book sales and added to the total income of the assessee.

Appeal to the CIT(A) did not succeed. The assessee was in second appeal before the Tribunal.

It was pleaded that the AO had noticed discrepancies in the cases of five parties. Out of that, sales made to four parties have been accepted by the AO except one where the AO ought to have applied same logic and not made any addition.

It was also argued that even otherwise, settled position of the law is that addition can be made only to the extent of the estimated profit embedded in the sales and the entire sales amount cannot be added to the income of the assessee. He further submitted that at the most difference of excess sales and less sales is to be taken for addition, or estimated GP embedded in the unaccounted sales is to be taken for addition.

The Tribunal observed that the Revenue authorities had taken a different yardstick for the same set of transactions. There should be logical conclusion at the end of the Revenue while making such addition.

The Tribunal opined that in this nature of business, which was perishable nature there bound to be loss on account of weight loss, spoilage etc. at the time when produce reaches at the destination. The reasons pointed out by the assessee, could not be simply brushed aside, though there may not be documentary evidence to prove same. In this kind of business, 100% reconciliation of accounts is not possible.

The Tribunal further opined that if the real intention of the assessee was to book less sales in the account, and to evade tax, then he would not have shown higher figures sales in the cases of four parties. An assessee having a turnover of more than Rs. 45 lakhs, could not be said or believed to be indulging in un-reporting a meager sale figure.

Further, the Tribunal opined that if the AO could buy the explanation of the assessee in the case of sales effected to above four parties, there was no reason why he could not have applied the same logic to the sales made to the one party. After all only actual and real income is to be taxed.

We are not convinced with logic given by the Revenue in making the impugned addition. Therefore, The Tribunal, looking to the nature of the business, held that excess sales noticed by the AO should be set off against less sales shown by four parties and only the net difference was to be added to the income of the assessee.

Accordingly, the Tribunal restricted the addition to that extent and allowed the ground of appeal partly.

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