2009 (8) TMI 12 - HC - Income Tax

TDS Amount of TDS - Reopening of an assessement on the basis of difference in TDS certificate and amount shown in Profit and Loss Account - In respect of the assessment years 1996-97 to 2002-03 the assessing officer noted that there was a difference between the income as per the TDS certificate and that credited in the profit and loss account. The assessee s explanation was that in this line of business, tax is deducted on the gross income including reimbursable expenses incurred by the assessee. The explanation was not accepted by the assessing officer and he made an addition of the difference between the income as per the TDS and that credited in the profit and loss account CIT (A) accepted the contention of assessee ITAT remitted the matter by directing the assessee to explain and prove by way of proper reconciliation and documentary evidence the reason for the discrepancy further ITAT held that difference in TDS certificate and profit and loss account is sufficient ground to issue notice under section 148 order of ITAT upheld

Issues Involved:

1. Explanation of the difference between receipts in TDS certificates and the amount credited in the profit and loss account.
2. Validity of the Tribunal's decision to remand the case considering the accrual system of accounting.
3. Jurisdiction of the respondent to issue the notice.
4. Consideration of the issue of limitation by the Tribunal.

Issue-wise Detailed Analysis:

1. Explanation of the Difference Between Receipts in TDS Certificates and the Amount Credited in the Profit and Loss Account:

The Tribunal found that the assessee failed to provide a proper reconciliation and documentary evidence explaining the discrepancy between the receipts in TDS certificates and the amount credited in the profit and loss account. The Commissioner of Income Tax (Appeals) had initially accepted the assessee's explanation that tax is deducted on gross income, including reimbursable expenses, and directed the deletion of the addition made by the assessing officer. However, the Tribunal remitted the matter back to the assessing officer for a proper reconciliation, emphasizing the need for the assessee to substantiate the difference with proper documentation.

2. Validity of the Tribunal's Decision to Remand the Case Considering the Accrual System of Accounting:

The Tribunal's decision to remand the case was upheld. The Tribunal noted that the assessee had not provided sufficient material to reconcile the differences and that a mere theoretical explanation was insufficient. The Tribunal directed the assessing officer to give the assessee an opportunity to submit a proper reconciliation and documentary evidence to explain the discrepancy. The High Court found no error or illegality in this remittal order, noting that it did not prejudice the assessee.

3. Jurisdiction of the Respondent to Issue the Notice:

The Tribunal upheld the validity of the reopening of assessments based on factual errors pointed out by the internal audit party, referencing the Supreme Court's decisions in CIT Vs. P.V.S. Beedies (P) Ltd. and Sri Krishna (P) Ltd. Vs. ITO. The Tribunal found that the assessee had not provided an explanation for the discrepancy between the receipts in TDS certificates and the amount credited in the profit and loss account. The High Court agreed with the Tribunal's finding that there was no full and true disclosure of material facts by the assessee, justifying the reopening of assessments.

4. Consideration of the Issue of Limitation by the Tribunal:

The High Court rejected the assessee's argument that the reopening of assessments for the years 1996-97 to 1998-99 was barred by limitation. The Court noted that the original assessments for these years were completed under Section 143(3), and the reopening was justified due to the discrepancy between the receipts in TDS certificates and the amount credited in the profit and loss account. The Court found that this discrepancy amounted to non-disclosure of material facts, thus validating the reopening of assessments even beyond the four-year period.

Conclusion:

The High Court dismissed the appeals, finding no error in the Tribunal's order to remit the case for proper reconciliation and upholding the validity of the reopening of assessments. The Court emphasized the necessity for the assessee to provide a full and true disclosure of material facts and proper reconciliation of discrepancies in income. The issues of jurisdiction and limitation were decided in favor of the revenue, and no costs were awarded.

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