INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (Accountant Member)

I.T.A. No.6495/Mum/2014
Assessment Year :2008-09
M/s Super Traders (Appellant) vs Income Tax Officer (Respondent)
Date of Order: 10-08-2015

Order

PER BENCH:
The assessee has filed this appeal challenging the order dated 27.6.2014 passed by the ld.CIT(A)-7, Mumbai, confirming the disallowance of purchases to the tune of Rs.4,27,283/-.

2. I heard the parties and perused the record. During the course of assessment proceedings, the AO noticed that the following purchases were made by the assessee were related to the immediately preceding year, since the dates shown in the purchase bills pertained to the preceding year.:
(a) Kolhapur Sugar Mills Ltd Rs.2,32,577/- dated 30/3/2007 and
(b) Deokar Distrilleries Rs.194,806/- dated 31/3/2007

Hence the AO took the view that, under mercantile system of accounting, these purchases should have been accounted for in the immediately preceding year. Accordingly he held that these purchases cannot be taken as the purchases pertaining to the year under consideration and accordingly disallowed the same.

3. The ld. CIT(A) also took the view that, under the mercantile system of accounting, the expenditure relating to a particular year alone can be allowed in that year. Accordingly, he confirmed the disallowance made by the AO.

4. The ld. AR submitted that, though the purchase bills were dated as 30.3.2007 and 31.3.2007, the assessee has received the goods only on 1.4.2007 and 2.4.2007 respectively and these purchases have been accounted for in the month of April 2007. The ld. AR further submitted that the assessee could not account for these bills without receipt of goods physically in the month of March 2007. Accordingly, the ld. AR further submitted that these purchases should be considered as the expenditure of the year under consideration since the assessee has received the goods only during the instant year. He further submitted that the procedure followed by the assessee for accounting the purchases is in accordance with the mercantile system of account. Accordingly, he submitted that these purchases could not be taken as expenditure related to the earlier year.

5. On the contrary, the ld DR supported the order of the ld. CIT(A).

6. Having heard the rival contentions of the parties, I agree with the contentions of the ld. AR that the procedure followed by the assessee to account for the bills, only after receipt of goods physically cannot be found fault with. In my view also, the said procedure is in accordance with mercantile system of accounting. If the view taken by the tax authorities is accepted for a moment, the accounting of purchase bills without receiving goods would create an anomaly, since the corresponding goods will not be physically available and hence stock books cannot be updated. In that case, the quantity details as per purchase register and stock register would not tally and the same would create great anomaly. Since, the assessee has received the goods in the month of April 2007, in view, the assessee is justified in accounting for the relevant bills in the month of April, 2007. In view of the above, I am not in agreement with the view expressed by ld.CIT(A). Accordingly I set aside the order of the ld. CIT(A) on this issue and direct the AO to delete the impugned addition.

7. In the result, the appeal of the assessee is allowed.

Pronounced accordingly on 10th August 2015.

Sd/-
(B.R. BASKARAN)
ACCOUNTANT MEMBER