2019 (3) TMI 382 - AT - Income Tax

Income Tax Appeal: Sales Return Disallowed, Tribunal Upholds CIT(A) Decision

D.C.I.T Circle -6 (1), New Delhi Versus Menarini Raunaq Pharma Ltd.

D.C.I.T Circle -6 (1), New Delhi Versus Menarini Raunaq Pharma Ltd. - TMI Issues:1. Disallowance of sales return by AO2. Addition of sales tax on sales return3. Deletion of foreign exchange loss4. General grounds of appealAnalysis:Issue 1: Disallowance of sales return by AOThe appellant, Deputy Commissioner of Income Tax, sought to set aside the order passed by the Commissioner of Income Tax(Appeals) regarding the disallowance of Rs. 6,11,59,512 made by the AO on account of bogus 'Sales Return'. The AO concluded that the assessee tried to reduce sales without making corresponding additions in closing stock. The CIT(A) found that the sales return was supported by evidence, recovered from transporters, and that the assessee had provided party wise details of returned goods. The CIT(A) also noted that a significant portion of the returned stock was resold or included in the closing stock, while the rest was claimed as expired/damaged. Consequently, the CIT(A) decided in favor of the assessee, stating that the sales return was duly proved with physical stock, and thus, could not be added as unexplained income.Issue 2: Addition of sales tax on sales returnThe AO added Rs. 40,88,589 to the taxable income of the assessee on account of sales tax paid on sales return, stating that the claim was not allowable since the sales were not actually made. However, the CIT(A) found that the assessee had debited the account of the party with the value of sales and sales tax at the time of making the sale. The CIT(A) noted that the sales tax paid on the fictitious sales was not disputed and was treated as a business loss when the goods were recovered. Consequently, the CIT(A) allowed the sales tax paid on sales return as a business loss, leading to a decision against the assessee on this ground.Issue 3: Deletion of foreign exchange lossThe AO disallowed a foreign exchange fluctuation loss of Rs. 66,55,166 as a notional loss. However, the CIT(A) deleted this addition, relying on a Supreme Court decision. The assessee had taken foreign currency loans and incurred the loss on account of reinstatement of revenue items at the balance sheet date. The CIT(A) held that since the fact of availing the loans was not disputed, the loss on exchange differences on revenue items should not be treated as income/expenses. Following the Supreme Court decision, the CIT(A) deleted the addition on account of foreign exchange loss, resulting in a decision against the revenue on this ground.General grounds of appealThe general grounds of appeal were deemed to be of a general nature and did not require specific findings. The Tribunal dismissed the appeal filed by the revenue based on the detailed analysis and conclusions reached on the specific issues discussed above.This comprehensive analysis of the judgment provides a detailed overview of the issues involved and the reasoning behind the decisions made by the authorities involved in the case.