2021 (12) TMI 1437 - AT - Income Tax

Loss in trading of cotton cloth - Classification of sale account of raw cotton - AO was of the view that the assessee had failed to explain the claim of wrongly classified sale of cotton cloth - assessee could not substantiate the wrong posting in the sale account so as to justify the loss in the sale of cotton cloth (as was computed by the AO) - HELD THAT - It cannot be said that no documents or evidences were furnished by the assessee. We have also gone through the Certificate dated 27.3.2021 issued by M/s S. Karan Shama Co. C.As Ludhiana placed at page 8 of the paper book in which certain quantitative details pertaining to the cotton cloth and raw cotton have been certified. Apparently this Certificate was neither before the Assessing officer and nor before the Ld. CIT(A) and the assessee has filed it in the paper book for the first time before us. We also note that there is no application on behalf of the assessee to admit this Certificate as additional evidence. Thus in the absence of such application for admitting of additional evidence the same cannot be admitted for consideration by us. Thus although the assessee could not explain the claim of wrong posting at the time of assessment proceedings or first appellate proceedings but had duly furnished the relevant documents coupled with the settled principle that tax should be levied only on the correct amount of income and also in the interest of substantial justice we restore this appeal to the file of the Ld. CIT(A) with a direct ion to adjudicate the issue afresh - Appeal of the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Addition of Rs. 32,20,261 based on wrongly classified sale of cotton cloth.
2. Failure to substantiate the wrong posting in the sale account.
3. Challenge regarding the upholding of the addition.

Analysis:

Issue 1: Addition based on wrongly classified sale of cotton cloth
The case involved the assessee appealing against an addition of Rs. 32,20,261 made by the Assessing Officer due to a loss in trading of cotton cloth. The Assessing Officer noted a discrepancy in the sale of cotton cloth, which the assessee claimed was wrongly classified. The Assessing Officer added the amount by applying a specific rate per kg to the total cloth sold. The CIT(A) upheld the addition, emphasizing the failure to produce day-to-day sale account of raw cotton. The Tribunal noted that while the assessee provided relevant details and a certificate from a Chartered Accountant later certifying the transactions, the Certificate was not submitted to the lower authorities. Despite the lack of proper explanation initially, the Tribunal, considering the principle of taxing the correct income amount, restored the appeal to the CIT(A) for fresh adjudication, directing a proper opportunity for the assessee to present its case.

Issue 2: Failure to substantiate the wrong posting in the sale account
Both lower authorities concluded that the assessee failed to substantiate the wrong posting in the sale account to justify the loss in cotton cloth sales. The Tribunal acknowledged that the assessee did provide some documentary evidence but lacked a clear explanation for the entries. The Tribunal highlighted the Certificate from the Chartered Accountant submitted during the appeal but not before the lower authorities, leading to the decision to restore the case for reevaluation.

Issue 3: Challenge regarding the upholding of the addition
The assessee challenged the CIT(A)'s decision to uphold the addition, citing errors in law and facts. The Tribunal, after considering submissions from both sides and reviewing the documents, found that while the assessee did not adequately explain the entries initially, the case warranted a fresh review to ensure the correct amount of income was taxed. The Tribunal allowed the appeal for statistical purposes, emphasizing the importance of substantial justice and providing the assessee with a fair opportunity to present its case.

Overall, the Tribunal's decision focused on ensuring a fair assessment process, considering the principle of taxing the correct income amount, and providing the assessee with an opportunity to address the discrepancies in the sale accounts.