Decided on November 08,1994



Vimal Gandhi, Judicial Member - (1.) THIS appeal by the assessee for the assessment year 1985-86 is directed against order of CIT(A) dated March 15, 1989 upholding addition of Rs. 77,339 on account of carrying charges receivable from Punjab Spinning & Weaving Mills Ltd., Bhatinda.
(2.) For the assessment year 1985-86, the assessee-company closed its account on August 31, 1984. It had supplied cotton to Punjab Spinning & Weaving Mills Ltd. between 25-10-1983 and 24-4-1984 for which it was to receive a sum of Rs. 46,93,137.34 Paise which included cost of cotton carrying charges, bank commission, labour charges, insurance, etc. The other party had paid through bank drafts total sum of Rs. 46,93,137.34 Paise. The balance amount which included service charges of Rs. 77,339 was an item of dispute. The assessee debited the above amount in the account of Punjab Spinning and Weaving Mills but did not take the sum to the Profits & Loss account. It was taken to suspense account in the balance sheet. The Assessing Officer added the disputed amount with the following remarks: From the scrutiny of the balance sheet, it is noticed that the assessee has shown a sum of Rs. 77,339/17 on the liability side in connection with 'carrying charges, receivable suspense account'. From the audit report, it is noticed that this amount was chargeable from M/s. Punjab Spinning & Weaving Mills, Bhatinda but the same is under dispute. Hence the amount has been kept pending. The assessee was. therefore, confronted with this and was required to show cause as to why this amount should not be treated as its income on accrual basis and added to the total income of the assessee because it was maintaining its accounts on mercantile basis. In the written reply filed on 16-4-1986 & 3-6-1986, it has been explained that carrying charges represent interest, insurance, storage & stocking charges etc. payable by the buyer after 15 days. The assessee-firm had supplied cotton to M/s. Punjab Spinning & Weaving Mills Ltd., Bhatinda but due to certain differences and disputes, the buyer coy. has withheld the payment of the assessee-firm which also included carrying charges amounting to Rs. 77,339/17 i.e., total amount due was Rs. 3.18.668/ 41. This amount has not been paid by the said coy. despite repeated requests and reminders. Since the principal amount on account of cotton supplied to Bhatinda party has been refused by them as well as carrying charges due despite a legal notice issued through Shri Balwant Singh Gupta, advocate, there is no hope to receive the same in the near future. The assessee firm has therefore, credited the carrying charges received suspense account with the amount. In support of this, the assessee has also quoted certain decisions of the various High Courts such as 127 ITR 572 (Mad.), 124 ITR 619 (P&H) and so on. The explanation offered by the assessee has been duly considered but the same is not found to be acceptable for the simple reason that the amount of carrying charges had accrued according to the mercantile system of accountancy and the assessee had debited the amount of the party with this amount. Thus, the said amount of Rs. 77,339 represents income which had accrued to the assessee firm during the year. This view is fully supported by the decision of the Hon'ble Supreme Court reported in 158 ITR 102 in the case of State Bank of Travancore v. Commissioner of Income-tax, Kerala the relevant portion of which is reproduced hereunder. ... The assessee challenged the addition before CIT(A) but remained unsuccessful. The issue has now been brought before the Appellate Tribunal.
(3.) THUS short question arising before the Tribunal is whether the ratio laid down in the decision given in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC) is applicable to facts and circumstances of this case. Learned counsel for the assessee, Shri Syali vehemently contended that amount in question which represented interest, insurance, etc. did not accrue to the assessee in view of dispute between the parties relating to amount realizable. Shri Syali argued that the fact that amount was debited to the account of opposite party was not conclusive for holding that income has accrued. In this connection, Shri Syali drew our attention to the correspondence/legal notices exchanged between the parties. He further submitted that the case of State Bank of Travancore (supra) was distinguishable and ratio of said decision was not applicable to the facts of this case. The learned Departmental Representative, on the other hand, relied upon order of the Assessing Officer.;

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