ITAT Mumbai Upholds Relief To Chillies and Garlic After AO Treated Consignment Sales As Agent's Own Turnover

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of an addition made on alleged undisclosed sales in the case of Chilles & Garlic Commission Co. after finding that the Assessing Officer had wrongly treated consignment sales handled by the commission agent as the taxpayer's own turnover.

A bench of Judicial Member Amit Shukla and Accountant Member Arun Khodpia observed that the Assessing Officer had proceeded on a misconceived understanding of the taxpayer's business. According to the Tribunal, consignment sales undertaken on behalf of consignors were incorrectly construed as the taxpayer's turnover.

The bench held, "Since lengthy deliberations are made by the Ld. CIT(A), had reconciled the turnover of the assessee, the AO's perception is found to be on misconceived understanding in construing the consignment sale also to be the turnover of assessee, thus, the disallowance was uncalled for and unwarranted."

Chilles & Garlic Commission Co. is a Commission/Del Credere agent registered with the Agricultural Produce Market Committee (APMC), Vashi. It deals predominantly in garlic and other agricultural commodities.

A survey conducted at the firm's premises revealed payment of APMC cess of about ₹3.54 lakh during the relevant assessment year. On the basis of a reverse calculation, the Assessing Officer estimated sales of about ₹4.42 crore. The taxpayer, however, had disclosed direct sales of ₹4.66 lakh in its return.

Treating the cess payment as indicative of unrecorded turnover, the tax officer made additions on multiple counts. These included estimated profit, sundry debtors, sundry creditors, loans and deposits.

Before the appellate authorities, the taxpayer contended that it carried on both direct sales and consignment sales on behalf of farmers and aggregators. It also submitted that APMC cess was payable on consignments handled in its capacity as an agent and that the corresponding turnover belonged to the consignors.

The tribunal agreed with the deletion of the addition relating to alleged undisclosed sales. It noted that the taxpayer had reconciled turnover from different categories of transactions and had offered commission income from consignment sales in its books.

On the issue of sundry debtors and sundry creditors, however, the tribunal disagreed with the Commissioner of Income Tax (Appeals).

The bench observed, "The assessee was failed to furnish complete details before the AO, which the assessee should have furnished, merely saying that there was no allegation that the assessee was involved in bogus transaction cannot spare the assessee from furnishing necessary details before the AO, which were called for in terms of provision of section 68."

The tribunal noted that confirmations and supporting material could have been furnished to establish the genuineness of the balances. It therefore restored the issue relating to sundry debtors and creditors to the Assessing Officer for fresh adjudication. The taxpayer was directed to furnish the necessary details during the proceedings.

The tribunal also restored an addition of about ₹3.66 lakh relating to loans, advances and deposits. It found that complete details regarding those balances had not been furnished.

The bench further observed, "Non furnishing of some details by the assessee became the reason for addition and rightly so, even if the names of parties are mentioned by the AO, how does it help the ld. CIT(A) to decide the veracity and genuineness of such balances in terms of provisions of Act."

Accordingly, the Revenue's appeal was partly allowed.

For Appellant: Rajen Damani

For Respondent: Virabhadra Mahajan (Sr. DR)