ITAT upholds CIT(A) deletions, validates Rule 46A evidence, reconciled turnover, trade payables, liabilities, avoids double disallowance u/s37

ITAT Delhi dismissed the Revenue's appeal, upholding CIT(A)'s deletion of various additions. On the alleged discrepancy between Form 26AS turnover and profit and loss account sales, ITAT held that CIT(A) correctly admitted additional evidence under Rule 46A, obtained a remand opportunity for AO, and decided the matter on the available material when AO failed to respond. CIT(A)'s deletions of additions relating to sales turnover, trade payables, and current liabilities were sustained, as these were supported by reconciliations, third-party confirmations under s.133(6), and audited records. ITAT also affirmed deletion of disallowance of exceptional charges/expenses, noting the assessee's suo motu disallowance under s.37, rendering the AO's addition a double disallowance.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the first appellate authority was justified in admitting and relying upon additional evidence under Rule 46A of the Income-tax Rules, 1962, and deciding the appeal without a remand report from the Assessing Officer.

1.2 Whether the addition on account of alleged discrepancy between turnover reflected in Form 26AS and gross sales as per profit and loss account was sustainable.

1.3 Whether the addition made towards trade payables disclosed in the balance sheet was justified.

1.4 Whether the addition made towards current liabilities disclosed in the balance sheet was justified.

1.5 Whether the addition made towards exceptional charges/expenses, already disallowed in the computation of income, constituted impermissible double addition.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Admission and use of additional evidence under Rule 46A and absence of remand report

Interpretation and reasoning

2.1.1 The Tribunal noted that additional evidence was filed before the first appellate authority under Rule 46A of the Income-tax Rules, 1962. Such evidence was specifically forwarded to the jurisdictional Assessing Officer for a remand report and for enquiries under the Act, and multiple reminders were issued.

2.1.2 No remand report or adverse comments were received from the Assessing Officer despite repeated reminders. The first appellate authority, relying on judicial precedents discussed in the impugned order, proceeded to admit the additional evidence and adjudicate the issues on the basis of the material on record.

2.1.3 The Tribunal accepted that the first appellate authority, having co-terminus powers with the Assessing Officer, was competent to admit the additional evidence and decide the appeal on merits when the Assessing Officer failed to respond to the remand reference.

Conclusion

2.1.4 The challenge to the admission and use of additional evidence under Rule 46A was rejected, and the ground alleging violation of Rule 46A was dismissed.

2.2 Addition for discrepancy between Form 26AS turnover and sales as per profit and loss account

Interpretation and reasoning

2.2.1 The addition was originally made solely because turnover as per Form 26AS exceeded gross sales reported in the profit and loss account, without details from the assessee during assessment.

2.2.2 Before the first appellate authority, the assessee explained that the difference of about Rs. 7.86 crore arose from sale of plant and machinery of Rs. 8.01 crore, which was a fixed asset sale and hence not part of business sales turnover.

2.2.3 Additional evidence in the form of GSTR-1 for the relevant financial year, the fixed assets schedule in the audited accounts, and detailed sale invoices for plant and machinery was produced. These showed plant and machinery sales corresponding to the amounts in question, duly recorded in GSTR-1 and in the fixed asset schedule.

2.2.4 The additional evidence was remanded to the Assessing Officer, who did not furnish any adverse comment. The first appellate authority found the explanation consistent and supported by contemporaneous records and accepted that the sale of fixed assets, though appearing in Form 26AS, was correctly excluded from "Gross Sales" in the profit and loss account.

2.2.5 The Tribunal endorsed the factual analysis and reconciliation made by the first appellate authority, holding that the evidences properly explained the difference and that the Assessing Officer's addition was merely based on a mechanical comparison of figures without enquiry.

Conclusion

2.2.6 The addition towards discrepancy in sales turnover was held to be unjustified and was deleted.

2.3 Addition towards trade payables

Interpretation and reasoning

2.3.1 The Assessing Officer had added the entire closing balance of trade payables (about Rs. 2.66 crore) only because details were not furnished during assessment.

2.3.2 In appeal, the assessee submitted a reconciliation of the trade payable account, showing an opening balance of about Rs. 1.39 crore and a closing balance of about Rs. 2.66 crore, with the principal movement being regrouping of a liability of about Rs. 1.29 crore relating to a single creditor from "Other liabilities" to "Trade payable".

