No disallowance under section 40A(3) of Income Tax Act, 1961 on cash refund of excess money received on sale of goods
Assessing Officer disallowed amounts refunded to the customers on the ground that the same is not verifiable and no vouchers for such payments were kept by the appellant. During the appeal proceedings, appellant submitted that complete vouchers were maintained and the refund amount is as per the ledger account of the customers. Appellant submitted ledger accounts and vouchers which were forwarded for AO’s report by my predecessor. On verification of these vouchers and details, assessing Officer pointed out that in some of the vouchers, customer’s signature is not there. It was also pointed out by the AO that Revenue Stamp is not put where payments exceeds Rs. 5,000/-. Appellant submitted that after discount, the money received from the customers became refundable and the same is refunded as per ledger account details in each case. As regards customer signature not there in some vouchers, appellant submitted that only in some cases it might not be there otherwise most of the vouchers carried customer’s signature. The revenue Stamp is only a technical requirement, violation of which will not make any payment doubtful.
I have gone through the list of persons to whom excess money received was refunded. Appellant received booking advance in cash. Thereafter, loan is taken by the customer which is credited in his account. Against this advance and loan, sale bill and discount etc. are debited and net amount received in excess is refunded. The details of customers are available and therefore it cannot be said that the recipients are not identifiable. Since the refund is given mostly to the farmers against excess money received, it is refunded in cash as most of them may not have bank accounts. Considering the fact that the refund given to the customers is based on ledger accounts and AO did not find fault with any of the entry in the ledger accounts therefore refund based on such ledger accounts cannot be questioned. Refund is of the balancing figure which is arrived at by certain debit and credit entries. If these debit and credit entries are not found to be incorrect, balancing figure cannot be questioned. Appellant also argued that this is the practice being followed since last many years and assessing officer did not make any disallowance in earlier years. Considering the facts of the case and no mistake found in the ledger accounts representing transactions with the customers, I do not find any merit in disallowance of refund of excess money received from customers.
Assessing Officer also submitted that some of the payments were made in cash in excess of Rs. 20,000/- in violation of section 40A(3) which are disallowable. Appellant submitted that disallowance of section 40A(3) can be made in respect of expenditure claimed and not against any other payment. Since the refund is on account of excess money received on sale of goods, disallowance under section 40A(3) will not be applicable. Accordingly the assessing officer’s argument in this regard is not tenable. The disallowance made by the assessing officer is accordingly deleted
Assessment based on Mere Suspicion or Income earning Probability not Valid
Brief facts of the case are that in respect of sale of implements amounting to Rs. 31,60,000/-, the assessee has submitted that bills for implements are issued to help the customers in getting loan of higher amount. In fact no such sales are made. Therefore, a reverse entry to this effect is made in the books of accounts. The assessee has not made any purchase of the implements and only sale bills have been issued to enable the customers to get higher amount of loan. As per AO, if the contention of the assessee is accepted, it is also a fact that a business man would never issue a bill without making any charge from the customers. There is another possibility that such implements could have been sold through some other dealer or implements. In either case, the assessee would get some remuneration for the service rendered by him. In view of this fact it was assumed by AO that the assessee has received 5% commission on the total sales booked for implements resulting into addition of Rs. 1,58,000/- (31,60,000 x 5/100) to the income of the assessee.
The findings of the ld. CIT(A) is as under:
“I have considered the facts of the case, assessment order and appellant’s written submission. Assessing officer made the addition of 5% of Bill amount of equipments on the ground that appellant must have earned this much commission for facilitating customers in getting loan of higher amount. Appellant submitted that he has not received any money or commission for the facility provided to the customers. For making sales in the competitive environment, all these facilities are required to be provided to the customers for which no separate charges are made. The addition made by the AO is completely presumptive without any basis. I agree with the appellant that income cannot be presumed.
There are several decisions in which courts have held that income has to be real and not presumptive. Since there is no basis to presume that appellant must have earned commission at 5%, the addition cannot be sustained. This ground is accordingly allowed.”
The Ld. AR of the assessee submitted that many customers in order to avail of higher loan facility require the assessee to issue bill for sale of implements. However, they do not purchase such implements in actuality and, therefore, credit voucher is again issued. No actual sale has been effected. It is only a debit and credit entry not resulting in any profit. The ld. AO after discussion in para 8 of its order has assumed and presumed that the bill has been issued after making a charge. He has indulged in the surmise, that a business man would never issue a bill without making any charge from the customers. He has not found any customer complaining that any charge has been made for such entry. There is no truth in the said claim and there is no evidence in support of it. It is without evidence and material. The ld. AO has further observed that there is another possibility that such implements could have been sold through some other dealer of implements. It is the surmise and conjecture, without any material or evidence. The ld. AO has not found as to such assumed sale to any other dealer. We are submitting herewith details of such implement sale/return alongwith date, invoice number, name of the party, amount alongwith date, credit note and the amount squaring up such debit. In actuality a sale of Rs. 60,000/- was made on 31.3.2009 vide invoice No.351 to Shri Ramavtar. Such amount of Rs. 60,000/- has been duly shown as sale and profit earned thereon stands duly considered in the trading account. We are submitting herewith such details of reversal entry of Rs. 31 Lacs. We submit the addition is based on surmise, conjectures, doubts, suspicious without any material or evidence. The ld. CIT(A) considering the above submission and after verifying the facts has rightly deleted the addition which is just and correct in law.
We have heard the rival contentions and perused the material available on record. The AO has made the subject addition towards earning commission income by the assessee without any material/evidence and is thus on a presumptive basis. Mere suspicion or probability of earning commission income cannot form the basis for bringing the amount to tax in the hands of the assessee. There has to be something positive and tangible to subsantiate the said position taken by the Revenue which unfortunately is not apparent in the present case.