2012 (4) TMI 848 - AT - Income Tax

Addition of Rs.6,81,247 deleted for bank/VAT reconciliation; Rs.3,78,502 TDS disallowance deleted due to Form 3CD overlap

Assistant CIT, Central Circle-9, New Delhi Versus M/s Benchmark Circuits India Pvt. Ltd.

Assistant CIT, Central Circle-9, New Delhi Versus M/s Benchmark Circuits India Pvt. Ltd. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an addition to income can be sustained on the basis of unexplained discrepancies between figures of purchases, sales and stock as reflected in bank-submitted stock/statements and VAT returns vis-à-vis the books of account, where the assessee subsequently furnishes reconciliations and supporting records during appellate remand proceedings. 2. Whether expenses can be disallowed under the Income-tax Act for non-deduction of tax at source where the same amount has already been offered by the assessee for disallowance under section 40(a)(ia) in the tax audit report (Form 3CD). ISSUE 1 - Addition on account of difference between bank/VAT figures and books of accounts Legal framework: The Assessing Officer may make adjustments to income where unexplained cash/bank transactions or mismatches between external records and books of account indicate undisclosed income; however, any addition must be based on proper confrontation of evidence, opportunity to explain, and a cogent basis for rejecting reconciliations and supporting documents. Precedent Treatment: No prior judicial authorities were relied upon or cited by the Tribunal or lower authorities in the decision under review; the CIT(A)'s approach focused on procedural fairness and evidentiary reconciliation rather than on distinguishing or following case law. Interpretation and reasoning: The Tribunal accepted the CIT(A)'s factual findings that (a) the assessee submitted reconciliation statements and supporting documents including excise records and ledger entries during remand proceedings; (b) bank statements produced related to broken and overlapping periods, causing apparent double-counting which the reconciliation explained; (c) certain amounts shown to the banker included excise duty, VAT or job-work items which were wrongly aggregated in banker statements but not representative of book sales; and (d) the AO did not confront the assessee with the bank-collected documents or provide adequate opportunity before making the addition. Given the absence of any material before the Tribunal to controvert the CIT(A)'s factual findings, interference was not warranted. Ratio vs. Obiter: Ratio - Where the assessee furnishes a detailed reconciliation supported by records during remand/appellate proceedings, and where the AO failed to confront or provide adequate opportunity to explain apparent discrepancies arising partly from overlapping periods and erroneous inclusions in third-party statements, an addition based solely on those discrepancies is unjustified. Obiter - Observations on the specific nature of the errors in banker statements (excise/VAT/job work inclusions) are factual findings illustrative of the reconciliation. Conclusion: The addition of Rs. 6,81,247 made by the AO on account of differences between purchase/sale/stock records was deleted; the Tribunal dismissed Revenue's appeal against the deletion for lack of contrary material and having no basis to overturn the CIT(A)'s factual conclusion. ISSUE 2 - Disallowance for non-deduction of tax at source (amount already offered for disallowance in tax audit report) Legal framework: Disallowance under provisions dealing with failure to deduct tax at source (section 40(a)(ia) context) can be applied where amounts payable attract TDS and deduction is not made; however, adjustments must avoid double penalization where amounts are already accounted for as disallowable in the tax audit schedule or otherwise reflected for the same purpose. Precedent Treatment: No authority was cited; the administrative and evidentiary posture governed the decision-i.e., whether the AO's disallowance duplicated an amount already offered in Form 3CD. Interpretation and reasoning: The CIT(A) found, on perusal of the remand report and tax audit particulars, that the amount disallowed by the AO (Rs. 3,78,502) had already been included by the assessee within a larger amount (Rs. 7,22,632) offered for disallowance under section 40(a)(ia) in Form 3CD (para 27). The AO's separate disallowance thus amounted to duplication. The Revenue did not produce any material to controvert the finding that the amount was already offered for disallowance. Ratio vs. Obiter: Ratio - Where an amount is already included in the tax audit report as offered for disallowance under the relevant provision, an additional separate disallowance of the same amount by the AO is not sustainable absent evidence that the tax-audit offer was ineffective or inapplicable. Obiter - None of significance beyond the factual finding of inclusion in Form 3CD. Conclusion: The disallowance of Rs. 3,78,502 on account of non-deduction of tax at source was deleted; the Tribunal dismissed Revenue's appeal against that deletion for lack of contrary material and because the amount was already offered for disallowance in the tax audit report. ADDITIONAL OBSERVATIONS 1. Procedural fairness and evidentiary confrontation: The decision underscores that the AO must confront the assessee with adverse material obtained from third parties (e.g., bank statements) and give adequate opportunity to explain reconciliations before making additions. 2. Burden of proof on Revenue to controvert appellate factual findings: Where the appellate authority admits additional evidence and records and records a full reconciliation that the Revenue does not rebut before the Tribunal, the Tribunal will not interfere with those factual conclusions.