2.3.3 Additional evidence comprising account confirmation and ITR acknowledgement of the creditor was filed and remanded to the Assessing Officer, who did not respond with any adverse report.

2.3.4 The first appellate authority independently issued notice under section 133(6) to the creditor. The creditor confirmed the outstanding balance as on 31.03.2021 and furnished supporting documentation, including the ledger, audited financial statements and ITR acknowledgement.

2.3.5 On this material, it was found that only one creditor's balance had been regrouped to the trade payable head and that the liability was subsisting and confirmed. There was no evidence to treat the trade payable balance as non-genuine or income of the assessee.

2.3.6 The Tribunal agreed that the addition was made solely for lack of details at assessment stage and that, upon full verification in appeal, the liability stood established and could not be taxed.

Conclusion

2.3.7 The addition towards trade payables was held to be unwarranted and was deleted.

2.4 Addition towards current liabilities

Interpretation and reasoning

2.4.1 The entire closing balance of current liabilities (about Rs. 99.86 crore) was added by the Assessing Officer on the ground that no details were filed during assessment.

2.4.2 Before the first appellate authority, a head-wise and party-wise break-up of current liabilities was furnished. It was shown that the opening balance of current liabilities (about Rs. 110.21 crore) exceeded the closing balance, evidencing a reduction rather than increase during the year.

2.4.3 Detailed ledgers and break-ups were filed for personnel expenses payable, other expenses payable and statutory dues payable, and it was explained that additions during the year under statutory dues were minimal and that unpaid PF/ESI dues of Rs. 4.91 lakh had already been added back in the computation of income. The computation of income and return of income were produced to demonstrate such disallowance under sections 36 and 43B.

2.4.4 Under "Capex trade payable" there was no movement during the year, the opening and closing balances being identical.

2.4.5 For the large "Other liabilities" component, the assessee supplied party-wise details and confirmations/ITR acknowledgements of major creditors. The material was remanded to the Assessing Officer, who did not offer any contrary report.

2.4.6 The first appellate authority issued notices under section 133(6) to significant creditors shown under "Other liabilities". These creditors confirmed their respective balances and furnished ledgers, audited financial statements and ITR acknowledgements.

2.4.7 In the case of one party, the material showed a net reduction of outstanding balance during the year, and it was further clarified that, in the subsequent year, liability written back, including that of this party, was offered to tax as income.

2.4.8 On cumulative consideration, it was found that: (i) the total current liabilities had decreased during the year; (ii) the balances were supported by ledgers and confirmations; (iii) significant creditors had independently confirmed the balances upon statutory notices; and (iv) relevant statutory disallowances on unpaid dues had already been made in computation.

2.4.9 The Tribunal concurred with the first appellate authority that the current liabilities were properly explained and substantiated and that the Assessing Officer's wholesale addition of the closing balance, without enquiry, could not be sustained.

Conclusion

2.4.10 The addition of the closing balance of current liabilities was held unjustified and was deleted.

2.5 Addition towards exceptional charges/expenses and issue of double addition

Interpretation and reasoning

2.5.1 The Assessing Officer had added the entire amount of exceptional charges/expenses (about Rs. 71.65 crore) debited to the profit and loss account for want of explanation or evidence during assessment.

2.5.2 In appellate proceedings, the assessee produced the return of income and computation, including Schedule BP, demonstrating that an amount of Rs. 71,71,27,694 debited to the profit and loss account had already been disallowed suo motu under section 37 as not allowable.

2.5.3 The first appellate authority accepted that the very amount characterised as exceptional charges/expenses had already been added back in computing business income and that any further addition by the Assessing Officer in respect of the same amount would amount to double addition.

2.5.4 The Tribunal agreed that once the expenditure was wholly disallowed in the computation by the assessee itself, there was no remaining tax effect to justify an additional disallowance by the Assessing Officer.

Conclusion

2.5.5 The addition towards exceptional charges/expenses was treated as a case of impermissible double addition and was deleted.

2.6 Overall conclusion on the Revenue's appeal

2.6.1 The Tribunal held that the first appellate authority, having co-terminus powers with the Assessing Officer, had correctly admitted additional evidence, conducted necessary verification (including issuing notices under section 133(6)), and adjudicated on the merits.

2.6.2 All grounds raised by the Revenue, including those on Rule 46A and on the four substantive additions, were rejected, and the appeal was dismissed.

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