2013 (6) TMI 546 - AT - Income Tax

Suppressed purchase - addition on account on account closing stock - Held that - Contention of the assessee is justified more so because it is not the case of the AO to have found involvement of the assessee in trying to hold separate books of accounts for the purpose of support at the time of the assessment before the AO when a survey has been conducted after the end of the financial year and the soft copy of the financial statements which were yet to be audited and verified by the auditor were to be held u/s 292C. It is the usual practice that the accounts which are maintained on the computer are subject to audit and the basic mistakes or errors committed by the accountant are to be rectified on the objections of the audit team which are rectified may or may not be corrected in the soft copy, in so far as, the hard copies generated of the surveyed e-filing of the return which figures cannot be disturbed as a matter of suppression or willful declaration for undisclosed income has been considered by the authorities below on presumption only. No so called additions as raised by the assessee appellant in the grounds above would stand to nullity in so far as they stood corrected to the extent that their reconciliation would determine the excess income rendered by the assessee were reconciliation to the additions and disallowances made by the AO and complied with as per provisions of Section 44AB r.w.s. 145(1) and 145(2). This arithmetical accuracy lead to finalization of accounts which has not been challenged by the AO and the CIT(A) & thus inclined to hold that the survey operation impounding the CD under the provision of section 292C was to be addressed for accuracy under the accounting system accepted by him u/s 44AB. The additions so made by the AO are directed to be deleted - in favour of assessee.

Issues Involved:
- Disputed additions in the appellant's income based on audit findings
- Justification of additions made by the Assessing Officer
- Validity of the Commissioner of Income Tax (Appeals) decision
- Reconciliation of discrepancies in financial statements
- Correct application of accounting and auditing principles

Analysis:

1. Disputed Additions in the Appellant's Income:
The appellant challenged the additions made by the Assessing Officer (AO) in their income based on discrepancies found during a survey conducted under section 133A. The additions pertained to differences in figures related to purchases, closing stock, telephone expenses, and cash balances. The appellant provided explanations and evidence to justify the variations between the audited accounts and the reports generated from the impounded CD. The AO disregarded the explanations provided by the appellant and added the disputed amounts to the appellant's income, leading to a substantial demand.

2. Justification of Additions Made by the Assessing Officer:
The Commissioner of Income Tax (Appeals) upheld most of the additions made by the AO, except for telephone expenses. The Commissioner's decision was based on the premise that discrepancies in the figures from the impounded CD and audited accounts could not be reconciled, and the audit findings were considered final. The appellant argued that the discrepancies were rectified during the audit process and that the additions lacked a valid basis. The appellant emphasized that the audit queries were addressed, and the figures in the audited accounts were accurate.

3. Validity of the Commissioner of Income Tax (Appeals) Decision:
The appellant contended that the Commissioner's decision to confirm the additions was unjustified as it would lead to taxing more income than actually shown in the audited accounts. The appellant provided documents and submissions to support their claim that the discrepancies were rectified during the audit process and that the audit findings were in line with the VAT returns and other relevant documents. The appellant argued that the additions made by the AO were presumptive and lacked a proper basis.

4. Reconciliation of Discrepancies in Financial Statements:
The Income Tax Appellate Tribunal (ITAT) carefully considered the facts and circumstances of the case. ITAT found merit in the appellant's contentions, noting that the discrepancies between the audited accounts and the impounded CD figures were rectified during the audit process. ITAT emphasized the importance of reconciling the figures to determine any excess income and compliance with accounting and auditing standards. ITAT held that the additions made by the AO lacked merit and directed their deletion, instructing the AO to accept the appellant's return as filed.

5. Correct Application of Accounting and Auditing Principles:
ITAT highlighted the standard practice of reconciling figures during audits and the importance of addressing discrepancies in financial statements accurately. ITAT emphasized the significance of complying with accounting standards and rectifying errors identified during audits. By setting aside the Commissioner's decision and directing the deletion of the additions, ITAT ensured that the appellant's income was assessed in line with proper accounting and auditing principles.

In conclusion, the ITAT allowed the appeal of the appellant, emphasizing the need for accurate reconciliation of financial figures and the correct application of accounting and auditing standards in assessing income tax liabilities.

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