INCOME TAX ACT, 1961

Section 143(3)

Assessment - Addition to income - Sales return - Year of allowability

The appellant was engaged in the business of real estate and sale/purchase of flats appears in profit and loss account. It was also submitted that D cancelled the flat booked by her and money paid by her was returned. It was also mentioned that the purchase/sales return of the flat has increased the stock and has not impacted the profit/income of the appellant. Regarding the observation of the assessing officer that further payment was made to Ms. D on 31-1-2011, it was submitted that the amount was initially debited in the account of Ms. Divya Goyal in assessment year 2010-11 which was later on squared up in assessment year 2011-12 whereby, the account of Ms. Divya Goyal was credited and sales return/purchase account was debited. The appellant further submitted that there was a mistake in passing of the entry in sales return in assessment year 2011-12 in place of assessment year 2010-11 but at the same time it was also mentioned that as the sales return has increased the stock of the company, it has not affected the profit/income. It was submitted that no fresh payment was made to D on 31-3-2011 and it was only a journal entry. Held: Assessee originally sold the flat to 'D' on 12-2-2009, however, thereafter due to some disputes and litigation, the said flat was repurchased by the assessee on 26-10-2009 and consideration of Rs. 13 lakhs were repaid to the said purchaser 'D'. Thus, assessee had already shown the sales for the assessment year 2009-10, however, in the subsequent assessment year i.e. assessment year 2010-11, the said transaction of sale was reversed as assessee had repurchased the flat and it was a sales return happened in said year. Therefore, even if assessee would have made correct entry and claimed sales return for the assessment year 2010-11 then same would have been part of the closing stock of the said year ending on 31-3-2010 and consequently part of opening stock of the assessment year under consideration as on 1-4-2010. For the year under consideration instead of taking said amount as part of opening stock, assessee first time claimed this amount under the head sales return. However, correspondingly same was claimed to have been part of the closing stock of the year under consideration. Therefore, it was only contra entry in the books and would be no effect in the profit & loss account as assessee had debited amount under the head sales return and at the same time, this was also part of closing stock as on 31-3-2011. Thus, except the element of profit which would have been claimed as loss in assessment year 2010-11, there was no significant or substantial revenue effect for the year under consideration. Even otherwise, if the assessee was paying tax at the maximum marginal rate for the preceding year as well as for the year under consideration then it would have no revenue effect and in case as there was no taxable income for the preceding year then said claim of business loss on account of sales return was otherwise eligible for carry-forward and was an allowable deduction for the year under consideration. Accordingly, in these facts and circumstances there was no error or illegality in the order of CIT(A).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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