2012 (10) TMI 787 - AT - Income Tax

Difference in stock submitted to bank and income tax department - CIT(A) deleted the addition - Held that - Quantitative detail of stock was the same as in the statement submitted to the bank as well as that maintained for finalization of accounts for income tax purposes. The difference occurred only because of difference in valuation method and the same was valued at dealer price for the bank, whereas it was valued at cost or market price, whichever is less, for the balance sheet - there is no evidence that bank had verified the stock physically. AO has not made any independent verification of the books of accounts and stock. He has not pointed any error in the books of accounts and stock. It is a settled law that if two views are possible, the view in favour of the assessee has to be adopted. Under the circumstances, the addition based on stock statement submitted to Bank is not sustainable - in favour of assessee. Non deduction of tax u/s. 194H - CIT(A) deleted the addition - Held that - The payments made by the assessee was for services rendered to the distributors of the assessee. Hence, the same would fall under the definition commission or brokerage u/s. 194H as decided in M/s Vodafone Essar Cellular Ltd. vs. ACIT 2010 (8) TMI 691 - KERALA HIGH COURT hence, principally, in agreement with the view taken by the AO on this issue - Considering the submissions of assessee that the payments in this case on many occasions did not cross the threshold limit for deduction of tax u/s. 194H submitting the ledger of discount a/c in the books of assessee. Thus upon careful consideration of the documents in this regard the issue is remitted to the file of the AO to ascertain the exact amount of tax which the assessee was liable to deduct - in favour of Revenue for statistical purposes.

Issues Involved:
1. Addition on account of difference in stock submitted to the bank and income tax department.
2. Addition on account of failure to deduct tax under section 194H of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition on account of difference in stock:
The assessee, engaged in trading mobile phones, accessories, and recharge coupons, declared a closing stock of Rs. 17,67,341/- in the trading account, whereas the stock statement submitted to Andhra Bank showed Rs. 33,15,510/-. The Assessing Officer (AO) questioned the discrepancy and proposed an addition of Rs. 15,48,169/- to the taxable income, referencing the Punjab and Haryana High Court case of M/s B.T. Steel Ltd. vs. C.I.T.

The assessee explained that the stock statement submitted to the bank was inflated to avail maximum credit facility and was not physically verified by the bank. The stock was valued at dealer price for the bank and at cost or market price for financial statements. The AO partially accepted the assessee's explanation, adjusting the stock value to Rs. 23,40,391/- but still added Rs. 9,75,119/- as income.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] verified that the quantitative stock figures matched in both statements and concluded that the difference was due to valuation methods. The CIT(A) distinguished the case from M/s B.T. Steel Ltd. and deleted the addition.

The Revenue appealed, arguing that the addition was correctly made. The Tribunal noted that the quantitative details of the stock were consistent, and the difference was solely due to valuation methods. The bank had not physically verified the stock, and the AO had not independently verified the books of accounts. The Tribunal upheld the CIT(A)'s decision, stating that the addition based on the stock statement submitted to the bank was not sustainable.

2. Addition on account of failure to deduct tax under section 194H:
The AO noted that the assessee had debited Rs. 2,81,453/- as a discount paid to customers and questioned the non-deduction of tax under section 194H, referencing the Kerala High Court case of Vodafone Essar Cellular vs. ACIT. The assessee argued that the discount pertained to the sale of handsets, not recharge coupons, and thus the judgment was not applicable.

The AO concluded that the payments to dealers were for services rendered and should be treated as commission, making them subject to tax deduction under section 194H. Consequently, the AO disallowed the discount amount under section 40(a)(ia).

The CIT(A) found that the discount was given on mobile handsets, not sim cards or recharge coupons, and held that the provisions of section 194H and section 40A(ia) were not applicable, deleting the addition.

The Revenue appealed, citing the Kerala High Court's decision that discounts in the sale of sim cards and recharge coupons are considered commission. The Tribunal agreed with the AO's principle but noted that the assessee claimed many payments did not exceed the threshold for tax deduction. The Tribunal remitted the issue back to the AO to ascertain the exact amount liable for tax deduction.

Conclusion:
The Tribunal upheld the CIT(A)'s decision on the stock discrepancy issue, confirming that the addition based on the bank's stock statement was not justified. On the issue of non-deduction of tax under section 194H, the Tribunal remitted the matter to the AO to determine the exact tax liability, partially allowing the Revenue's appeal for statistical purposes.

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