Credit notes

While computing the taxable income, the sales and purchases that are taken into consideration are the ones net of returns.
So you will be first adjusting all the credit notes and debit notes before calculating your taxable income.

If the credit notes are against your purchases, i.e Purchase Returns, you can reduce it from the total purchases during the year and show only the net purchase in your trading account. In some cases credit notes are issued for discounts. If credit notes are in nature of discount received, then show it in the credit of your business P&L A/c. In both the cases the head shall be 'Profits and Gains from Business/profession'.

@ Gaurav

May you clarify for what credit notes you receive from firms

is it in the nature of repair charges for providing warranty services to customers of electronic goods , on behalf of those forms ?

PL be more specific in query for appropriate reply.

1. Credit notes are issued by the seller typically for charging excess amount than what that should have been charged in the first place. This will happen when seller charges for the product which he had not provided (or service) and this credit notes will go down to decrease the payment to be made by the buyer. 
2. If we look at the nature of credit note it will never be considered as income because it is merely a document when will decrease your final payment relating to that invoice or future invoice. 
3. If it is provided not out of a mistake in the invoice then it can be treated as a discount and appropriately reduced from the revenue. 
4. If it is provided out of mistake in the invoice then revenue which is taxable will be net of the credit note. 
Please correct me if the above interpretation has an alternative view.