Relief to Portfolio: ITAT Deletes Income Tax Addition against Consignment Agent on Account of Purchase Return [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to portfolio deleting the income tax addition against the consignment agent on account of purchase return.

The assessee, Portfolio Fashions Pvt. Ltd filed its return of income for the A.Y. 2013-14 on 30.09.2013 declaring NIL (after set off of brought forward losses). The case was selected for scrutiny. Assessee is in the business of trading activities of various apparels and accessories of its own brand viz "Muse". The assessee was also into trading of products / apparels of "Sabyasachi" brand for which it receives commission. The assessee also received rental income in respect of letting off of part of its premises viz. "Upadrastha House" owns it.

During the year under consideration, assessee had declared revenue from operations. After considering the submissions of the assessee with regard to sales, purchases and expenses, Assessing Officer observed that assessee had declared the Profit and Loss Account that assessee had worked out cost of purchases after excluding purchases return of some amount and closing balance of goods on consignment at some amount.

It was submitted that assessee had not purchased the goods in actual but taken up on consignment basis, the details of purchases return of consignment goods was not maintained. However, the presentation had been made in profit and loss account only

for the purpose of VAT Audit since under VAT Act, goods on consignment were deemed as purchase.

Assessing Officer rejected the same by observing that assessee by its own admission

in accounting the purchases and consignment basis in a differential manner for the purpose of Income Tax and for the purpose of VAT. By doing so the opening and closing stock of Inventories were not being reflected properly in the profit and loss account resulting in suppression of actual taxable profits.

Assessee had admittedly not established the correctness and its allowability as expenditure with regard to purchases return and goods purchased on consignment. Further, he observed that as per the accounting norms, any purchase return had to be excluded from the value of closing stock and required to be reversed through debit notes to concern parties. In absence of such practice and accounting adopted by assessee the purchases return remains unproved. The Assessing Officer arrived at the difference as a suppressed profit by not valuing the closing stock to the extent of above said amount.

 Hiro Rai, on behalf of the assessee, submitted that purchases return was not considered by the Assessing Officer and further, he submitted that CIT(A) order gave the finding merely relying on the Assessment Order and tax authorities had not considered the fact that purchases were not claimed by the assessee as an expense in first place.

H.M. Bhatt, on behalf of the revenue, relied on the orders of the lower Authorities.

The two-member Bench of Kuldip Singh, (Judicial Member) and S. Rifaur Rahman, (Accountant Member) observed from the record that assessee’s main as well as major income was from commission and assessee had to declare purchases and sales received from Sabyasachi products which was on consignment basis. However, as per the requirement of VAT, assessee had to declare both the purchases as well as sales in its Books of Accounts and assessee had to declare the goods kept under its control i.e., opening goods on consignment basis and total purchases for the year less purchase returns during the year under consignment.

It was the responsibility of Sabyasachi to declare the above activities in its Books of Accounts. Since the assessee was only a commission agent, the assessee had recorded the transactions to square up the sales and purchases in its Books of Accounts and declared only the commission income as its main source of income.

The Bench accordingly allowed this ground of appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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